Retirement Package Masquerading as Merger

Let me see if I have this right. A near-bankrupt America West--instead of cleaning up its bloated cost structure and dysfunctional business model—is going to spend precious capital (up to $1 billion, by some reports) on acquiring a bankrupt U.S. Air. And we’re supposed to expect this acquisition to result in a fleet, strong new company which provides fresh imaginative value for customers and investors???? Am I living in the wrong planet? Who’s been smoking what? This is truly a case of two dinosaurs mating with the delusional hope of creating a gazelle.

The idea, on paper at least, is to create a national, low-fare airline. Right. If I were a low-fare competitor, I’d be thrilled with this deal. On the surface, the combined America West/US Air company might be able to reduce a few redundancies, scrape off a few cost-barnacles, and operate in a few more cities. But the new company will still face massive debt, huge integration issues, tight federal oversight, horrific labor management contracts, well-documented cost inefficiencies, a debilitating hub-and-spoke legacy, and a risk-averse bureaucratic culture. Really now, how likely is this company to effectively compete with the likes of rabidly lean, entreprenurial, price-slashing, and profitable Jet Blue (which, by the way, has earned repeated accolades for customer service)? Southwest Air is already eating US Air’s lunch at Baltimore-Washington and is steadily chomping away at US Air’s traditional stranglehold in Philadelphia. Against these and other trim, agile, hungry, low-fare "roadrunners", how in the world is a US Air/America West "wile e. coyote" supposed to attract a bevy of new customers with profitable growth?

I was so baffled by these questions that I turned to a successful investor for deep wisdom. He laughed at my quandary. “It’s obvious why this deal is being done. It’s an executive retirement package. The top managers of both companies want to throw in the towel. They don’t know how to fix their businesses, but a merger tells their shareholders that they’re doing something. More importantly, it gives them the opportunity to set up the conditions for a nice, fat compensation payout when they ride off into the sunset.” Well, if that’s the case at least there’s something innovative coming out of this deal.

I’m a fan of sound sensible acquisitions, but this one is so bizarre that my colleague’s explanation is as good as any I’ve heard. What do you think?