After months of negotiations, American Airlines and US Airways are expected this week to announce a merger, which would create the nation’s biggest airline and concentrate even further a once-fragmented industry.
A merger would expand American’s domestic network, particularly in the Northeast and the Southwest, and create a more formidable competitor internationally. The combined airline would jump ahead of United Airlines and Delta Air Lines, both of which have grown through mergers of their own in recent years.
The combination would probably bring to an end the wave of consolidation that has swept the industry. Since 2001 there have been five large mergers, reducing the number of airlines to three main carriers, along with a handful of low-cost carriers like Southwest Airlines and JetBlue, and regional carriers.
These mergers have led to cuts in service to many smaller cities around the country. But they have also created healthier and more profitable airlines that are able to invest in new planes and products. Faced with rising fuel costs, and losing tens of billions of dollars in the last decade, airline executives argued that the only way to survive was to consolidate capacity.
American, which has been in bankruptcy protection since November 2011, is currently the nation’s third-largest airline with domestic and international flights; US Airways is the fourth.
The boards of both carriers are expected to meet on Monday to approve the combination, which then needs to be approved by a bankruptcy judge in New York. A tie-up also requires the approval of federal regulators and antitrust authorities. But analysts expect regulators to approve the deal since there is little overlap between the two networks and no hubs in the same cities.
Even if the deal clears all these hurdles, the merged airline still faces a range of challenges. Airline mergers are often rocky — involving complex technological systems, big reservation networks as well as large labor groups with different corporate cultures that all need to be combined seamlessly. United angered passengers last year after a series of merger-related computer and reservation mistakes, and late and delayed flights.
A deal would be a major victory for Doug Parker, the chairman of US Airways, who began pursuing a merger with the bigger carrier soon after American filed for bankruptcy. His argument — that American could succeed against bigger airlines only if it combined networks with US Airways — swayed American’s creditors who have a critical say in the company’s future.
The carriers have been discussing a deal for months. In recent days, both sides have moved much closer but were still trying to figure out how much the merged carrier would be worth and how management positions would be split.
Tom Horton, American’s chairman, who was opposed to a merger for much of the last year, was offered a position as nonexecutive chairman, said a person familiar with the matter but who asked not to be identified because the talks were still under way. US Airways shareholders could end up with about 28 percent of the new airline, and American’s creditors would have 72, this person said.
A merger could be structured to take effect as American exits bankruptcy. The airlines are pushing for a deal before Feb. 15, when some nondisclosure agreements with American bondholders are set to expire.
The new airline will be called American Airlines and based in Dallas. It will have a combined 94,000 employees, 950 planes, 6,500 daily flights, nine major hubs, and total sales of nearly $39 billion. It would be the market leader on the East Coast, the Southwest and South America. But it would remain a smaller player in the Pacific and Europe, where United and Delta are stronger.
Mr. Parker deftly outmaneuvered Mr. Horton by lobbying American’s employees. He gained an important edge last April when he won the public support of American’s three main labor groups. More recently, pilots from both airlines agreed on how they would work together if the merger succeeded.
The success of these labor discussions, even before the merger was formally discussed, helped persuade American’s creditors to follow Mr. Parker’s strategy.
Mr. Horton, and American’s management team, had argued that they should complete the carrier’s reorganization and emerge from bankruptcy as an independent airline before considering any mergers.
But under pressure from Mr. Parker, the management of American Airlines was eventually forced by its creditors to talk to Mr. Parker about a merger. All that was left then was to figure out who was going to lead the merged airline and how much it would be worth.
Mr. Parker, more than anyone in the business, knows the difficulty of integrating two airlines. In 2005, he orchestrated the merger of the airline he was then running, America West, with a larger carrier, US Airways. But pilots from each of these two original airline have yet to agree to a common contract and seniority rules, and, to this day, cannot fly together.
The difficulty is likely to be compounded at American. In bankruptcy, American cut thousands of jobs, reduced benefits, froze pensions, and sought higher productivity rules from its employees.
Before the US Airways-American deal, the last major combination was the acquisition of AirTran by Southwest, completed in 2011. That followed the merger of United and Continental Airlines in 2010, which created the current leader, and before that Delta with Northwest.
American has major hubs in Dallas, Miami, Chicago, Los Angeles and New York. But it has been steadily losing ground to its rivals over the last decade while racking up losses that have totaled more than $12 billion in over 10 years.
US Airways has hubs in Phoenix, Philadelphia and Charlotte, and has a big presence at Washington’s National Airport.
Its shareholders will have to vote on the proposed merger.
