In an indictment of the reorganisation efforts so far by AMR Corp and American Airlines, JP Morgan's airline analysts say they are "underwhelmed" and predict American is heading for consolidation whether it wants it or not.
"We're underwhelmed with aspects of AMR's restructuring plan. AMR's proposal to mark labour costs to market and terminate its pension is consistent with our initial views," JP Morgan wrote in a 7 March note.
"Where the plan falls short, in our opinion, is in addressing the decade-long marginalization of its domestic market. AMR's proposed $1 billion of incremental revenue, comprising merely increased code-sharing and larger regional jets, strikes us as ambitious, and would not solve what we see as its domestic deficiencies relative to superior network alternatives available at Delta and United."
JP Morgan sees acquisition of American by either Delta Air Lines or US Airways, perhaps with the suitor by-passing management and working instead with the creditor's committee.
"Ultimately, it may not be AMR's call," JP Morgan wrote. "AMR sat out the industry's recent consolidation cycle and prefers to stay the independent course going forward. But from the outset of its bankruptcy, we've felt a potential suitor could look to court not only the three unions on the AMR creditors' committee, but the PBGC itself. A scenario in which merger synergies are partially shared with unions and a pension termination is avoided could potentially sway the committee in favor of consolidation."
JP Morgan sticks with its view that a Delta bid would have major anti-trust issues while a US Airways bid would not. But the investment bank also acknowledges that Delta is likely to have far greater financial resources to make a bid than US Airways.
After formally seeking bankruptcy protection on 29 November, AMR released a $3 billion restructuring plan in early February. In addition to the $1 billion revenue increase, AMR's plans also relies on reducing costs by $2 billion. The total amount includes a $1.3 billion reduction in employee compensation.