AMR, US Airways boards vote to approve merger

Posted Thursday, Feb. 14, 2013  comments  Print Reprints
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The deal is finally done.

On Wednesday, the boards of directors for AMR Corp. and US Airways Group approved a definitive agreement to merge the two carriers, sources close to the deal said.

An announcement is scheduled for this morning at American Airlines' Admirals Club at Dallas/Fort Worth Airport, said the sources, who asked not to be identified.

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The merger would create the world's largest airline, bumping United Continental from the top spot. The new company, which will be based in Fort Worth and called American Airlines, will have combined revenue of $38.7 billion, 1,500 aircraft and close to 100,000 employees.

The bankruptcy judge and federal regulators must approve the deal before AMR, American's parent company, can exit Chapter 11 bankruptcy protection.

AMR's board met in New York and voted unanimously to approve the deal.

A bankruptcy filing is expected today regarding the deal.

Details of the merger were not released, but the sources said AMR's chief executive, Tom Horton, 51, will become nonexecutive chairman of the new carrier until the first shareholder meeting, which will likely be in mid-2014.

US Airways Chief Executive Doug Parker, 51, will become chief executive of the merged airline, the sources said.

The deal is likely to include a 72 percent equity stake for AMR creditors, while US Airways shareholders will receive 28 percent of the equity in the new company.

The sources said AMR common shareholders will get a percentage of AMR's equity portion of the merger.

According to The Wall Street Journal, the board of the new company will have 12 directors -- five appointed by American's creditors, three appointed by American and four appointed by US Airways.

Shares of US Airways (ticker: LCC) closed at $14.66, up 39 cents. AMR shares, which are traded over the counter, rose 5 cents to $1.30.

Analysts have valued the deal at $8.5 billion to $11 billion.

US Airways has been pushing for a merger for about a year and quickly won the support of American's major unions and creditors.

In April, Parker signed conditional labor agreements with American's three unions outlining contracts that asked for fewer employee cost cuts than what American management had proposed in its restructuring plan.

Meetings have been going on for weeks as executives at both companies, along with American's unsecured creditors committee and an ad hoc bondholder group, tried to reach a deal before the Feb. 15 expiration of a nondisclosure agreement with bondholders.

AMR had asked the Bankruptcy Court to extend its deadline to submit a reorganization plan until late April, suggesting that the talks could have stretched past this week.

With the merger, American will pick up market share on the East Coast, where it has lost business in recent years to carriers such as JetBlue.

US Airways' hubs in Charlotte, N.C., and Philadelphia will also bolster American's north-south traffic on the Eastern Seaboard.

At American's largest hub, DFW, more passengers would likely connect through the airport, headed to other domestic destinations or overseas to international cities.

And since the route networks of American and US Airways have little overlap, analysts expect that the combined carrier won't have to cut much capacity, leaving airfares stable.

For US Airways, the merger provides access to more international routes and partners through the Oneworld alliance.

US Airways is a member of the Star Alliance but does not have the full benefits. United has better joint ventures with international partners.

The deal also gives Parker, who got his start in the business as a financial analyst at American in the 1980s, the airline merger he has been hoping for.

In 2007, US Airways made a failed bid for Delta Air Lines when the Atlanta-based carrier was in bankruptcy.

It also tried to merge with United Airlines in 2010 before that carrier chose Continental Airlines.

Wall Street has applauded Parker's efforts to improve profit margins at US Airways, which posted record revenue of $13.8 billion and profit of $637 million in 2012.

But investors have been concerned that the Tempe, Ariz.-based carrier would lose its competitive edge as labor costs increase and revenue on its smaller network does not.

Parker has also been unable to integrate the two pilot groups from America West and US Airways since those carriers merged in 2005.

Once government regulators and the Bankruptcy Court approve the American-US Airways deal, Horton will step down as chief executive, a role he assumed the day AMR filed for bankruptcy -- Nov. 29, 2011.

In the past year, Horton has terminated expensive leases on gas-guzzling planes that were too costly to fly and renegotiated aircraft leases and purchase agreements for new planes from Boeing and Airbus.

The carrier has increased its average fares and maintained a cash balance around $4 billion while restructuring. Just a few weeks ago, Horton unveiled a new brand logo and livery, the first time American has changed its AA with an eagle logo since 1968.

Horton also negotiated new labor contracts with all of American's unions that will save hundreds of millions of dollars annually.

But the agreements came after months of difficult contract talks and a failed pilot vote as union leaders accused Horton of overreaching with his restructuring plan and placing too many cost-cutting measures on employees.

In 2012, AMR posted a $1.87 billion loss, a bit less than its $1.98 billion loss in 2011, despite record revenue of $24.85 billion. But it's lagging behind the industry as other airlines reported millions in profits for the year.

Andrea Ahles, 817-390-7631

Twitter: @Sky_Talk

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