In a blockbuster move, American Airlines and HP agreed to abandon their joint Passenger Service System project for the airline, and American hopes to select a new vendor with an existing reservations system soon.
The decision, and details about their proposed settlement, emerged from a June 7 filing and accompanying joint motion as part of American parent AMR Corp.'s Chapter 11 case in US Bankruptcy Court, Southern District of New York. The court is to hear the matter June 28.
In sum, American exercised its option to terminate parts of the agreement, which would have had HP Enterprise Services develop the hardware and software to operate a new reservations system for the airline by October 2014, after the two companies failed over the last two years "to reach agreement on a number of key issues affecting the project's direction ..." the airline stated.
The parties then worked out a termination agreement, which they are asking the court to accept.
The companies' Realtime Passenger Services System Agreement, signed February 1, 2010, would have had HP Enterprise Services, which is the successor to Electronic Data Systems, provide the airline with "availability, reservations, ticketing and airport processing," the airline stated.
It isn't widely known, but HP actually operates American Airlines' current reservations system, using Sabre software, and it will continue to do so for the immediate future under the terms of the settlement, if the court gives the OK.
Other terms of the settlement include:
- American Airlines will be allowed "to pursue other options to replace their existing Passenger Service system;"
- HP will continue to operate American's existing reservation system under the terms of an IT services agreement dating to January 1, 2008;
- American Airlines will not have to pay HP a termination fee;
- HP will have an unsecured claim of $7.65 million for work it has done on the PSS [as of February 2012, HP already was a $30.8 million creditor]; and
- "Significant costly and protracted litigation will be completely avoided," the airline states.
There is also an important amendment to the termination agreement. In it, American Airlines gets reduced costs and expenses related to HP's operation of the airline's exising reservations system, which uses Sabre software.
Also, the amendment provides that American and HP will have joint ownership of intellectual property created during work on the new PSS.
Although American Airlines and HP halted development work on the new reservations system early this year, months after AMR filed for bankruptcy protection on November 29, 2011, the proposed settlement puts a bold exclamation point on their joint project's demise and sets off a lot of maneuvering for the contract to host the reservation system for a major, albeit weakened, airline.
If all this sounds familiar, United Airlines several years ago enlisted Amadeus to take over PSS functions from Travelport's Apollo system, but the airline, facing its own financial crisis, backed out of the agreement.
In an ironic twist, given the American-HP news, the merged United-Continental ultimately transitioned over to HP for its PSS.
So what now for American Airlines and its reservations system?
If the court approves the settlement, HP will continue to operate American's PSS using Sabre software for the time being.
The existing American-HP PSS agreement remains in effect until the bankruptcy court takes action, although is "in a state of suspension," American states.
"Most importantly the Jetstream [American's name for the new PSS] initiative to replace American's PSS remains a high priority and is a critical part of our future as a stronger, more competitive and customer-centric airline," American stated.
However, an American spokesperson says the airline is "moving away from building its own" system and "hopes to make a decision soon" on a vendor which already has an existing solution in the marketplace.
For its part, HP states:
As you know, HP does not comment about our clients’ business or legal situations. American Airlines has been and remains a valued client of HP. We can tell you that HP remains committed to the development of scalable travel and transportation industry solutions that enable airlines to improve business results.
The HP-American falling out has to be seen as a victory for Sabre in the short-term because now its software will continue to be used for American's PSS for a longer period than the airline envisioned.
Sabre could be a candidate to extend its agreement with the airline, but considering the enmity between Sabre and American, a long-term PSS relationship into the future would be a long-shot.
And, it's unclear how ITA Software makes out now that American Airlines is shopping for a new PSS. ITA Software had contracted with American Airlines to have the airline use ITA's inventory control solution as part of the Jetstream project.
The jockeying to become American Airline's new PSS favorite is undoubtedly under way and will be influenced by merger fever and the outcome of the airline's restructuring.