US Airways lands $11 billion merger with American

Published on NewsOK Modified: February 14, 2013 at 9:35 pm •  Published: February 14, 2013
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"Well, best of luck," Horton interjected, as employees of both airlines laughed.

The deal needs approval by AMR's bankruptcy judge, federal antitrust regulators, and US Airways shareholders. Parker, Horton and most analysts predict smooth sailing. Even if they're right, American and US Airways will continue operating as separate airlines for months or even a couple years. Officials promised that frequent-flier programs would continue untouched.

The merger follows Delta's acquisition of Northwest in 2008, the United-Continental deal in 2010, and Southwest's purchase of AirTran Airways in 2011. The rapid consolidation has allowed the remaining airlines to lure high-paying business travelers with better route maps. And it has helped them limit the supply of seats, pushing up fares and fees.

That concerns some consumer advocates, but Parker argued that competition will increase, not decrease.

"There are two very large airlines right now and this creates a third," Parker said in an interview, referring to United and Delta, currently the world's two biggest airlines. "It provides good competition to those two."

Mary Gorman, who was at Miami International Airport on Thursday for a flight home to Virginia Beach after a cruise with her husband, said she hoped that together the airlines would offer better service than either does by itself.

"If the service is better, I don't mind paying more for a ticket," Gorman said.

Most airline mergers have resulted in fewer flights and shrinkage at some hubs, as happened to Cincinnati after Delta bought Northwest. Parker said this deal will be different because US Airways and American overlap on just 12 routes. He said the new airline will keep all of American's hubs — Dallas-Fort Worth, Chicago, Miami, New York and Los Angeles — and those of US Airways, in Phoenix, Charlotte and Philadelphia.

Besides continuing the American Airlines name, the combined carrier will be based in American's hometown of Fort Worth, Texas. With Parker set to become CEO, Horton will serve as board chairman until its first shareholder meeting, likely in mid-2014. Parker will add the chairman's title after Horton leaves.

AMR creditors, workers and shareholders will own 72 percent of the new company including 23.6 percent for employees and unions. US Airways shareholders will get the other 28 percent. The companies said they expect $1.05 billion in annual benefits from the merger by 2015, based on the assumption that they will attract more business travelers.

The extra revenue and savings would have been higher, but the company expects to pay out $400 million per year in pay raises. 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 new American will be slightly bigger than United Airlines by passenger traffic, not counting regional affiliate airlines. The mammoth size of Delta and United has helped those carriers 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 will 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. Some analysts noted that the new American will still be weak on routes to Asia, however.

"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 American will stay in the oneworld airline alliance with partners including British Airways and Japan Airlines. For US Airways passengers, that will eventually mean an end to redeeming miles on Star Alliance members United and Lufthansa.

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. Horton said AMR's bankruptcy creditors might be repaid in full. He noted that 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."

Shares of US Airways fell 67 cents, or 4.6 percent, to close at $13.99.

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

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