Term Paper: Mehnert () a Negotiation Is a Process

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¶ … Mehnert ()

a negotiation is a process of making joint decisions between two or more parties. Negotiations will mainly take place when the parties involved have differing preferences. In negotiations, each party will try to get what they want by providing arguments to support their decision. With negotiations, each party will have to reach some form of agreement. This will involve making sacrifices, changing decisions, and accepting the other party's opinion. An example of negotiation is mergers. A merger can be defined as the taking over of a company by another company. This will happen when the two companies businesses are brought together to form one entity Coyle and Company ()

. Another definition of a merger is the joining of two companies that are operating in the same industry and the same size, combining their resources to form a single entity. Stakeholders of both companies will have a share of the new company based on the negotiation deal they had reached. In many cases, the top management of both companies will maintain their management positions in the new company.

American Airlines and U.S. Airways merger

This has been considered to be a major merger in the United States airline industry. Since 2008, it is considered to be the fourth airline merger. U.S. Airways expressed its interest in AMR Corporation in January 2012. AMR Corporation is American Airlines parent company. AMR Corporation had In November 2011, filed for bankruptcy reason been high costs of leasing aircrafts, and labor. The airline had earlier rejected a merger proposal from U.S. Airways.

US Airways has learnt from its previous merger with American West, which was one of the worst integrations in the airline industry. This merger has provided U.S. Airways with knowledge of what they should avoid and what the airline needs to do in order for the merger to be successful. Using this knowledge, the company had initiated talks with labor unions in order to get their support. The labor unions support would mean that the merger would progress smoothly, and there would be no issues once employees of the two companies started working together in the new company. Three of American Airlines labor unions said they were in support of the proposed merger on 20th April, 2012 Soyoung Kim ()

. U.S. Airways had also spoken to the creditors of American Airlines informing them they would benefit greatly with the merger of the two airlines. The two carriers combined had the potential to yield over $1.5 billion annually in cost savings and added revenue. A nondisclosure agreement was signed between U.S. Airways and American Airlines. The nondisclosure agreement meant that the two companies would enter into negotiations on the possibility of a merger.

Though American Airways had filed for bankruptcy, there was a clause that allowed it the option for a merger and it is this clause that U.S. Airways used when they approached the company with prospects for a merger. The merger will pull the company out of bankruptcy and would create the largest airline in the industry.

Having already filed for bankruptcy American Airlines was faced capacity cuts. The cuts included staff reduction, and retiring of jets Spira ()

. The company had been trying to restructure itself, and that was the main reason it rejected the initial merger proposal from U.S. Airways. The current merger between the two companies would allow the creditors of AMR to own 72% of the new company with the other 28% going to U.S. Airways. This negotiation was not easy, and U.S. Airways had to involve the creditors of AMR in talks in order for them to accept the proposal first. For the creditors, this was the only sure way for them to recover their investments from the bankrupt company. With this kind of incentive, the creditors were more willing and supported the merger. The merger will create a new publicly traded company called American Airlines Group Inc.

The new company has maintained the American Airlines name, and branding because American Airlines has more routes than U.S. Airways and the stock sharing, was favoring American Airways. This might seem like U.S. Airways is not gaining anything out the merger, but it is not so because the company's management will be heading the new company. The employees will receive better pay in order to match the pay for American Airlines employees, and the merged company will become the largest airline in the Unites States in traffic.

The negotiations for this merger have been mostly successful due to the impact the merger will have on both companies. American Airlines will have an opportunity to come out of bankruptcy and still maintain its name and U.S. Airways will increase its fleet and destinations, which will be a benefit for its customers. U.S. Airways customers will have a broader choice of flights because the new company will become a member of the oneworld global alliance. This is because according to the agreement, U.S. Airways will leave Star Alliance once the merger is completed, but American Airlines will maintain its oneworld alliance. There will also be the prospect of new routes, especially to Asia, and Seoul. The merger scheduled for completion in the third quarter of 2013, will provide business travelers with a choice 0f 6,700 daily flights with 336 destinations in 56 countries.

The major bumps in the negotiation are related with the approval by AMR's bankruptcy judge, who will have to allow the merger to continue depending on the ruling. There are also some shareholders whose approval will have to be sought before the negotiations are completed. Both airlines will also need to seek regulatory approvals. This is because regulations do not allow merged companies to have overlapping destinations. Therefore, the two airlines will have to sell the 12 out of 900 routes that are overlapping before the merger is approved by regulators.

The employees of both airlines will also benefit mostly because there will be no job cuts. The only job cuts will be in management, and it is only because the two airlines are complementary. The job cuts will be minimal as the two airlines will need to maintain most of the employees in order to have a smooth transition, and ensure no operations will be affected. The employees of U.S. Airways will greatly benefit as their salaries will be raised to meet those of American Airlines. The backing of American Airlines labor unions has also ensured that the employees will not object to the merger. Holding talk with the labor unions initially allowed U.S. Airways to have some leverage in the negotiation talks. This leverage allowed U.S. Airways to push forward in the merger negotiation and also to have some advantage over American Airline.

The stock agreement that has been reached will allow American Airlines creditors to have majority seats in the board. This decision was reached to ensure that U.S. Airways will receive the backing of creditors since the airline had filed for bankruptcy, and attempts by AMR to emerge from it had not been fruitful. AMR creditors will have five seats, U.S. Airways four, and AMR representatives' two seats. This stock sharing and board seats division has been a key negotiation tactic that U.S. Airways has used to ensure the success of the merger. The merger will provide U.S. Airways with many advantages, and that is why the airline had to involve some of the key stakeholders before and during the negotiation. This allowed the airline to have the negotiation lean in its favor. Having learnt from its previous merger with United Airlines, U.S. Airways has tried not to make the same mistakes Transportation and Infrastructure ()

. The mistakes mainly involved employees, labor unions, and key stakeholders.

With the backing of this group, the airline was assured of… [END OF PREVIEW]

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