September 1, 2012 in Business

American, US Airways initiate merger talks

AMR Corp.’s bankruptcy creates urgency for deal
Associated Press
 

NEW YORK – American Airlines and US Airways are one step closer to a possible merger.

The companies said Friday they have started confidential merger talks. But a deal is still far from reality.

“It does not mean we are merging – it simply means we have agreed to work together to discuss and analyze a potential merger,” US Airways CEO Doug Parker said in a letter to employees Friday.

Such a merger would put the combined airline on par with the world’s largest – United Continental Holdings Inc. – and the slightly smaller Delta Air Lines. Its position as the No. 1 or No. 2 airline in the world, based on how many miles its passengers fly, would depend on how many routes antitrust regulators force the combined airline to abandon.

Many industry experts say the only way American and US Airways can compete with larger rivals is by merging their strengths. US Airways would gain American’s lucrative international routes while American’s larger hubs would be fed passengers from US Airways’ network in smaller U.S. cities.

For passengers, a merger would have no immediate impact. But a year or two into the combination, changes would ramp up: Frequent flier programs would merge, fares could rise, planes would take on American Airlines’ colors and glitches could surface as their reservation systems integrate.

Parker has been pushing for a merger since American’s parent company, AMR Corp., entered Chapter 11 bankruptcy protection on Nov. 29. American Airlines CEO Tom Horton has said his airline is weighing several options, including remaining independent or merging with one of several airlines, including US Airways Group Inc.

One wildcard: British Airways’ parent company International Consolidated Airlines Group, which confirmed Friday that it too had signed a non-disclosure agreement with American. Foreign investors are prohibited from owning more than 25 percent of a U.S. airline, but a cash infusion from British Airways could help American remain independent or give Horton enough leverage so his leadership team can call the shots in a merger with US Airways.

AMR still has to work itself through the bankruptcy process. It has exclusive rights until Dec. 28 to present the court and its creditors with an exit plan. Government regulators would have to sign off on any merger and then the process of actually combining operations could take years.

© Copyright 2012 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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