US Airways, American merge in $11 billion deal

American Airlines and US Airways Group Inc. confirmed today that they will merge after boards of the two companies late Wednesday unanimously approved a $11 billion deal to create the world's largest airline by passenger traffic.

Philadelphia and eight other cities will be hubs for the combined carrier, to be called American and based in Fort Worth, Texas.

The deal, which comes as American exits bankruptcy restructuring, still must be approved by the bankruptcy court, antitrust regulators in the U.S. Justice Department, and US Airways shareholders.

It will be months, possibly a couple of years, before passengers will see any significant impact from the merger. One of the most complex aspects will be integrating the airlines' technology, reservation systems, flight schedules, and labor contracts.

Until then, each airline will operate its own flights and sell its own tickets. Eventually, the US Airways brand that transports nearly 70 percent of Philadelphia travelers will disappear.

US Airways' chief executive officer, Doug Parker, will lead the new company, and American CEO Tom Horton will be nonexecutive chairman until the first shareholder meeting next year. Parker will then be CEO and chairman.

AMR creditors will own 72 percent, and US Airways shareholders 28 percent in an all-stock transaction.

The new company will have a combined 98,000 employees, 1,500 planes, 6,700 daily flights to 336 destinations in 56 countries, nine major hubs, and $40 billion in revenue.

It will be the market leader in two-thirds of the country - the East Coast and the Midwest - and the dominant U.S. airline in Latin America, but will still be weak in Asia, where United and Delta are stronger.

The merged company's passenger traffic - US Airways is the fifth-largest U.S. carrier and American third - will lift it past United Continental and Delta as the world's largest.

The combination also would give American a stronger footprint on the East Coast, where US Airways has hubs in Charlotte and Philadelphia, and allow US Airways to expand its reach across the Atlantic and into Latin America.

Both airlines' regional carriers - AMR's American Eagle and US Airways' Piedmont and PSA - will continue to operate flights.

"I am pleased that we were able to obtain the support of a sizeable portion of our unsecured creditors for a plan that provides a recovery of at least a 3.5 percent aggregate ownership stake in the combined airline for our shareholders," Horton said, in a statement. "It is unusual in Chapter 11 cases -- an unprecedented in recent airline restructurings -- for shareholders to receive meaningful recoveries."

The merger is expected to become final in the third quarter.

US Airways, which operates 437 daily flights and employs 6,366 in Philadelphia, got its start as All American Aviation and grew from the mergers of Piedmont, Allegheny, PSA, America West and US Air passenger carriers.

The combined airline has orders in the next four years for more than 600 new aircraft, including 517 narrowbody and 90 widebody international aircraft, equipped with the latest inflight entertainment and WiFi systems.

"American Airlines is one of the world's most iconic brands," Parker said. "The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace."

Parker and his team spent the last year convincing American's union leaders, bondholders, creditors and anyone who would listen that the merger made sense to create a carrier that could compete with United and Delta. American had lost market share over the last five years, and Parker argued that American's revenue shortfall would not be fixed by remaining independent.

Industry observers say the combination is the last big merger, after Delta and Northwest combined in 2008, United and Continental in 2010, and Southwest merged with AirTran in 2011.

The combining of these two carriers will "ultimately provide new air service opportunities to markets not currently served directly from PHL, especially international markets in Asia, South America and other important destinations," said Philadelphia airport CEO Mark Gale. "This merger should also strengthen the airport's position as an economic engine, serving as one of the new airline's major hubs, continuing to create jobs and help in growing our region's economy."

Whether airline mergers are good for consumers is a matter of debate. They can lead to service cuts in smaller cities and higher fares in some markets and routes. But mergers have also created a healthier and more profitable industry. Analysts expect regulators to approve the deal because the two have mostly complimentary routes; there's very little overlap in their networks. Only 12 city pairs are identical.

Parker has said Philadelphia would remain key to the new, bigger airline because of strong local origin-and-destination traffic and the region's large population.

Officials said the combined airline expects to maintain all hubs and service to all destinations. The hubs are Philadelphia, Charlotte, Phoenix and Washington, D.C. for US Airways. American's hubs are Dallas-Fort Worth, Miami, Chicago, New York, and Los Angeles.

However, Fitch Ratings analyst Seth Lehman cautioned that airline hubs are not all created equal and recent mergers have shown some hub airports lose air service. Lehman questioned whether maintaining nine hubs "at the same level of operations will be necessary to maintain an efficient single network."

In order for the new airline to achieve more than $1 billion in cost-savings by 2015, which is the goal, there will be trims in flight schedules, routes, and jobs. For instance, where US Airways and American have separate ticket counters, gate agents, and baggage handlers, the jobs will be consolidated.

Industry observers say Phoenix and Los Angeles are the most vulnerable hubs to be downsized.

Pilot and flight attendant unions for both airlines issued statements, welcoming the merger. "It's been a long, tough road but the result is well worth it," said American flight attendant president Laura Glading.

"This merger came about due to the cooperative efforts of both management and labor," said US Airways pilot president Gary Hummel. "As pilots, we are proud to be part of the new American Airlines."

Dennis Tajer, spokesman for American pilots, said Doug Parker and the leadership team will return American to "a position of industry preeminence." The goal was to create a strong future for American and to protect and improve the pilots' careers. "This merger does that."

US Airways will leave the Star Alliance with 27 partner airlines to join American's oneworld global alliance, with 11 partners, including British Airways.

"People in Philadelphia will be able to redeem their flights on British Airways, which has really good award ability through London," said Brian Kelly, founder of a blog and website ThePointsGuy.com, which offers tips for passengers to maximize airline frequent flier miles and credit-card points.

In previous airline mergers, frequent flier members of each carrier's programs were able to link their accounts, Kelly said.

"The biggest thing I like about American miles is they allow you to redeem for one-way awards at half the price of a round trip," he said. "US Airways, even if you only need to go one way, charges you the full round-trip in miles no matter what."

American's awards redemption begins at 12,500 miles, compared with 25,000 at US Airways, he said.

"I think that's something they will keep. I think the new frequent flier program will be based more on American's than US Airways' program. With the United and Delta mergers, they took the best aspects of both frequent flier programs."

The deal is a coup for Parker, who began pursuing a merger with the bigger rival soon after American filed for bankruptcy in November 2011. His argument was that American could succeed against bigger airlines only if it combined with US Airways.

American had losses of $12 billion in the last decade. US Airways has been profitable the last three years.

The two airlines discussed a deal for months, but were still hashing out the value of the merged carrier and who would run it. Horton wanted American to emerge from bankruptcy an independent company before considering any mergers.

The carriers were working to finalize a deal before Feb. 15, when confidentiality agreements with AMR bondholders were to expire.

Parker and his top lieutenant Scott Kirby, who ran America West and bought US Airways in bankruptcy in 2005, gained ground last April by winning the support of American's three major labor unions.

Recently, pilots and flight attendants from both airlines agreed on terms of how they would work together in a merger. The success of the labor discussions helped persuade American's creditors to follow Parker's lead.

Merger Partners at a Glance

American Airlines

1930: Begins from consolidation of companies, including Robertson Aircraft, whose chief pilot Charles Lindbergh flew mail from St. Louis to Chicago.

1934: Becomes American Air Lines.

1939: Enters airline food catering business, with Sky Chefs subsidiary.

1945: Operates American Overseas Airlines, a trans-Atlantic division serving Europe.

1970: Gains first Caribbean routes through a merger with Trans Caribbean Airways.

1975: Acquires other Caribbean routes from Pan Am.

1984: Begins American Eagle system of regional airlines.

1986: Sells Sky Chefs and purchases Air California (Air Cal).

1998: Acquires Reno Air; American Eagle acquires Business Express.

2001: Buys assets of Trans World Airlines (TWA).

2011: Files for bankruptcy reorganization.

US Airways

1939: Starts as All American Aviation with airmail service in Western Pennsylvania and Ohio Valley.

1949: Begins passenger service as All American Airways.

1953: Changes name to Allegheny Airlines.

1968: Merges with Lake Central Airlines and expands to the Midwest.

1972: Acquires Mohawk Airlines with service throughout New York and New England.

1979: Changes name to USAir to reflect expanding network.

1987: Acquires Pacific Southwest Airlines (PSA) and Piedmont Airlines as subsidiaries.

1992: Starts a marketing affiliation with Trump Shuttle, which becomes USAir Shuttle.

1997: Changes name from US Air to US Airways.

2002: Files the first of two Chapter 11 bankruptcy petitions.

2005: Merges with America West, keeping US Airways name.

New name: American

Value of combined company: $11 billion

Headquarters: Fort Worth

Employees: 98,000

Fleet: 1,500 planes

Annual revenue:

$40 billion

Hubs: Philadelphia, Charlotte, Phoenix, Washington, New York City, Miami, Chicago, Dallas-Fort Worth, Los Angeles.

Global partners: Oneworld alliance with British Airways, Cathay Pacific, Iberia, Qantas, Japan Airlines and others.

Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.