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American Airlines Nears Labor Goal

Acceptance of American Airlines' latest contract offer by members of American's Association of Professional Flight Attendants union leaves only one union without a new contract. That union, however, is an important one: The Allied Pilots Association rejected the airline's latest offer. American will probably ask the bankruptcy court to allow it to impose a new contract, but it will still keep negotiating for agreement.

Getting its own labor contracts settled before it emerges from bankruptcy would be a big plus for American if the airline is hoping either to operate independently or to merge on more favorable terms than it could get while still in bankruptcy. Even with new contracts, however, American's unions still generally favor a merger with US Airways. Nevertheless, American's progress in settling labor issues before the end of the year decreases the odds of an immediate merger with US Airways—or at least of a shotgun merger.

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Longer term, a merger is probably in American's future—if not with US Airways, with another airline. Wall Street wants a merger. Apparently, to the investment types, just about any merger would increase American's value.

I find the arguments in favor of a US Airways merger less than convincing. Proponents claim such a merger would give the combined airline more "scope," but US Airways has very few coveted prime international routes, and some of those—like Charlotte-to-Frankfurt—might become marginal absent the Star Alliance association with Lufthansa. Domestically, American doesn't need a merger partner to fly anywhere it wants. The biggest US Airways assets are probably its strong hubs and customer bases in Philadelphia and Charlotte, which, although not as important as New York, would at least give American more of a presence in the Northeast.  

This week provided one item of good news in the American merger soap opera: JetBlue says it isn't interested. JetBlue was on American's target list mainly because of its strong position at New York/JFK, but merger with American would destroy JetBlue's main appeal to customers: a far superior coach product. JetBlue travelers can breathe a sigh of relief.

In some ways, the best fit for American would be Alaska, with its position in West Coast markets. But Alaska, too, says, "no, thanks."

American could conceivable try for Frontier, but that airline isn't big enough to make a significant impact in the domestic market. However, it might at least satisfy Wall Street's hunger for a merger—any merger. Instead, for now, US Airways is the most likely partner, but with much negotiation before anything happens.

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