US Scareways

And old joke: what do you get when you cross an elephant with a rhino? Elephino!

That’s what I thought when I read about the proposed merger of American Airlines with US Air. American is in bankruptcy; US Air is a scrappy legacy carrier. After Delta merged with Northwest and Continental and United united, rumors were widespread that American and US Air would get together, but they could never agree to terms. Before, American would be the buyer. Now it’s US Air. But the combined airline would take the American name, and tens of thousands of jobs would be saved.

But US Air is no white night. It has cost problems of its own. It’s not clear that the combined entity will be stronger. The airline industry suffers from over-capacity and volatile jet fuel prices, along with massive regulation and an exacting mission. Running an airliner isn’t for novices. Watching the two fiscally challenged companies combine could be like watching two drunks try to walk home by leaning against each other. It usually doesn’t work.

In fact, the airline industry hasn’t been profitable since it was deregulated back in the ‘70s. Most consumers don’t mind: rates are one tenth of what they were, adjusted for inflation; there are more options to more cities; and safety has never been better. The folks struggling are the people that are part of the industry—labor, management, and investors.

But is a new thing: a merger to save jobs. Will it work? Don’t hold your breath.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-09T16:18:38+00:00April 23rd, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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