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updated: 2/14/2013 10:19 AM

American, U.S. Airways announce $11 billion merger

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  • A merger of American Airlines and US Airways has long been rumored. Negotiations between the two airlines may finally conclude this week.

      A merger of American Airlines and US Airways has long been rumored. Negotiations between the two airlines may finally conclude this week.
    ASSOCIATED PRESS

 
Associated Press

DALLAS -- American Airlines and U.S. Airways have agreed to merge in an $11 billion deal that would create the world's biggest airline.

The combined carrier will be called American Airlines and be based in Fort Worth, but U.S. Airways CEO Doug Parker will run it.

The merger would reduce the number of major U.S. airlines to four: the new American, United, Delta and Southwest.

The deal is a coup for smaller U.S. Airways Group Inc., which pushed for a merger almost as soon as American parent AMR Corp. filed for bankruptcy protection in November 2011.

While Parker runs the company, AMR CEO Tom Horton will serve as chairman until its first shareholder meeting, likely in mid-2014.

The boards of both companies approved the deal Wednesday. The companies announced it early Thursday and expect it to close in the third quarter of this year.

"The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace," Parker said in a statement. "Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to go."

AMR creditors will own 72 percent of the new company, with the remaining 28 percent will going to U.S. Airways shareholders. The creditors' portion includes a 23.6 percent share for American employees and unions, plus a small stake for existing shareholders of American's parent AMR Corp.

The airlines said they expect $1 billion in combined benefits from the merger. They expect the bigger airline to lure corporate travelers away from competitors, contributing to $900 million in additional revenue. They also anticipate cost savings of roughly $150 million.

They also said they expect to spend $1.2 billion on transition costs over the next three years.

Travelers on American and U.S. Airways won't notice immediate changes. It likely will be months before the frequent-flier programs are combined and years before the two airlines are fully integrated.

The companies had negotiated since August, when creditors pushed AMR to conduct merger talks so they could decide which earned them a better return: a merger or an independent American.

The deal would need approval by AMR's bankruptcy judge and antitrust regulators, who have permitted three other big airline mergers to go ahead since 2008.

The rapid consolidation has allowed the surviving airlines to offer bigger route networks that appeal to high-paying business travelers. And it has allowed them to limit the supply of seats, which helps prop up fares and airline profits.

The new American would have more than 900 planes, 3,200 daily flights and about 95,000 employees, not counting regional affiliates. It will be slightly bigger than United Airlines by passenger traffic, not counting regional affiliate airlines.

The new airline will keep all of American's and U.S. Airways' hubs.

The companies said the new board of directors will have 12 members: Three from American, including Horton; four from U.S. Airways, including Parker; and five appointed by American's creditors.

AMR shareholders are poised to get a 3.5 percent stake in the new airline, the companies said. That's unusual because equity holders typically get wiped out in a Chapter 11 proceeding.

The companies said it's too soon to know where the new airline's operations center, reservations, flight training, maintenance and crew bases will be.

Shares of U.S. Airways rose 17 cents, or 1.2 percent, to $14.66 in premarket trading.

Copyright 2013 The Associated Press.

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