Yet another attempt at consolidation


In yet another attempt at consolidation in the airline industry, American Airlines and U.S. Airways are close to closing a deal to create the biggest U.S. carrier. Despite recent high profile opposition to large mergers, the Wall Street Journal is reporting the deal will likely go through.

Here’s their story:

U.S. antitrust authorities over the past year have been particularly active, blocking acquisitions in industries from beer to e-books. But the potential deal to create the world’s biggest airline likely would fly clear of government objections, experts said.

American Airlines parent AMR Corp. and US Airways Group Inc. are in final negotiations on a marriage that could be announced as early as this week. The combined company would surpass United Continental Holdings Inc. as the No. 1 carrier by traffic and control about one-quarter of U.S. domestic capacity.

But the deal involves only about a dozen overlapping routes, similar to the number in the most recent three big airline mergers, according to research by J.P. Morgan. Those transactions were cleared by the Justice Department, with the carriers in only one deal required to relinquish takeoff and landing slots to maintain competition.

“The government has tended to regard some overlaps as not problematic,” said Alison Smith, an antitrust lawyer at McDermott Will & Emery LLP in Houston who isn’t involved in the AMR deal. “If a merger combines complementary networks, that could bring benefits to consumers.”

Ms. Smith, who once worked in the Justice Department’s antitrust division, said the key question is whether regulators believe the airline industry already is sufficiently concentrated. “The going thought is that this will be approved,” she said.

Bloomberg had these details about the structure of the new company and who would be in charge.

The boards of American Airlines parent AMR Corp. and US Airways Group Inc. are prepared to vote on a merger on Feb. 11 as executives and advisers work on final terms this weekend, people familiar with the matter said.

The sides have agreed that AMR’s bankruptcy creditors would get 72 percent of the equity in the new carrier, with 28 percent for US Airways shareholders, said two of the people, who asked not to be identified because the talks are private. US Airways Chief Executive Officer Doug Parker will run the airline as AMR CEO Tom Horton becomes non-executive chairman, the person said.

Horton’s tenure in that post is still being negotiated, and will be limited to one or two years, one of the people said. AMR’s bankruptcy creditors committee is poised for a vote early next week on any merger accord, with an announcement as soon as Feb. 12, two people said.

Leadership and the division of the equity had been the final major issues in the discussions, people familiar with the talks have said. A tie-up between American, the third-largest U.S. airline, and No. 5 US Airways would create the world’s biggest carrier by passenger traffic.

London’s Financial Times said that an investment from British Airways was looking increasingly less likely as the deal came together.

However, the parent of British Airways has declared it is “increasingly unlikely” to buy a minority stake in American as part of its planned exit from Chapter 11 bankruptcy protection.

Having last year raised the prospect of investing in AmericanInternational Airlines Group is now playing down the possibility of taking a minority stake, partly because it has not been encouraged to make such a move by the US carrier.

AMR has also been attempting an ambitious restructuring – it filed for Chapter 11 bankruptcy protection in November 2011, in order to cut its high operating costs and large debt load.

The airline’s progress in Chapter 11 was highlighted at its annual results last month, when it reported an operating profit of $107m, a marked turnround from a loss of $1.1bn in 2011.

The boards of AMR and US Airways are due to convene this week to approve the merger terms. The main sticking points are mostly resolved, although one person familiar with the matter stressed there were still some outstanding issues.

Airlines are obviously in trouble, so maybe a merger of two of the largest carriers will yield some savings for them. But that likely means selling spots at high-traffic airports, selling other assets like planes – and job losses. No one is reporting about that just yet, but it seems like it will happen. Where else will they find savings?