US Airways Group, Inc. (LCC), which is trying to merge with AMR Corp.'s American Airlines, has told some of the creditors of the airline that a combination of the two carriers could translate to over $1.5 billion in revenue and cost savings, the Wall Street Journal reported, quoting people familiar with the matter.
AMR Corp. and some of its subsidiaries, including American Airlines and American Eagle, filed for Chapter 11 bankruptcy protection in November 2011. The carrier had cited its cost disadvantage compared to larger competitors and said that the bankruptcy filing was to achieve a cost and debt structure that is industry competitive.
It was reported earlier that US Airways was in talks with some creditors and advisers of bankrupt American Airlines regarding a takeover of the carrier. Some members of the unsecured creditors committee were said to have given a positive response to US Airways' plan for the combined airline. The objective was to complete the combination before AMR exits Chapter 11 protection.
The WSJ report added that the efforts of US Airways to arrive at a deal could prolong the bankruptcy proceedings for American as regulators may require to conduct an antitrust review as well. This could in turn hurt creditors' recoveries if the value of the carrier was hit further by its longer stay in the bankruptcy court.
Three main unions of American are part of the creditors' committee.US Airways is said to have told creditors that a combination could generate $1 billion in additional revenue and $500 million in non-labor cost savings.
After the 9/11 attacks and subsequent downturn, AMR was one of the few airlines that averted bankruptcy. However, the company reported losses in the following years even as peers resolved cost issues and returned to profit.
While labor unions had made concessions to AMR in 2003, they were now seeking improved pay scales. The carrier is now trying to rework contracts with them.
US Airways could project the increased revenues from the combination in its talks with unions that include pilots, flight attendants, mechanics and airport ground workers.
LCC closed on Tuesday at $7.74, up $0.27 or 3.61 percent, on a volume of 6.95 million shares.
by RTT Staff Writer
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