Earlier this month, my old friend Paul Teague wrote a short post on the blog Procurement Leaders, suggesting some of the various roles procurement can play in a merger or acquisition situation. Regarding the case of American Airlines and US Airways, Paul wrote that the airline combination is “a good example of the many hidden details in a merger” and that “procurement’s work here started long before official approval.”
Part of the challenge is that the two airlines are not aligned from a governance and procurement operating model perspective. Paul references a remark from John MacLean, American Airlines' VP of Procurement and Supply Chain, who said that “US Airways was decentralized while AA is centralized” and “the new company will follow the American Airlines’ model of centralization.” The combined team will be responsible for managing suppliers in some 60 countries as well as aligning efforts and common procurement practices to keep over a thousand airplanes in the sky serving over 300 airports.
Among his tips for an M&A situation such as this was MacLean’s suggestion that “communication … is essential in the integration effort” and that he and “his team are using a wide range of communication tactics, including meetings, newsletters, social media, and one-on-one conversations.” Yet communication is no doubt only half of the battle when it comes to using procurement as a driver of successful mergers.
In the aviation and transportation sector, often the biggest economies of scale come from a combination of specification rationalization and business process standardization. This requires change management at the core, especially when you approach managers on both sides of the organization whose operations will have to change or adapt, at least in part, as a result of M&A cost reduction efforts. After all, taking an olive out of a salad (and eventually taking the salad out of the salad) to save a few pennies is easy compared with changing equipment, scheduling and MRO SKUs (and much more) that impact airline operations and stakeholders – not just customers which, well, don’t expect much anymore other than safely getting from point a to point b.
There are a lot of M&A tactical integration tips that we often provide to companies going through both acquisitions and divestitures. I’ll share a few as a follow up to this post later this week.