In Merger Talk, Always Question 'Cost Savings'
NEW YORK (TheStreet) -- The media has reported that US Airways(LCC) is leaning on American Airlines' creditors to sell them the firm, making for a combined entity that would be about the size of United(UAL) or Delta(DAL) . US Airways, the media went on to say, would stand to save a lot in costs if it absorbed the troubled American.
But just how much would they save? And how and where would they save it?
Forgive me for asking such inconvenient questions, but too often companies promise piles of cost savings in the prelude to a merger. In the aftermath, of course, those costs savings are harder to come by. As a result, it's important to take at least brief inventory of the cost savings claims. Are they realistic? Delusional?
Problem is, the media regularly swallows the cost savings claims whole. They don't delve or question. Barron's (NWS) was typical. Despite a headline that screamed "US Airways Pushing Hard for American Airlines Merger" and a claim that a deal would "create cost savings," there is not a single, solitary word that gives a clue as to where or how.
The Wall Street Journal waited until the 9th paragraph, but at least they gave traders a bead on where the costs savings might/might-not come from:
"The synergy estimates are based on a number of assumptions, including still-emerging details about how the two airlines' route networks would be combined and what sort of cost savings would come from consolidating facilities, rejecting aircraft leases and reducing management head count and redundant back-office functions."
The Journal made it look easy. Actually, it is easy. Easy and important.