US Air, AMR near $11bn merger - sources

  • Share via facebook
  • Tweet this
  • Bookmark and Share
(Getty Images)

(Getty Images)

US Airways Group and AMR Corp are nearing an US$11bn merger that would create the world's largest airline and could announce a deal within a week, after resolving key differences on valuation and management structure, people familiar with the matter said.

Under terms of a deal that are still being finalised, US Airways Chief Executive Doug Parker would become CEO, while AMR's Tom Horton would serve as non-executive chairman of the board until spring of 2014, when the combined company holds its first annual meeting, the sources said.

The deal would come more than 14 months after the parent of American Airlines filed for bankruptcy in November 2011, and would mark the last combination of legacy US carriers, following the Delta-Northwest and United-Continental mergers.

The all-stock merger is expected to value the combined carrier at between US$10.5bn and US$11bn, and would give AMR creditors 72 percent of the ownership in the new company and US Airways shareholders the rest, they said.

The board of each airline is expected to meet in the middle of the coming week to vote on the proposed deal, and an announcement would likely come in the latter part of the week, the sources said, asking not to be named because the matter is not public.

Negotiations are continuing and could still be delayed or fall apart, they cautioned.

The companies had initially tried to schedule board meetings for Monday, the day that AMR's creditors committee planned to convene, and had aimed to announce a deal as soon as Tuesday, sources told Reuters previously.

But AMR needed more time to finalise details and the boards of the two airlines are now not expected to gather until around Wednesday, the sources said.

The AMR creditors committee is still meeting on Monday in New York, as initially scheduled, and will continue discussions as the airlines finalize negotiations, they added.

A lawyer for the creditors committee declined to comment. Representatives for AMR and US Airways declined to comment.

A combination with US Airways would create the world's top airline by passenger traffic and help the two carriers better compete with rivals United Continental Holdings and Delta Air Lines Inc.

A near-US$11bn valuation of the combined American-US Airways compares to some US$12.4bn market capitalisation for Delta, and US$8.7bn for United Continental.

The currently planned equity split ratio between AMR creditors and US Airways shareholders implies a roughly US$3bn valuation for US Airways and some US$7.5bn to US$8bn valuation for AMR.

US Airways will follow through on its agreement with AMR labour unions last year that the combined carrier would be branded American Airlines and be based in Fort Worth, Texas, where AMR is currently based, sources said. US Airways has its headquarters in Tempe, Arizona.

As part of the merger, US Airways will also leave the Star Alliance to join the oneworld global airline alliance, of which American Airlines is an anchor member along with British Airways, the people familiar with the matter said.

The airlines are estimating that a merger will bring about US$1bn in revenue and cost benefits, they said.

Horton rebuffed an aggressive takeover push from US Airways early in the bankruptcy process, saying the airline preferred to exit court protection on its own and consider a deal later. But after several months of talks with its own creditors as well as with US Airways, Horton has softened his approach and agreed to consider all options.

A combined American-US Airways would provide the scale to match bigger rivals that are upgrading service and expanding international routes. The merged company would have revenue of US$38.69bn based on 2012 figures, ahead of United Continental which had revenue of US$37.15bn last year.

The new American would have a solid presence on the important US East and West coasts and on North Atlantic routes, given American's revenue-sharing joint venture with British Airways and Iberia.

Related:
Companies
Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Is business aviation on the rise?

Is business aviation on the rise?

The Middle East's business aviation industry is forecast to be...

Dubai Tram essential guide

Dubai Tram essential guide

Prepare to explore the city in a whole new way from Wednesday...

Focus: Why is the aviation industry still struggling to attract female pilots?

Focus: Why is the aviation industry still struggling to attract female pilots?

We investigate why, amidst the looming shortage of commercial...

2
Most Discussed