AMR Corp. (AAMRQ), the parent company of American Airlines and American Eagle, is close to a deal on the merger of American Airlines with smaller rival US Airways Group, Inc. (LCC) that will create the world's largest airline, according to a media reports on Wednesday. A deal, which has been in the news since March, could be announced as early as the beginning of January.
In a major shot in the arm for the proposed deal, the bankruptcy court reportedly approved earlier in the day a new six-year labor contract with the pilots union that was overwhelmingly ratified by the union on December 8. The pilots union is also backing the merger with US Airways.
This approval of the labor contract will now help AMR emerge from bankruptcy and facilitate its proposed merger with US Airways. The new contract envisages labor cost cuts, while also increasing the pay for pilots and providing them a 13.5 percent stake in the restructured company.
American has already finalized new contracts with the flight attendant union and the mechanics union.
United Airways sent an all-stock merger proposal in mid-November to AMR and its creditors. As per the proposal, American's creditors would own 70 percent of the new combined airline and US Airways shareholders 30 percent, which implied a combined company valued at up to $8.3 billion.
AMR filed for Chapter 11 bankruptcy protection in November 2011, citing uncompetitive costs. Under some pressure from creditors, American started discussing a possible merger with rival US Airways in late August. The two airlines in September signed a nondisclosure deal that allows them to share confidential information and evaluate a possible deal.
AMR had until recently shrugged off takeover interest expressed by US Airways and insisted on a stand-alone restructuring plan as the efforts to reach a deal could prolong the bankruptcy proceedings for American Airlines as regulators may ask for an antitrust review as well.
US Airways had begun initial talks in late March with some creditors and advisers of bankrupt American Airlines regarding a merger of the carriers. US Airways said then that a merger of the two could translate to over $1.5 billion in revenue and cost savings. Three main unions of American are part of the creditors' committee.
Some members of the unsecured creditors committee reportedly gave a positive response to US Airways' plan for the combined airline, targeting to complete the combination before AMR exits bankruptcy.
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 following years even as peers resolved cost issues and returned to profit.
Delta Air Lines, Inc. (DAL) and private-equity group TPG were also weighing potential bids for AMR. Meanwhile, Delta was also eying a potential bid for US Airways itself in late January.
Earlier, US Airways had made an $8.7 billion failed hostile bid for Delta in 2006, when the company was under bankruptcy protection. Later, Delta acquired Northwest Airlines in 2008.
LCC closed Wednesday's regular trading session at $13.48, up $0.53 or 4.09% on a volume of 9.15 million shares. AAMRQ is trading at $0.95, up $0.06 or 6.99% on a volume of 7.47 million shares.
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