MERGER OF AMERICAN AND US AIRWAYS IS WAVED AHEAD BY JUDGE'S RULING
c.2013 New York Times News Service
With American Airlines’ exit from bankruptcy Wednesday, the grunt work of merging the airline with US Airways can begin and it will most likely be a long-haul affair, analysts said.
It has already been a bumpy two years at American Airlines, which filed for bankruptcy protection in November 2011 and expected at the time to speed through its reorganization and emerge as a leaner, independent carrier. But a far different airline is coming out of the process now, and if history is any guide it will face a difficult transition as the two companies tie the knot, analysts said.
“Of course it is very good news that new American now can finally proceed with the merger, but life is short and so are honeymoons,” said Vicki Bryan, an analyst at Gimme Credit.
Previous big mergers — Delta Air Lines and Northwest, United Airlines and Continental — have taken more than two years to be fully integrated. Southwest Airlines’ purchase of AirTran, announced in May 2011, is still a work in progress.
A federal court cleared the way for American’s exit from bankruptcy Wednesday, giving the go-ahead for the formation of the world’s largest airline.
A central feature of the reorganization plan was the merger with US Airways, which had the backing of American’s creditors and employees. But the plan was temporarily disrupted after a challenge over the summer from the Justice Department on the grounds that it would hurt competition and lead to higher fares.
Just weeks before the trial was scheduled to start, and after months of uncertainty, regulators and the airlines settled the suit Nov. 12. Judge Sean H. Lane, of the U.S. Bankruptcy Court for the Southern District of New York, found that the settlement did not modify the plan of reorganization enough to warrant a new vote by creditors and shareholders and said the merger could proceed without delay.
American was the last of the legacy airlines to file for bankruptcy, stumbling from its perch as the nation’s top carrier after falling behind Delta and United.
American and US Airways said that a combination was the best hope to provide travelers with a similar global network capable of competing with Delta and United. But American will have to work hard to convince passengers that a larger carrier can offer better and more customer-friendly service.
Airline mergers are often marred by reservation problems and computer glitches. United, for example, suffered repeated flight delays and disruptions last year because of problems associated with its merger with Continental.
Bryan said it would probably take about two years for American to complete its merger. But she added that the airline would need to operate on a much shorter time frame to convince passengers and investors that it could deliver on its merger goals.
“I believe they have a chance to be nearly as successful as Delta back in 2008,” she said. “They really have less than a year once they actually close the transaction to convince the world they can execute as advertised.”
This means laying out “clear and comprehensive planning, measured implementations, and sustained collaboration, especially with employees,” she said, adding, “United failed at this almost from the start, and old American hasn’t had it for years.”
All this will be up to a renewed management team, led by US Airways’ W. Douglas Parker, to instill energy and fresh thoughts at American, where morale has been sapped by labor tensions in recent years.
The combined airline, which will keep the name American Airlines, will be based in the Dallas-Fort Worth region. It will have 6,700 daily flights, 1,500 airplanes and about 100,000 employees. Its annual revenue will reach about $38 billion.
American said Wednesday that it expected the merger to close Dec. 9. It said that the last day of trading for all outstanding securities, including those of its parent company AMR Corp. as well as shares of US Airways, would be Dec. 6. Once the merger closes, AMR will be renamed the American Airlines Group and be listed on the Nasdaq under the ticker symbol AAL.
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Parker has been a cheerleader for airline consolidation for years. He orchestrated the combination of America West with US Airways in 2005 and then sought unsuccessfully to merge the carrier with Delta as well as United.
After American filed for bankruptcy, Parker saw an opening to go after a fast merger despite the opposition of American’s managers. He made his case quickly, first with airline employees, then with creditors. He then persuaded the representatives of his rival’s pilots, flight attendants and mechanics to back a merger with US Airways, provided that Parker would run the show.
The vote, which crystallized the employees’ defiance against American’s managers and what they described as a failed strategy over the years, proved a turning point in the battle for American’s future.
Thomas W. Horton, American’s chairman and chief executive, initially outlined a plan for the airline to come out of bankruptcy as an independent carrier, but was eventually forced to endorse the merger proposal once creditors supported it. Horton will remain as the chairman for a limited time.
Still, the merger has been criticized by consumer groups that fear that losing yet another carrier to a merger would lead to higher airfares and reduced competition. Similar arguments were raised in August by the Justice Department when it sued to block the deal.
As a condition for dropping their objections, federal antitrust regulators requested that the airline sell some takeoff and landing rights at Reagan National Airport in Washington and La Guardia Airport in New York as well as divest gates and ground assets at five other airports: Chicago O’Hare International, Los Angeles International, Boston Logan International, Dallas Love Field and Miami International.