Airline mega-merger to create world's largest carrier

A US Airways airplane takes off over American Airlines airplanes at the Reagan National Airport in Washington D.C., capital of the United States, Feb. 14, 2013. American Airlines, a unit of AMR Corp, and U.S. Airways said on Thursday that they have agreed on an 11-billion-dollar merger agreement to create the world's largest carrier. (Xinhua/Zhang Jun).

American Airlines, a unit of AMR Corp., and US Airways said on Thursday that they have agreed on an 11-billion-dollar merger agreement to create the world's largest carrier and put 86 percent of the country's domestic air travel in the hands of four big airlines.

In a widely-expected move, American Airlines and US Airways said in a press release Thursday that the boards of directors of both companies have "unanimously approved a definitive merger agreement", under which the companies will combine to create a premier global carrier, which will have an implied combined equity value of approximately 11 billion U.S. dollars.

The combined carrier will be called American Airlines and based at American's headquarters in Dallas, Texas, with a major presence at US Airways headquarters in Arizona. While US Airways CEO Doug Parker runs the new company, AMR CEO Tom Horton will serve as Chairman of the combined airline's Board of Directors through its first annual meeting of shareholders, likely in mid-2014.

Under the deal's terms, American's creditors would own 72 percent of the new company and US Airways shareholders 28 percent. The companies said the merger, which will be part of AMR's plan for exiting bankruptcy protection of American Airlines, would create savings of more than 1 billion dollars a year and create a more competitive global carrier.

"Today, we are proud to launch the new American Airlines - a premier global carrier well equipped to compete and win against the best in the world," said Horton. "Together, we will be even better positioned to deliver for all of our stakeholders, including our customers, people, investors, partners, and the many communities we serve."

The deal came on the heels of a series of other recent airline mergers that have remade the U.S. airline industry and better positioned the sector for profit. The tie-up marks the last of a series of mega airline mergers that would make those once big brands like US Airways, Pan Am, TWA, Eastern Airlines, Northwestern and Continental a history.

The merger rescues American Airlines from bankruptcy and marries the much smaller US Airways into a partnership with the muscle to compete with Delta Airlines and United Airlines, both of which have grown through recent mergers.

The deal still needs approval by AMR's bankruptcy judge and antitrust regulators. If it goes through, four big airlines, namely the new American, United, Delta and Southwest, will dominate passenger travel in the United States.

The idea of an American-US Airways tie-up has been floated since American went into bankruptcy protection in November 2011. Creditors had pushed AMR to conduct merger talks so they could decide if they need a merger or an independent American Airlines.

A source close to the negotiations said the bigger scale of the company would enhance American's value after bankruptcy better than an independent American Airlines.

Analysts see the two carriers as a good match, with US Airways' strength in the eastern part of the country and American Airlines' greater influence in the west and with global destination.

The combined carrier will offer more than 67,00 daily flights to 336 destinations in 56 countries, the companies said.

While airline consolidation may cause concerns among air travelers who have benefited from the carriers' competition, some analysts said the American-US Airway marriage is not going to impact air fares significantly.

"I think that we're seeing a dynamic already where the airlines are passing on the increased cost of fuel and labor to the consumer. I'm not prepared to see egregious gouging by the airline just because of this merger," William S. Swelbar, an air transportation researcher, was quoted as saying.

Meanwhile, analysts said the trend that had Delta partnering Northwest Airlines, United merging with Continental, Southwest swallowing Air Tran and American Airlines teaming up with US Airways has helped stabilize the U.S. airline industry.

It has economic benefits for a country to be able to have a stabilized airline industry, said Joshua Schank, president of Eno Center for Transportation, a nonpartisan U.S. think-tank. Meanwhile, it's probably good for the traveling public to have a stable airline industry. "The benefits of a stabilized airline industry" may outweigh the slight increase in fares, he said.