Mergers and Acquisitions in the Aviation Industry

Mergers and Acquisitions in the Aviation IndustryBackgroundAviation persistence is a symbol of comprehensive national force-out and an extremely important part of the national defense. It is also a significant guarantee for national security and an essential support for the development of economic and society. In the entire zephyr industry, civil line is made up of all types of air travel activities using aircraft except military applications, which includes defense, police and customs, and the civil aviation includes technical aviation and general aviation. In recent years, the rapid development of civil aviation plays an increasingly important role in the aviation industry.In impairment of globalization, the aviation industry is mainly concentrated in the unify States, Europe, Canada, Australia and some other developed regions. Along with the rapid development of the global economy, the enthusiasm for growing aviation industry of many rude(a) industrialized countries has also been greatly inspired. A number of high-end manufacturing, including the aviation industry, are shifting from developed countries to developing countries, to get word the global market demand, many developed countries and developing countries began the cooperation. The economic turmoil and financial crisis of the current world has caused a great shock on aviation industry, although the condition is getting improved, it is still very difficult to predict what the future will be. As one of the leaders of the aviation industry all over the world, the market of aviation industry in the United States has been greatly affected in recent years. The fallen price of tickets, rising price of oil, as easily as anti-monopoly policy, all have negative impacts on the civil aviation industry in America.Merger integration is trend of the development of international aviation industry in recent years. There are many examples In Europe, Air France and KLM Royal Dutch Airlines were structured in 2003 Lufthansa purchased Swiss Air in 2005, and later purchased the Austrian Airlines British Airways and Iberia Airlines merged in 2010 . After a series of mergers and reorganizations, the market is full of vitality and militant power. In the United States in recent years, the operation of civil aviation industry has become much more difficult and many airline companies are seeking to break by dint of this condition by mergers and acquisitions. In 2005, US Airways merged America West Airlines Delta Air Lines purchased Northwest Airlines in 2008 two years later, the United Airlines and Continental Airlines were merged and turned into the United Continental Holdings incorporated in 2011, Southwest Airlines purchased the AirTran and after two years, American Airlines merged US Airways. After the mergers and reorganizations, these companies operating performance begins to approach out of recession, but whether the specific results really are optimistic? This dissertation will mak e analysis and judgment.Congress reduced the control of the market in 1978, which brought the US economy market unparalleled interests. America has a mature aviation industry market, which has become an important factor of the growth of economy now. crimson if there is a little change in the industry, it can bring a big influence on various aspects. In this tough competitive environment at home and abroad, the civil aviation industry attracts much more attention.Concentration TendencyIn recent years, the aviation industry in the United States had generated a lot of new companies and there have been a lot of bankruptcy and merger phenomena, which is bound to affect the competition tendency of the aviation industry. In this dissertation, the methods used to calculate the concentration of aviation industry are Herfindahl-Hirschman Index (HHI) and Concentration Ratio (CRn).The calculation method of industry concentration indicant is the most common, and it is also an important indicat or of measuring the market structure. It indicates the peak of concentration of the industry by calculating the proportion of the relevant value (such as sales, value added, number of employees, total assets, etc.) of the first largest n companies in the industry toward those of the entire industry. For example, CR4 refers to the relevant market share occupied by the four largest initiatives and CR8 way the relevant market share occupied by the eight largest enterprises.If the CRn is greater, it indicating a higher degree of concentration of the industry and the more likely for competition in the market tend to be monopolistic on the contrary, the lower the concentration is, the more likely for competition in the market tend to be competitive.(MBAlib, 2012)The prescript is CRn=. In this formula, Si means the market share of the enterprise i, n means the total number of firms (for instance, the number is 4 or 8.) in the industry.However, the outrage of CRn is that this concentra tion ratio cannot indicate the total number of enterprises which are operating and competitive in this industry. For example, the market share of 2 CR4 with the same value of 75% in two different industries might not be the same, because there may be only a few companies in one industry and the other industry may have many companies. Therefore, in the dissertation, HHI will be used to measure the market concentration to improve the credibility of the data.HHI calculates the entirety of the squares of market share of the largest 50 companies in this industry (if the number of companies is less than 50, it includes all enterprises). Obviously, the greater HHI is, the higher the degree of market concentration and the higher the degree of monopoly. The index can not only reflect the market share of large enterprises, but also can reflect the market structure too large enterprises. Therefore, HHI is able to reflect the impact of large enterprises on the market more accurately.The formu la is HHI=2. In this formula, Si means the market share of the enterprise i, n means the total number of firms in the industry. HHI changes between 1/n and 1, which indicates that the higher value is, the greater unevenness statistical distribution of the size of a firm. As long as firms merge, the value of HHI will increase as long as the firms decompose, the value of HHI will be reduced.The advantage of HHI are it reflects large-scale companies market share more sensitively, while reflects many small businesses market share very little, and it cannot be affected by the number of companies and the size distribution of the industry, which is better to measure the changes in the market concentration of the industry.(MBAlib, 2010)This table illustrates the set of CR4, CR8 and HHI in ten years. According to the concentration ratio CR4 and CR8, it can be patently found that the aviation industry was behaving as an oligopoly and was a highly concentrated industry, while in terms of HHI , the market concentration was moderate. All of the 3 values were keeping decreasing from 2001 to 2006 and appeared to hit bottom in 2007, in which year the economy crisis took place. After that, the tendency of market concentration was improved and reached a new height in 2013. (Ahren J. 2011)In summary, the level of market concentration of aviation industry was decreasing first and then keeping increasing in the United States. Accordingly, the competition tendency also turned from competitive to monopolistic, which indicates the number of companies was reduced and the market shares of large firms have increased.ReferencesMBAlib (2010) Concentration RatioCRnonlineNew York. Available from http//wiki.mbalib.com/wiki/%E8%B5%AB%E8%8A%AC%E8%BE%BE%E5%B0%94%E2%80%94%E8%B5%AB%E5%B8%8C%E6%9B%BC%E6%8C%87%E6%95%B0 Accessed 29 January 2015Ahren Johnston (2011) CONCENTRATION IN THE AIRLINE INDUSTRY tell OF ECONOMIES OF SCALE?onlineNew York, Journal of Transportation Management. Available from http//www.deltanualpha.org/pdfarticles/2011/Ahren%20Johnston.pdf Accessed 29 January 2015MBAlib (2012) Herfindahl-Hirschman Index onlineNew York. Available from http//wiki.mbalib.com/wiki/%E8%A1%8C%E4%B8%9A%E9%9B%86%E4%B8%AD%E7%8E%87 Accessed 29 January 2015