As AMR Corp. (AAMRQ:US)’s American Airlines nears the end of two years in bankruptcy after winning approval to merge with US Airways Group Inc. (LCC:US), the equally arduous chore of creating the world’s biggest carrier is poised to begin.
Led by US Airways Chief Executive Officer Doug Parker, the new American’s employees will act on plans crafted in the past eight months. They face structural tasks that include melding frequent-flier plans and deciding on a regional-jet fleet, as well as details such as picking an aircraft paint scheme.
American will need to avoid technological pitfalls like the computer failures that snarled flights at United Continental Holdings Inc. after its 2010 tie-up, while also making good on a pledge to achieve $1 billion in cost savings and new revenue. The closing of the $17.7 billion merger and AMR’s Chapter 11 exit will come Dec. 9, the company said today.
“What we’ll see is the beginning of announcements of what the integration teams have been putting together,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia. “Doug Parker’s team has been quite eager to consummate the merger for some time.”
Parker, 52, began pursuing American shortly after the carrier’s bankruptcy filing on Nov. 29, 2011. Fort Worth, Texas-based AMR agreed to the merger in February, and the airlines worked toward a September closing until the Justice Department filed an antitrust lawsuit to block the deal on Aug. 13. A settlement in that case was reached Nov. 12, and U.S. Bankruptcy Judge Sean Lane in Manhattan approved that accord today.
Investors will be among the first to feel the effect of the new company’s arrival. The combined carrier will become American Airlines Group Inc. on Dec. 9, and the shares will be listed on the Nasdaq Stock Market with the ticker AAL.
Equity in the merged airline will be distributed then, with 72 percent going to AMR creditors, including stakes totaling 23.6 percent for American employees and management, and at least 3.5 percent for existing AMR shareholders (AAMRQ:US). Stockholders in Tempe, Arizona-based US Airways will get the rest.
Pay raises and other contract changes agreed to earlier for all employees will take effect that day as well, as part of the merger agreement the airlines unveiled in February.
Some changes visible to travelers, such as combining loyalty programs, won’t come for months. For example, United, formed in the October 2010 merger of UAL Corp. and Continental Airlines Inc., didn’t have a unified website until March 2012.
Other steps, including US Airways’ shift to the American-led Oneworld marketing group from Star Alliance, should happen during the first quarter, according to the airlines.
“I suspect they are going to go dark for a while until they have something to talk to the consumer about,” said Jay Sorensen, a former Midwest Airlines executive who now runs Shorewood, Wisconsin-based aviation consultant IdeaworksCompany. “Right now they don’t. To talk in that situation creates nothing but problems for customer-facing processes.”
American and US Airways will take “the first step in being a single airline for customers” on Jan. 7, US Airways President Scott Kirby said on a Nov. 12 conference call. “We’re going to have a more seamless customer interface” to announce that day, he said, without providing specifics.
Todd Lehmacher, a US Airways spokesman, and Mike Trevino with American, declined to provide a timetable for the integration or discuss what the airline will announce on Jan. 7.
One early move will be the sharing of airline booking codes so the carriers can put travelers onto each other’s flights. Later, fliers will be able to earn and redeem reward miles on either airline before a single program is created when American and US Airways begin operating as one carrier.
“‘You want your miles in our family’ is the message,” Hamlin said in an interview. “They’ll say, ‘We’re about to begin a new year and you need to put your miles in at least one of them’ because, hopefully by the end of 2014, the programs will be together.”
In airline mergers, frequent fliers typically have their miles rolled together into one account at the surviving carrier.
American and US Airways will function separately until the Federal Aviation Administration approves unified operations, probably near the end of 2014. Delta Air Lines Inc. needed 14 months for FAA clearance to start combined operations with Northwest Airlines Corp., which it acquired in 2008.
Parker and his lieutenants haven’t said which airline’s computer reservation system will be adopted, or whether they will make changes in regional flying. Before its bankruptcy filing, American planned to divest its American Eagle partner. US Airways handles regional flights with its own PSA Airlines and Piedmont Airlines and contracts with five other carriers.
Also delayed during American’s stay in court protection is an order for regional jets from Brazil’s Embraer SA (EMBR3), maker of most of the carrier’s commuter planes, or Bombardier Inc. (BBD/B)
“With the path clear for American to merge with US Air, we expect a large regional-jet order from the combined carrier soon,” Joseph Nadol, a JPMorgan Chase & Co. aerospace analyst in New York, said in a Nov. 25 report.
A livery, or airplane paint design, and logo must be chosen. American CEO Tom Horton, who will stay on as chairman until the company’s first shareholder meeting, introduced a new livery in January, about a month before the merger agreement, the first such change in more than 40 years.
Parker hasn’t said whether that new design will be kept, or if a new one will be designed with elements of both airlines’ schemes.
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