Bloomberg News

AMR, US Airways Boards Said to Approve $11 Billion Merger

February 14, 2013

AMR, US Airways Said to Be Poised for $11 Billion Merger Today

AMR Corp.’s American Airlines and US Airways Group Inc. are poised to announce an $11 billion merger today that will create the world’s largest carrier. Photographer: Andrew Harrer/Bloomberg

AMR Corp (AAMRQ:US).’s American Airlines and US Airways Group Inc. are poised to announce an $11 billion merger today that will create the world’s largest carrier and shrink the U.S. industry to three dominant companies, people familiar with the matter said.

The airlines’ boards approved the move yesterday, said the people, who asked not to be identified because the talks were private. Doug Parker, chief executive officer of the smaller US Airways, will be CEO at the new airline, and AMR CEO Tom Horton will be non-executive chairman, the people have said.

AMR’s bankruptcy creditors will own 72 percent of the new company, and US Airways stockholders will get 28 percent, one of the people said. Parker, 51, has said the combined carrier would retain the American name and Fort Worth, Texas, headquarters.

The merger will return American to the top spot in global passenger traffic, a ranking secured with the 2001 purchase of Trans World Airlines Inc. American lost that size advantage and lucrative corporate contracts during the past decade as rivals combined, and AMR posted losses totaling more than $6 billion in the four years through 2011, when it filed for Chapter 11 protection.

Horton, 51, will receive a performance payment for taking AMR through Chapter 11, with the amount set by the company’s creditors committee, a person familiar with that issue said. His tenure will run until the first joint shareholder meeting or for one year from the closing date, the person said.

Board Breakdown

The creditors will name five directors to a new 12-member board, while US Airways gets the right to pick four members and AMR will choose three, one of the people said. AMR’s creditors committee, which has a say in major decisions in bankruptcy, also endorsed the merger, another person said.

Along with United Continental Holdings Inc. (UAL:US) and Delta Air Lines Inc. (DAL:US), American will be one of just three U.S. full-service carriers with trans-oceanic routes, down from seven at the start of the last decade. American is the third-largest U.S. carrier, and US Airways is No. 5.

Todd Lehmacher, a spokesman for Tempe, Arizona-based US Airways, declined to comment about the status of any merger agreement, as did Sean Collins, an American spokesman.

US Airways rose 2.7 percent to $14.66 at the close in New York. The shares have more than tripled since Nov. 28, 2011, the day before AMR filed for bankruptcy.

AMR’s $460 million of 6.25 percent convertible notes due in October 2014 rose 0.4 percent to 101 cents on the dollar at 3:55 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has risen more than fivefold since AMR’s Chapter 11 filing.

Industry Rise

For Parker, taking over at American completes an 11-year ascent to the top of the global industry. America West Holdings Corp. was the eighth-biggest U.S. airline when he became CEO there in 2001, four years before he combined that carrier with US Airways. Bids to buy Delta and two efforts at a United Airlines merger all fell through in the past six years.

The American deal also concludes a quest that Parker began shortly after AMR filed for Chapter 11 protection on Nov. 29, 2011. He wooed AMR’s unsecured creditors committee, an ad hoc bondholder group and American’s unions as the airlines agreed in August to swap confidential data as a prelude to a tie-up.

Parker argued that a deal in bankruptcy would be cheaper and easier to complete. The merger agreement will become AMR’s reorganization plan, which must be approved by the bankruptcy court.

Horton initially had sought to exit Chapter 11 independently, and then consider consolidation options. Pressed by the creditors committee, AMR agreed in May to weigh strategic options against its own strategy, people familiar with the matter said at the time.

The case is in re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net;

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net


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