As the United-Continental deal gets examined from every angle, someone with a good memory sent me this interesting reminder that airline commitments during mergers are not exactly ironclad.
Here is an excerpt from American CEO Don Carty’s congressional testimony from Feb. 1, 2001, where he discusses the proposed American takeover of TWA. The parts about the St. Louis hub’s importance to American might make interesting reading. The St. Louis hub was eventually downsized considerably, although to be fair nobody could have predicted the challenges the airline industry would face in subsequent months and years.
So I guess the lessons are that airlines don't always reveal all of their hub plans right away, and even if they do, their intentions can change pretty quickly due to external forces.
Carty, to the Senate Commerce Committee:
From time to time, we at American had looked at TWA as a possible merger candidate. Indeed, its centrally located St. Louis hub provides a nice complement to our operations at capacity constrained Chicago O’Hare. In addition, TWA’s current management team had—in the face of some formidable obstacles—done a very good job of improving the airline’s operation, and in particular, of modernizing its fleet. Unfortunately, very high ownership costs on TWA’s new fleet and an unusual arrangement that allows an entity owned by Carl Icahn to sell TWA’s ticket inventory at a substantial discount, made a potential AA/TWA merger a non-starter.
TWA’s bankruptcy filing and looming collapse three weeks ago, however, presented a far different set of circumstances. We stepped in to provide—when no one else would—the cash TWA had to have to keep operating. We are proposing to acquire substantially all of TWA’s assets, to hire all of TWA’s employees and to continue a hub operation in St. Louis. Obviously, this transaction, which excludes certain TWA contracts such as Mr. Icahn’s deal, is contingent on bankruptcy court approval.
Senator Carnahan, let me say to you in particular that we look forward to adding TWA’s 20,000 employees to the American Airlines family. We are keenly aware of TWA’s illustrious history and know that were it not for the hard work and great performance of the people throughout TWA, they would not be the perfect fit for American that we believe they are. We also recognize what a good corporate citizen TWA has been in the state of Missouri and I can assure you that our company will be as well.