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Court Approves AMR, US Airways Merger

Court Approves AMR, US Airways Merger
3/27/2013 7:29 PM ET

A U.S. Bankruptcy Court judge on Wednesday approved insolvent AMR Corp.'s (AAMRQ) planned merger with US Airways Group Inc. (LCC: Quote), easing the process towards formation of the world's largest airline. AMR, parent of American Airlines, filed for Chapter 11 bankruptcy in November 2011 amid increasing labor costs and an obstreperous labor union.

The company, which had been refusing a merger until it emerged from bankruptcy, caved in to pressure from creditors and agreed to combine with US Airways last month. The deal will create a global carrier that will have an implied combined equity value of about $11 billion.

However, AMR must come out with a formal restructuring plan that incorporates the merger and meets Court and creditor approval before it can emerge from bankruptcy.

Meanwhile, the Bankruptcy Court judge refused to approve a planned near $20 million severance package for AMR's outgoing CEO Tom Horton. The judge was unsure as to whether a decision on the package comes within his ambit or in AMR's restructuring plan. That plan will define how creditors will get their money back and also requires their approval.

Meanwhile, the merger deal has already been approved by both companies' Boards, but is still subject to approval from regulators and US Airways shareholders. The deal is expected to close in the third quarter 2013.

AMR was one of the few airlines that averted bankruptcy after the 9/11 attacks and subsequent downturn. However, the company reported losses in the years after, even as peers pruned expenses and returned to profit.

As part of the merger terms, US Airways shareholders will own 28 percent of the combined company, and the remaining stake will be held by stakeholders of AMR and its debtor subsidiaries, American's labor unions, and current AMR employees.

The merged entity will operate under the American Airlines name and offer more than 6,700 daily flights across 56 countries. The deal is expected to generate more than $1 billion in annual net synergies in 2015. The combination is expected to deliver enhanced value to American Airlines stakeholders and significantly accretive to earnings per share for US Airways shareholders in 2014.

Thomas Horton will serve as chairman of the combined airline's board through its first annual meeting of shareholders. Doug Parker, CEO of US Airways, will serve as CEO of the merged entity and also as a member of its board. Parker will assume the additional position of chairman of the board following the conclusion of Horton's service.

AAMRQ, whose stock is traded over the counter, closed at $4.02, up 1.52%, on a volume of 4.6 million shares.

LCC closed Wednesday's trading at $16.65, up 0.85%, on a volume of 5.5 million shares on the NYSE. In after hours, the stock gained 3.00%.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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