US Airways leads AMR merger to form world’s largest airline
DALLAS: US Airways Group Inc., spurned in three prior merger attempts, will combine with bankrupt AMR Corp.’s American Airlines in an US$ 11 billion ( RM34 billion) all- stock deal to create the world’s largest carrier.
Chief Executive Officer Doug Parker of US Airways will run the new airline, which will retain American’s name, as AMR CEO Tom Horton becomes chairman, the companies said Thursday in a statement. AMR creditors will own 72 per cent of the equity, while 28 per cent will go to US Airways shareholders.
The merger will produce annual savings and new revenue totalling more than US$ 1 billion by 2015, the airlines said, and cap a wave of consolidation that swept up five of the 10 biggest US carriers since 2005. American will pass United Continental Holdings as the biggest airline and be one of just three in the United States with full- service cabins and trans- oceanic routes.
“One of the really nice things is how complementary the route networks are,” Parker, 51, said in an interview.
“Of over 900 routes, only 12 have any overlap, which is phenomenal. We are going to need to keep all the hubs in place, the cities we fly to we will need to continue to fly to.”
Most of the projected yearly benefits from combining American, the third-largest US airline, with No. 5 US Airways will be in new revenue, at about US$ 900 million, the companies said. There will be about US$ 150 million in savings excluding initial expenses to put all employees onto the same pay scale.
One-time transaction costs will be US$ 1.2 billion spread over the next three years, according to the companies, which said they expect a third- quarter closing. Full integration should be completed within 18 months, with the combined American appearing to consumers as one airline before then, Parker said. The merged company will keep American’s Fort Worth, Texas, headquarters.
“This is really terrific for both companies,” Helane Becker, a Dahlman Rose & Co. analyst, said in an interview with Tom Keene and Sara Eisen on Bloomberg Television.
“When American went into Chapter 11, Doug saw his chance to grow US Airways and to finish the consolidation that really started several years ago.”
Stockholders of Tempe, Arizona-based US Airways will receive one share of the new company for each share they now hold, according to the companies.
Horton said AMR’s shareholders will recover “at least a 3.5 per cent aggregate ownership stake” under an agreement with creditors.
The airlines don’t expect to
It’s hard to imagine another large merger beyond this one involving US carriers. Doug Parker, chief executive officer of US Airways
have to divest any assets to secure US anti-trust approval, or any difficulty winning an endorsement from European Union competition regulators, Horton said on a conference call with analysts and reporters. The merger also requires the backing of the bankruptcy court and US Airways shareholders.
Parker said the tie-up probably would be the last among major US carriers, a group led by American, United and Delta Air Lines and followed by Southwest Airlines Co., the biggest discounter. “It’s hard to imagine another large merger beyond this one involving US carriers,” Parker said on the call.
For Parker, taking over at American completes an 11-year quest to build a bigger airline. America West Holdings Corp. was the eighth-largest US carrier when he became CEO there in 2001, four years before he combined the company with US Airways.
A bid to buy Delta and two efforts at a United Airlines merger all fell through in the past six years.
Parker began pursuing American shortly after it sought bankruptcy protection on Nov 29, 2011. He wooed AMR’s unsecured creditors committee, an ad hoc bondholder group and American’s unions as the airlines agreed in August to swap confidential data as a prelude to a tie-up.
After initially pushing to have AMR exit bankruptcy as a standalone carrier before weighing consolidation, Horton said that a combination emerged as the best outcome.
The new board will have 12 members, with Horton and two others from American, four from US Airways, including Parker, and five appointed by AMR’s creditors.
Horton, 51, will be chairman through the combined airline’s first annual meeting.
American employees won’t see any immediate changes in operations, Horton told employees in a letter today, while Parker told his workforce that the companies would remain separate until the deal closes.
American had about 62,400 employees based on a threemonth average as of Dec 31, while US Airways’ total was 31,236, according to the airlines.
American had secured the title of the world’s largest carrier with the 2001 purchase of Trans World Airlines.
It fell to No. 2 when Delta bought Northwest Airlines in 2008, then slid to third in 2010 when former United parent UAL Corp. merged with Continental Airlines.
Size matters for airlines, because broader route networks help carriers win corporate travel contracts. US Airways lacked its own non- stop service to Asia.
“If you look at the global economy, projections are for growth of four or five per cent over the next several years, and demand will grow with it,” Horton said in an interview. “We will seek to grow this company to match demand.”
Members of each airline’s frequent-flier programme will continue to earn benefits as the carriers operate separately, according to the companies, which said they will detail the plans’ consolidation later.
American will remain in the Oneworld airline marketing group that includes International Consolidated Airlines Group’s British Airways. US Airways is a member of the Star Alliance led by United.
The combined airline will have a main jet fleet of more than 900 planes and hubs stretching across the US, with an emphasis east of the Mississippi River. American’s hubs are in Chicago, Dallas-Fort Worth, New York, Miami and Los Angeles, while US Airways’ are in Philadelphia, Phoenix and Charlotte, North Carolina. US Airways calls Washington a “focus city.”
Washington is one of three cities in the Northeast, along with New York and Boston, where US Airways operates a daily shuttle service targeted at business fliers.
Melding the carriers’ route systems will build on American’s network in Latin America, the biggest among its US peers, and on its joint ventures with British Airways across the Atlantic and Japan Airlines Co. over the Pacific.
US Airways’ size relative to its larger rivals had left it at a disadvantage in the US industry, and Parker’s quest for a merger began long before he trained his sights on American.
In January 2007, his hostile bid to take over Delta in bankruptcy collapsed when he couldn’t gain the support of the airline’s creditors or pilot union. Talks with United fell short in 2008 and again in 2010, with the second go-round followed days later by United’s agreement to merge with Continental.