A merger between US Airways Group Inc. and bankrupt American Airlines could be
announced this week, creating the world's largest airline by passenger
traffic.
American parent AMR Corp.'s unsecured creditors planned to meet Monday,
and the boards of AMR and US Airways -- already the dominant airline in
Philadelphia -- could also vote on merger terms by midweek, according to
reports by Reuters, the Wall Street Journal, and other media outlets, citing
unnamed sources.
US Airways chief executive officer Doug Parker is expected to head the
new company, and American's CEO, Tom Horton, would become nonexecutive board
chairman, at least for a time.
Airline executives and staff reportedly met over the weekend to hash out
final details. An announcement could be made by Friday, when confidentiality
agreements AMR bondholders signed expire.
People familiar with the matter say the talks aren't concluded and could
still fall apart.
"It appears that both companies have settled on an equity split of 72/28"
in an all-stock transaction, with AMR creditors owning 72 percent of the
merged airline, and US Airways shareholders the remainder, Deutsche Bank
airline analyst Michael Linenberg said Friday in a note to investors.
"Of course, the situation is fluid, and there could be further changes,
including no deal, although that seems less and less likely given the desires
of labor and the unsecured creditors' committee," Linenberg wrote. "The bottom
line is that we think a merger should be very positive for the majority of
constituents at both AMR and US Airways as well as the industry as a whole."
The combined airline, to be called American and based in Fort Worth,
Texas, would be equal to, or slightly larger than, United Continental
Holdings, as the world's largest. It would have a workforce of 100,000 and a
fleet of 1,500 aircraft.
"Frankly, there's no more time to waste," bond analyst Vicki Bryan of
Gimme Credit L.L.C. wrote in a client update. "The sooner the deal-wrangling
is finally put to bed and the acquisition is confirmed, the sooner CEO Doug
Parker can begin the hard work still ahead to make the merger a winning
proposition for the flying public."
Are mergers good or bad for passengers?
PricewaterhouseCoopers L.L.P. has analyzed average airfares over the last
seven years and concluded that despite four big mergers -- US Airways-America
West, United-Continental, Delta-Northwest, and Southwest-AirTran -- average
domestic ticket prices did not rise dramatically, nor was service reduced on
most routes.
"It really depends on how you measure it," said George Hobica, founder of
AirfareWatchdog.com. "Adjusted for inflation, domestic fares have gone down,
but international airfares have definitely gone up.
"For the average consumer, I think fares have gone up, and it's a result
of consolidation," Hobica said. "You could argue that, inflation-adjusted,
they've actually not gone up."
Some passengers can expect higher nonstop fares, especially at smaller
airports, and reduced service as the two carriers combine operations.
The impact on ticket prices might be less than with other mergers because
there are only a dozen routes that would effectively become monopolies,
controlled by the new American. They include Miami-Philadelphia and
Dallas-Philadelphia, although discount-carrier Spirit Airlines will begin
flying to Dallas-Fort Worth from here April 4.
The new American would have eight hub airports: Philadelphia, Charlotte,
and Phoenix (along with Washington as a "focus city"), which are now US
Airways'; and American's currents hubs, New York, Miami, Chicago, Dallas-Fort
Worth, and Los Angeles.
Parker said last summer all the hub operations would remain, but industry
observers said the one exception might be Phoenix, because American has
significant operations in Dallas-Fort Worth and Los Angeles.
A key question among both airlines' frequent fliers will be: What happens
to their miles?
Earned miles will be safe. Mileage programs are a perk airlines use to
hold on to top customers. Each airline's miles would be honored, and,
eventually, the new American would consolidate frequent-flier programs and
merge accounts of passengers with miles at both airlines, industry experts
say.
Even if a merger were approved by the bankruptcy court and it clears
antitrust scrutiny, combining operations will take a year or two. During that
time, each airline would continue to operate its own flights and sell its own
tickets.
Proponents of airline consolidation say there will be an increased number
of international destinations available, and better access for American's
business travelers to the Northeast, where US Airways' network is strong.
Parker has said US Airways would leave the Star alliance, which also
includes Lufthansa, Japan's ANA, United, and other carriers, and switch to the
OneWorld global alliance, which includes American, British Airways, Cathay
Pacific, Japan Airlines, and others. Worldwide airline partnerships allow
customers to buy tickets on one airline and travel via the partners.
"The merger solves US Airways' international-network problem and creates
a better combined entity," James Corridore, a Standard & Poor's equity
analyst, said in a client note. "We are positive on the potential for
additional capacity rationalization. We would prefer US Airways management to
remain in control."
Representatives of US Airways and American declined to comment, citing
confidentiality agreements.
Distributed by MCT Information Services
