American Airlines & US Airways Announce Merger
FORT WORTH (CBS 11 NEWS) - Fort Worth's American Airlines and Phoenix's US Airways formally announced a merger on Thursday morning to create the world's largest airline. Both company boards voted to approve the deal on Wednesday evening.
Under the agreement, US Airways CEO Douglas Parker will become the chief executive of the new airline while American Airlines CEO Tom Horton will move to non-executive chairman of the board of directors and will not have any day-to-day responsibilities.
"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 in a written news release announcing the deal. "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."
Parker echoed Horton's statements. "American Airlines is one of the world's most iconic brands. The combined airline will have the scale, breadth and capabilities to compete more efficiently and profitably in the global marketplace."
Executives plan to hold a news conference at DFW International Airport at 10:00 a.m. on Thursday morning, then fly to Phoenix to talk with media in Arizona.
AMR's creditors will receive 72 percent of equity in the combined airline. Sources said that the creditors could also be fully recovered under the deal. Shareholders for US Airways will receive the remaining 28 percent of equity in the merged airline.
Experts said that the American Airlines bankruptcy judge will likely approve the deal, and that it could take up to two years to combine operations of both airlines. Analysts expect that the marriage will be a boon to North Texas. The combined company would still be called American Airlines and it would remain based in Fort Worth.
SMU economics professor Bernard Weinstein said, "That would give us some bragging rights. We would be home to the world's largest airline." The new, larger airline, Weinstein said, will offer more flights from DFW. "For businesses and people located here, you'll really be able to fly anywhere in the world on American."
Weinstein said, because of the American Airlines bankruptcy, the airline has been able to cut costs. In the end, this will help it compete.
While the combined company will likely bring more flights to DFW, Weinstein said, it will also result in higher airfares because of less competition. "American will virtually have a monopoly on every route that they fly," Weinstein said. "The only hope is that there will be some competition from other airlines."
Federal regulators must also sign off on the merger, which is widely expected after the government approved both the Delta-Northwest and United-Continental mergers years ago.
This deal has been in negotiations for months. Merger talk began heating up last April, when Parker announced that he favored US Airways joining forces with American Airlines. Sources familiar with the deal said that Parker proposed a near 50-50 split between the two airlines, but that Horton rejected the offer because he believed American Airlines was making a strong comeback in operational and financial performance.
Horton reportedly wanted American Airlines creditors to receive an 80 percent stake in the new airline.
After a decade of losses, American Airlines filed for bankruptcy in November 2011. Horton favored emerging from bankruptcy as an independent airline that would consider mergers at a later date. Last summer, American Airlines creditors wanted to consider a merger between the two airlines and, as a result, American Airlines said that it would consider all options while still in bankruptcy.
Leaders at the three main American Airlines unions also pushed hard for a merger and for Parker to become CEO of a combined airline. They do not like Horton or the American Airlines management team. Parker struck tentative deals with the main unions in the event that there was a merger.
Experts said that having a competing airline's CEO get involved in another carrier's bankruptcy is unprecedented.
The unions then used the tentative deals struck with US Airways to negotiate better contracts than the steep cuts American Airlines had proposed to the unions back in February of last year.
Under a memo of understanding agreed to last month, American Airlines pilots negotiated $522 million in improvements to their compensation over the six year period of their contract. US Airways pilots just signed a similar deal.
The Association of Professional Flight Attendants welcomed the merger. "It's been a long, tough road but the result is well worth it," union president Laura Glading said in a statement. "The new American will provide job security and fair compensation for all employees and another great option for the flying public."
But some rank and file members of the pilots and flight attendants unions said that they are concerned about the merger. Chris Manno has been a pilot with American Airlines for nearly 28 years. He is worried about pilot seniority, and fearful that US Airways pilots would jump over them in the company's pecking order. "It remains to be worked out or its turned over to arbitration which, as a union member, I'm not happy about," Manno said.
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