American Airlines and US Airways to merge to form world's biggest airline

US Airways and the now bankrupt American Airlines are to join forces to save jobs, creating a merged entity worth around $11bn.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Rumour has it that the boards of the two companies agreed on the merger early this morning but that an official statement won’t be released till later today. The deal has been in the works since August, however, when American Airlines’ bankruptcy creditors forced the airline to look at a merger to secure the future of the company. American has been restructuring under bankruptcy protection since late 2011.

The deal is a coup for these creditors, who will now own a 72% chunk of the new company.

The US airline industry has been in flux for the past few years, with a series of bankruptcies and consolidations (Delta has now teamed up with Northwest, Continental with United) that have left just four major players in the sky: American, United, Delta and Southwest. These airlines now control almost three-quarters of US airline traffic.

The newly-formed American Airlines/US Airways carrier will keep the American Airlines name (the brand is the weightier of the two, given that American was the world’s biggest airline just five years ago) but US Airways chief executive Doug Parker will step into the cockpit. American's current CEO, Tom Horton, will serve as chairman of the new company until mid-2014.

If the merger goes ahead, this new American will have more than 900 planes, 3,200 daily flights and some 100,000 employees, not including the airline’s regional affiliates.

It’s a bittersweet deal for the airline, which was once the darling of the skies, pioneering the now ubiquitous loyalty programme for frequent fliers. It was also the first airline to introduce a system of sliding prices according to consumer demand. But two year ago, the company went belly up, with management blaming labour costs and unions blaming the directors.

At least, in US Airways, American has found a profitable partner. All that remains is for competition regulators and a US bankruptcy court to give their approval to the deal – and that’s practically a given. It would be politically damaging to block a deal that could save thousands of jobs and undermine the strength of the US airline industry even further. Plus, American has been in Chapter 11 for two years, so it's been living on borrowed time. 

Once the ink dries on the deal, American’s status as the world’s biggest airline will be assured once more. Even if it does have to lean heavily on the financial soundness of its other half…

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