Business Studies Essay Paper on Mergers and Acquisitions

Mergers and Acquisitions

In the corporate world, a large size is often seen as better, and this generally promotes mergers and acquisitions. Mergers and acquisitions are the most used methods of corporate restructuring. A merger can be defined as combining two or more firms into one corporate entity. Mergers and acquisitions have played a significant role in the growth of many companies across the globe ranging from Ford Motor Corporation to Google Inc. This paper discusses the merger between two U.S. carriers- US Airways and American Airlines.

On 9th December 2013, the US airways and American Airlines entered into a merger to create the American Airline Group; the largest airline globally. The decision to merge was informed by the growing competition in the global airline market, and particularly the U.S. airline industry. The merger was an opportunity for both carriers to benefit from an extended network that would result from merging that was otherwise impossible when each company was operating independently. One of the major circumstances that contributed to the merger was the imminent bankruptcy of the American Airlines. The company had filed for Chapter 11 bankruptcy in 2011; however, it managed to regain its profitability. Therefore, the merger offered significant opportunities for both companies, and particularly the American Airlines to reduce its financial risks exposure that had initially threatened its existence. Similarly, the merger would also result in more synergies that would be witnessed in the form of improved balance sheet and flexible operations (DePamphilis, 2012).

The merger of the two entities would open access to more destinations and increase the customer base. Each of the two companies would have access to an expanded network of flight destinations- 339 destinations across the globe. Similarly, the two airlines also entered into a code-sharing agreement that would see their customers seamlessly do their bookings at either the US Airways or American Airlines networks. These factors could have improved the capability and performance of the two airlines.

There are various positive effects that have been realized from the merger. First, both airlines presently have a larger market penetration compared to the pre-merger period. This is because the two airlines collectively make over 6,700 daily flights to more than 339 destinations across 50 countries in the world (American Airlines, 2014). This has not only resulted in more revenues, but has also strengthened the American Airline Group`s dominance of key routes. Following the merger, the group is presently the biggest player in the Latin America international flight market (Airline Leader, 2014). Similarly, the merger has improved the group`s capability of dealing with competitive pressures because the two airlines have more resources at their disposal that have resulted in improved performance. Another positive effect that can be directly linked to the merger is increased product offerings and diversification (Boeh & Beamish, 2007).

Other than the code-sharing agreement that permits any of the two airlines` customers to book flights from any of the companies` website, the merger has increased accessibility to one world alliance. This has been achieved through improved networking opportunities for the group through signing of business agreements with other industry players like Finnair, British Airways, and Iberia. Customers have also benefited in terms of more air travel choices and best travel experience through a broader, and more enriched network.

Furthermore, the merger has led to the creation of one of the best customer loyalty programs in the U.S. airline industry called Advantage (American Airlines, 2014). Through this program, customers are given the opportunity to earn and redeem mileage points in all the routes that the two airlines operate. This has allowed customers to benefit from the opportunities provided by the wider market, increased their travel convenience, and reduced their travel expenditures.

The merger of the two airlines resulted in the creation of a new organizational structure. Doug Parker was appointed the group`s Chief Executive.  As a result, the merger has created only one CEO position unlike in the past when each airline had its CEO. The composition of the board of directors has also changed significantly. The new group board includes five people representing the American Airlines` creditors and an additional four people representing the US Airways` employees. In the past, each airline had its own board, without employees` and creditors` representatives. Doug Parker was the past Chairman and CEO of the US Airways. However, in the new entity, the CEO will not double as the board Chairman. Similarly, prior to the merger, the US Airways had a number of groups operating under the CEO. These included corporate affairs, finance, operations, and marketing and revenue groups. However, under the new entity (American Airline Group), no such groups operate under the Chief Executive Officer.

In terms of human resource management, no major differences exist between the new entity and the original two airlines prior to the merger. The American Airlines Group took over most of the human resource practices from the US Airways and retained many senior executives and employees from both airlines. The decision to retain existing employees was made because it could allow the group to retain the combined market share of two carriers, where these employees have a significant role to play. By maintaining existing employees rather than recruit new ones, the group could focus its efforts on exploiting lucrative opportunities in the global market created by the merger. However, the new human resource management has significantly improved employee representation by allowing employee representatives to directly sit on the board to voice their concerns. The majority of the group`s employees had worked for many years in the two airlines and they have vital experience that will contribute to the success of the new airline.

Previous cases of underperformance in the two companies, such as those that led the American Airlines to file for Chapter 11 bankruptcy were found to be because of the difficult competitive environment. The merger resulted in the mobilization of significant resources that could allow the group to tackle previous market hurdles. The merger was viewed as an opportunity for the group to give its employees competitive packages and benefits for the services they offer to the company (Bainbridge, 2003). It was also used as an opportunity to end the continuous labor disputes that had persisted between labor unions, and management of the two airlines prior to the merger. Labor disputes were more common at American airlines compared to US Airways. The incorporation of union representatives into the group board will ensure that the interests of employees are taken into account.

Airline personnel and senior management require high levels of training, experience, and leadership qualities. This largely explains why the employees were retained because the new airline will incur less cost in training its employees (Galpin & Herndon, 2007). These leadership qualities are important for the new entity in exploiting the new opportunities provided by the merger and the complex global airline industry. These employees are already accustomed to the operations of the airline industry; they are significant assets to the new entity unlike new employees who would require significant induction and training.


Airline Leader. (2014). Latin America’s international market: still dominated by foreign carriers. Retrieved on 30 July 2014, from: <>

American Airlines. (2014). About American Airlines Group. Retrieved on 30 July 2014, from: <>

Bainbridge, S. (2003). Mergers and acquisitions. London: Foundation press.

Boeh, K. & Beamish, P. (2007). Mergers and acquisitions: Text and cases. New York. Sage publications.

DePamphilis, D. (2012). Mergers, acquisitions, and other restructuring activities. Waltham, MA: Focal Press.

Galpin, P. & Herndon, M. (2007). The Complete guide to mergers and acquisitions: Process tools to support M&A integration at every level. Upper Saddle River: Jossey-Bass.