American, US Airways announce $11B merger

Alliance would make american the biggest airline in the world

By Joshua Freed and David Koenig

Associated Press

Published: Thursday, Feb. 14 2013 8:43 p.m. MST

American Airlines CEO Tom Horton, left, and US Airways CEO Doug Parker pose after a news conference at DFW International Airport on Thursday.

Associated Press

DALLAS — US Airways CEO Doug Parker has landed the big merger he sought for years. Now, the soon-to-be CEO of the new American Airlines has to make it work.

Planes need painting. Frequent flier programs have to be combined. And the new airline will still be weak in Asia and need to win back business travelers who have been drifting away to other airlines.

The two airlines announced an $11 billion merger Thursday that will turn American into the world's biggest airline, with about 6,700 daily flights and annual revenue of roughly $40 billion. It's a coup for Parker, who runs the much-smaller US Airways and has long pursued a deal like this one with the strong belief that airlines would have a better shot at consistent profits if they bulk up through mergers.

The latest deal will mean that the four biggest U.S. airlines are all the product of mergers. Those deals bring benefits, but they also show that putting together two airlines smoothly is not easy.

Some of the work on the latest combination has already been done. Pilots from both airlines have agreed to the outlines of a deal that should make it much easier to get a final, joint contract. And Parker is inclined to use American's computer systems such as those that track reservations and passenger information, he said on a conference call. He said past mergers have shown that it's easier to use the bigger airline's technology, because then fewer people at the smaller airline need to learn it.

Noting those factors, JP Morgan analyst Jamie Baker predicted a "relatively smooth" transition.

The combined carrier is going to be called American Airlines and be based in Fort Worth, Texas. The deal is expected to close by the end of September, as part of American's emergence from Chapter 11 protection.

Even after that, travelers on American and US Airways won't notice immediate changes. It likely will be months before the frequent-flier programs are combined and years before the two airlines are fully integrated.

Parker sought a merger almost as soon as American parent AMR Corp. filed for bankruptcy protection in November 2011.

As Parker pushed ahead, creditors forced AMR's management to consider the value of a merger compared with a plan for an independent American. Eventually, they concluded that the best return for stakeholders, and the best chance to compete with bigger rivals United Airlines and Delta Air Lines, came from a merger.

The deal also caps a turbulent decade of bankruptcies and consolidation for the U.S. airline industry.

Since 2008, Delta gobbled up Northwest, United absorbed Continental and Southwest bought AirTran Airways.

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