American, US Airways have deal to merge, sources say

DALLAS – American Airlines and US Airways will merge and create the world’s biggest airline. The boards of both companies approved the deal late Wednesday, according to four people close to the situation.

The carrier will keep the American Airlines name but will be run by US Airways CEO Doug Parker. American’s CEO, Tom Horton, will serve as chairman of the new company until mid-2014, these people said.

The merger caps a turbulent period of bankruptcies and consolidation that will leave the U.S. airline industry dominated by four big carriers – American, United, Delta and Southwest. Together they would control almost three-quarters of U.S. airline traffic.

The deal has been in the works since August, when creditors forced American to consider a merger rather than remain independent. American has been restructuring under bankruptcy protection since late 2011. AMR creditors and possibly its shareholders will own 72 percent of the stock, and US Airways Group Inc. shareholders will get the rest, three of the people said.

A formal announcement is expected this morning.

If the deal is approved by American’s bankruptcy judge and antitrust regulators, the new American will have more than 900 planes, 3,200 daily flights and about 95,000 employees, not counting regional affiliates. It will be slightly bigger than United Airlines by passenger traffic.

Travelers on American and US Airways won’t notice immediate changes. It likely will be months before the frequent-flier programs are merged, and possibly years before the two airlines are fully combined.

When that happens, American’s presence will grow in key East Coast markets including New York’s LaGuardia Airport and Washington’s Reagan National Airport. The merger will add US Airways hubs in Charlotte, Philadelphia and Phoenix to American’s in Dallas-Fort Worth, Chicago, Miami, New York and Los Angeles.

US Airways would boost American’s service to Europe and the Latin America-Caribbean market but wouldn’t fix American’s weakness on routes to Asia.

Just five years ago, American was the world’s biggest airline. It boasted a history reaching back 80 years to the beginning of air travel. It had popularized the frequent-flier program and developed the modern system of pricing airline tickets to match demand.

But years of heavy losses drove American and parent AMR Corp. into bankruptcy protection in late 2011. The company blamed bloated labor costs; its unions accused executives of mismanagement.

The merger is a stunning achievement for Parker and his management team at US Airways, based in Tempe, Ariz. Just a few years ago, they were running a midsized carrier called America West Airlines when they bought the old US Airways out of bankruptcy.

Parker’s airline is only half the size of American and is less familiar around the world, but he prevailed by driving a wedge between American’s management and its union workers and by convincing American’s creditors that a merger made business sense.

Despite its smaller size, US Airways has prospered in the last several years, earning a record profit of $637 million last year.

“They’ve done an absolutely terrific job with what they have,” said Bill Swelbar, an airline-industry researcher at MIT and board member of Hawaiian Airlines’ parent company.

Parker began pursuing a merger almost as soon as AMR filed its Chapter 11 petition. He found willing partners in American’s three labor unions, who have long fought with management at their own company over pay, work rules and executive bonuses.

American suffered strikes by pilots and flight attendants in the 1990s. Bad feelings hardened in the early 2000s, when union workers took pay cuts to keep the company out of bankruptcy while AMR gave bonuses to management employees when the stock price rose.

AMR’s Horton professed no interest in thinking about a merger until his company was out of bankruptcy court, but his creditors pressured him to reconsider. AMR lost more than $12 billion between 2001 and 2010. It has lost another $2.8 billion since it filed for bankruptcy protection in November 2011.