Stake in American Airlines under Consideration by IAG

International Airlines Group

International Airlines Group

It seems as if IAG or International Airlines Group is deliberating whether or not to purchase an American Airlines minority stake in order to increase their commercial bond and make sure that the United States carrier retains its position as a division of Oneworld, the international airline alliance.

Points to Consider for Buying Stake

The chief executive of IAG, Willie Walsh, reportedly claimed that investing in a minor stake in America would provide them with the opportunity to strengthen the membership of the US carrier in Oneworld, the association with which his group is also affiliated. Walsh is also a staunch supporter of a merger between the US Airways, the fifth biggest US carrier by profit, and American which happens to be the third largest. He continued that the organisation was interested to look into the notion of IAG investing in American, adding that if it turns out to be a case where further strategic value can be attained through the process, then it is definitely a step they are prepared to take. The combined carrier is likely to possess a larger network along with the provision of improved pricing capacity to the remaining competitors.

A few analysts are worried that the reporting of bankruptcy by American’s parent concern, AMR in November could lead to negative outcomes for IAG.

The UK subsidiary of IAG, British Airways, has already entered a joint business enterprise with American that carries out operations of long distance flights across the North Atlantic which is considered to be one of the most desirable air travel markets in the world.

Causes for Concern

There seem to a large number of prospective suitors keeping an eye on AMG which, on the other hand, is looking to decrease its costs involving operation and debt burden through the bankruptcy process of Chapter 11.

The second largest carrier in the US, Delta Air Lines seems to be considering the situation for an attempt to grab a stake in American. Such a move, if fulfilled, could be harmful for the interests of IAG. Delta air is one of the major members of a different worldwide airline alliance known as SkyTeam and any formal transaction with American could lead to its exit from the Oneworld alliance and the joint venture with British Airways.

However, Willie Walsh is confident that regulators would be sure to prevent any sort of combination between American and Delta. He supported the reason for a possible investment of IAG in American by highlighting the manner in which Delta was able to buy a 5 per cent stake in the Brazilian airline, Gol, for $100 million, only last year.

The deal provided Delta with a position on Gol’s board and resulted in an improved commercial link between the two airlines, somewhat rooted in the sharing of codes. Analysts determined the transaction to be end of the risk of Gol being a part of Oneworld.

Walsh pointed out that the investment that Delta had made in Gol was an ideal example of how a minor stake can result in added advantages than the value of the investment.

Richard Meryn
Richard Meryn, Associate Editor Industry Leaders Magazine (www.industryleadersmagazine.com)

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