US Airways, American may OK tie-up soon

Merger would create biggest airline in the US

The airlines were closer in negotiations but still trying to decide how much the new company would be worth.
Mike Theiler /Reuters
The airlines were closer in negotiations but still trying to decide how much the new company would be worth.

NEW YORK — After months of negotiations, American Airlines and US Airways appear likely to announce a merger this week, which would create the nation’s biggest airline and concentrate even further a once-fragmented industry.

A merger would expand American’s domestic network, particularly in the Northeast and Southwest, and create a more formidable competitor internationally. The combined airline would jump ahead of United Airlines and Delta Air Lines, both of which have grown through mergers of their own in recent years.

The combination would probably end a wave of consolidation. Since 2001, there have been five large mergers, reducing the number of airlines to three main carriers, a handful of low-cost carriers like Southwest Airlines and JetBlue, and regional carriers.


Mergers have led to cuts in service in many smaller cities. But they have created healthier and more profitable airlines able to invest in new planes and products. Faced with rising fuel costs, and losing tens of billions of dollars in the last decade, airlines argued the only way to survive was to consolidate.

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American, in bankruptcy since November 2011, is currently the third-largest US airline with domestic and international flights; US Airways is the fourth.

The boards of both carriers are expected to meet this week to approve the combination, which would need to be approved by a bankruptcy judge.

A tie-up would also need approval of federal regulators and antitrust authorities. Analysts expect approval since there is little overlap between the two networks and no hubs in the same cities.

Still, the merged airline would face a host of challenges. Airline mergers are often rocky, involving complex technological systems, big reservation networks, and large labor groups with different corporate cultures. United angered passengers last year after a series of merger-related computer and reservation mistakes and late and delayed flights.


A deal would be a victory for Doug Parker, chairman of US Airways, who began pursuing a merger with the bigger carrier soon after American filed for bankruptcy protection. His argument — that American could succeed against bigger airlines only if it combined networks with US Airways — swayed American’s creditors.

The carriers have been discussing a deal for months. In recent days, both sides have moved much closer but were trying to figure out how much the merged carrier would be worth and how management positions would be split.

Tom Horton, American’s chairman, was opposed to a merger but was offered a position as nonexecutive chairman, said a person familiar with the matter who asked not to be identified because the talks were still under way.

US Airways shareholders could end up with about 28 percent of the new airline, and American’s creditors would have 72, this person said.

A merger could be structured to take effect as American exits bankruptcy. The airlines are pushing for a deal before Feb. 15, when some nondisclosure agreements with American bondholders expire. But the timing remains flexible.


The new airline would be called American Airlines. It would have 94,000 employees, 950 planes, 6,500 daily flights, nine major hubs, and sales of nearly $39 billion. It would be the market leader on the East Coast and in the Southwest and South America. But it would remain a smaller player in the Pacific and Europe, where United and Delta are stronger.

Parker outmaneuvered Horton by lobbying American’s employees. He won the support of American’s three main labor groups. The success of these labor discussions, even before the merger was formally discussed, helped persuade American’s creditors to follow Parker’s strategy.

Horton and American’s management team had argued they should complete the carrier’s restructuring and emerge from bankruptcy before considering any mergers. But under pressure from Parker, the management of American Airlines was eventually forced by its creditors to talk about a merger.