Bankrupt American Airlines Merges with US Airways

Bankrupt American Airlines Merges with US Airways

American Airlines and US Airways have announced an $11 billion merger that will create the largest airline carrier in the world.

The announcement comes after months of rocky deals, labor disputes, and pension agreements brought on by American Airlines’ bankruptcy. Discussions of a merger have been in place since the company filed for protection under bankruptcy law in 2011, and creditors pressured American to merge, rather than try to emerge from bankruptcy independently.

The terms of the new partnership dictate that US Airways shareholders will own 28 percent of the combined airline, while American Airlines shareholders, creditors, labor unions, and employees will own 72 percent. Although the carrier will retain its name, it will be operated by US Airways CEO Doug Parker. American Airlines CEO Tom Horton will serve as chairman of the new company until mid-2014, said sources close to the private deal.

The partnership paves the way for the combined company to remain competitive with other large U.S. carriers, including United, Delta, and Southwest. For example, the two airlines have only 12 routes that overlap out of a combined 900 routes that the two airlines serve together, Parker told the New York Times. He also noted that more cities would be serviced once the merger goes into effect, as American flies to 130 cities that US Airways does not service. In addition, US Airways flies to 62 cities that are not served by American. The merger will enable the new company to offer 6,700 daily flights to 336 destinations in 56 countries, the Times reports.

“I have been a long proponent of consolidation in the industry,” Parker said in a conference call. “And this is the last major piece needed to rationalize the industry and make it profitable.”