American, US Airways announce $11 billion merger

Published on NewsOK Modified: February 14, 2013 at 2:09 pm •  Published: February 14, 2013
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While Parker becomes CEO of the combined company, AMR CEO Tom Horton will serve as chairman until its first shareholder meeting, likely in mid-2014. Parker becomes chairman after Horton leaves.

The boards of both companies approved the deal Wednesday. Executives said they were confident that antitrust regulators would approve the merger. It also needs approval by AMR's bankruptcy judge.

Shares of US Airways fell $1.27, or 8.7 percent, to $13.39 in afternoon trading.

AMR creditors will own 72 percent of the new company, with the remaining 28 percent will going to US 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 $1.05 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.

The savings would have been higher, but the company expects to pay out $400 million per year in raises for workers. Unionized workers at both airlines have seen their pay languish, with some US Airways pilots still flying under a contract signed when that carrier was in bankruptcy protection in 2005.

The combined airline also expects to spend $1.2 billion on one-time transition costs over the next three years.

It will stay in the "oneworld" airline alliance, where it is partners with British Airways and other overseas airlines. Those alliances make it easier for international travelers to plan trips that include multiple airlines.

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 new American would have more than 900 planes 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.

Delta and United's size have allowed them to get more than their share of business travelers, US Airways President Scott Kirby said on a conference call.

For instance, Delta's shuttle service up and down the East Coast competes against a similar offering by US Airways. But Delta passengers can connect to more overseas cities than US Airways passengers can, and American doesn't have a shuttle at all. But with the US Airways shuttle feeding passengers into American's overseas flights, the merged airline would get more business travelers, US Airways argued in its presentation to creditors in January, which was filed publicly on Thursday.

The combination will also boost American's service to Europe and Latin America and the Caribbean. But some analysts noted that the new American will still be weak on routes to Asia.

"Without a major Pacific presence (just a mere five destinations and eight routes), American doesn't come close to either Delta or United's presence in the market," Helane Becker, airlines analyst for Dahlman Rose & Co., wrote Thursday in a note to clients.

The new board of directors will have 12 members: Three from American, including Horton; four from US 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. That's unusual because stockholders typically get wiped out in a Chapter 11 proceeding.

Horton said AMR's bankruptcy creditors might be repaid in full. He said his company cut costs, reduced debt and moved ahead with orders for new planes during the bankruptcy process, increasing AMR's value to US Airways.

That, he said, "allowed us to make a deal with US Air that was on the right terms for American and our people."

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Freed reported from Minneapolis. Associated Press Writer Suzette Laboy in Miami contributed to this report.

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Follow David Koenig at http://www.twitter.com/airlinewriter

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