Sunday, January 15, 2012

What does an AMR Bankruptcy mean for American Air Cargo?

For a second time, AMR, parent company of American Airlines, was forced to declare bankruptcy. Rising oil prices and other operational costs are forcing another shake-out within the airline industry. This past week, three possible buyers for the beleaguered company emerged: Delta Airlines, US Airways and TPG Capital. All three companies have separately hired advisors to study such a possibility. While much has been written about the passenger side of the business, which company would benefit from the cargo side?

In 2010, American Airlines’ cargo division comprised 3% of its total revenue at $672m, an increase of over 16% compared to 2009. Relatively small, but based on T-100 statistics on file with the US government, the Latin American tradelane appears to be a strong one for the company. This should not be much of a surprise as the Miami International Airport, a major hub for all Latin America-US trade, is also a major passenger hub for American Airlines. In fact, the airline accounts for about 60% of the total traffic at the Miami airport.

Clearly, Delta and US Airways would both benefit from an acquisition, allowing for both to expand further into the South American market.

The Pacific tradelane would also prove beneficial for US Airways. Based on T-100 filings, the company reported no cargo movement along this lane in 2010.

It is doubtful if Delta attempted an acquisition if it would be approved by anti-trust officials. Combined, a Delta-American Airlines company would control 27% of the US market unless it was forced to divest assets to other carriers. US Airways, the smaller of the large carriers, has attempted to acquire United Airlines in the past only to see that attempt fail. TPG Capital has a record of working with various airlines, including American Airlines, in which, in 2009, the two had planned to invest in Japan Airlines, but ultimately did not.

True, it is still too early to make predictions as AMR has not even filed a reorganization plan. It is quite possible the company can emerge from bankruptcy without the need to be acquired and come back a leaner, stronger airline.