To merge, or not to merge? The eternal aviation conundrum

Seduced by Wall Street's whispers of reduced capacity, higher fares and greater efficiency, the merger talk begins. "Only later do they remember that airline mergers are akin to a Britney Spears marriage – they end ugly.”

The sad truth is that US industry experts consider Delta's 1986 purchase of Western Airlines to be the only success story since deregulation in 1978, says Steffy.

The rest have suffered the business equivalent of "morning-after remorse, falling victim to runaway costs, dissatisfied passengers and labour disputes.”
Nonetheless, hedge funds, bankers and sell-side analysts keep insisting on the feasibility of airline mergers. With rising fuel prices, they say, reducing the number of available seats would, theoretically, allow airlines to make money.

Enter Pardus Capital Management. The hedge fund with large stakes in United Airlines parent UAL Corp. and Delta Air Lines Inc went public with its case for a merger between the two after discreet talks with the carriers' management went nowhere, says Julie Johnsson in the Chicago Tribune.

Gordon Bethune, the blunt former Continental chief executive and industry matchmaker, also weighed in: "Pardus is trying to kick them in the butt, to say, 'Let's get going. Let's not wait for oil to get any higher.'"

Having sunk money into not one but two major airlines, Pardus now seeks a return by changing the course of the industry, says Steffy. "We haven't seen such financial masochism since Warren Buffett bought into USAir.”

Still, analysts and observers remain sceptical of anything coming from the latest headline-grabbing events, says Johnsson.

United and Delta certainly didn't help clarify matters by declaring that while they are open to mergers, they are not negotiating.

"I think it's a bad time right now," said Roger King, airline analyst with CreditSights Inc. "It would have to be a consensual merger, and labour's not going to consent."

And then there's the sheer complexity of merging two airlines, says Johnsson; "melding disparate computer system, fleets, management teams and global marketing alliances.”

But according to Pardus President Karim Samii, "Consolidation is needed to de-risk the industry.”

"I'm not sure what that means, says Steffy, "but the track record of airline mergers tells us the only thing riskier than running an airline is merging one.

Airline mergers usually don't fly, Loren Steffy, Houston Chronical

Airline mergers can't get off ground, Julie Johnsson, Chicago Tribune