American Airlines, US Air to form largest US carrier
NEW YORK, USA - American Airlines and US Airways announced a long-expected merger Thursday, February 14, that would create the largest US airline, giving them more weight in an industry that has steadily consolidated in recent years.
The marriage would establish a huge carrier with more than 1,500 aircraft, able to compete head to head with powerful rivals United Airlines and Delta Air Lines.
It follows a series of recent airline mergers that has better positioned the industry to make fare hikes stick and build profitability.
The deal would also help lift American parent AMR Corp from bankruptcy reorganization, where it has been since November 2011.
But as with other corporate deals that involve pocketbook issues, the proposed merger drew immediate scrutiny from Washington.
"We will review the proposed merger of American Airlines and US Airways very closely," said Senator John Rockefeller, chairman of the Senate Commerce, Science and Transportation Committee.
"Industry consolidation has created stronger and more financially viable airlines, which are necessary for our country's long-term economic growth. But, it has also resulted in fewer choices for consumers, higher air fares, and reduced air service to small and medium sized communities," Rockefeller said.
Company officials characterized the deal as a winner for consumers by establishing a third US airline giant to compete with Delta and United. They expect to complete the merger in the third quarter. The combined company will fly under the name American Airlines.
The merger would assemble a powerful fleet of 1,511 mainline and regional aircraft with more than 6,700 daily flights to 56 countries, they said.
Combined revenues of $38.7 billion in 2012 would put them slightly ahead of United and Delta.
But they would still be smaller, revenues-wise, that Germany's powerhouse Lufthansa.
While some administrative job cuts are expected, executives said the biggest savings came from combining routes and organizing planes efficiently so that the largest planes go to the busiest routes.
They also touted the combined company's capacity to win back valuable corporate riders who were lured away by other airlines.
The companies also said the deal would strengthen their presence in the US Northeast, the western part of the US and Latin America. But some observers have said they would still be relatively weak in Europe and Asia.
Standard & Poor's cited "potential revenue synergies" from the deal, but said it believes the route network created by the merger is "not as strong" as those created by recent mergers executed by United and Delta.
Also, S&P warned there will "be likely higher labor costs from signing new contracts with unions to facilitate merging the airlines."
The New American Foundation, a Washington think tank, called on the Obama administration to block the merger because of its ill effects on consumers.
"It is troubling that an essential national service is now governed only by a handful of airline executives, who see themselves as accountable only to shareholders," the foundation said.
Antitrust regulators and a US bankruptcy court must first give their approval before the merger can go forward, as American has been under bankruptcy protection since November 2011.
American has continued to operate under court supervision even as it sought to slash costs by renegotiating wage and benefit deals with its unions.
A joint statement by unions representing 60,000 employees from the two companies said the merger boosted job security.
The deal better positions workers for nearly $90 million in "contractual improvements," said Keith Wilson, president of the Allied Pilots Association.
"Instead of being badly outgunned by Delta and United, American Airlines would once again become a formidable competitor," Wilson said.
But the International Association of Machinists and Aerospace Workers, which represents more than 14,000 employees at US Airways, called on US Airways to conclude contract talks before merging.
"The IAM has been in negotiations with US Airways to amend existing contracts for approximately two years," said IAM District 142 President Tom Higginbotham.
"US Airways, however, is more concerned with courting American Airlines than negotiating with its own employees."
Latest in global consolidation
This merger between American Airlines and US Airways marks the latest in a series of recent deals that has consolidated the airline industry.
May 2004: Air France buys Dutch airline KLM. The airline, now known as Air France KLM, is one of Europe's biggest with 75.8 million passengers. With 586 aircraft, the airline travels to 230 destinations in 113 countries.
May 2005: while in bankruptcy, US Airways merges with regional carrier America West to form the fifth biggest American airline. It currently transports around 80 million passengers to more than 190 destinations.
April 2008: Delta Air Lines merges with Northwest Airlines, forming a company with 722 planes and traveling to 320 cities in the world.
September 2009: Germany's Lufthansa takes overs Austrian Airlines to become the biggest airline in Europe.
May 2010: Continental Airlines and United Airlines announced their merger, creating a carrier with 700 aircraft flying to 370 destinations in 59 countries.
August 2010: Chile's LAN and Brazilian peer TAM combine to form Latin American giant LATAM. The firm has more than 280 planes and flies to 115 destinations in 23 countries.
January 2011: British Airways and Spain's Iberia merge to become the International Airlines Group. The new firm counts 419 planes, flies to more than 200 destinations and serves about 55 million passengers by year.
February 2013: American Airlines and US Airways officially announce their merger, giving birth to the number one US airline and a global giant. The new company has around 1,500 planes and flies to 336 destinations in 56 countries. - Rappler.com