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American and US Airways to become the world's largest airline (+video)

Leaders of the deal between American Airlines and US Airways decided early on that they would only proceed as long as they had the backing of American employees. The two sides believe they would receive regulatory backing for a merger. The new company is to be called American Airlines and based out of Fort Worth, Texas. 

By Soyoung KimReuters / February 14, 2013


US Airways Group Inc has spent years looking for a merger partner only to be turned away and labeled the "ugly girl" amid a wave of U.S. airline industry consolidation.

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It finally saw an opportunity in the fall of 2011, when rumors swirled that American Airlines was in trouble.

Still, US Airways was caught off guard when American's parent AMR Corp filed for bankruptcy in November that year. US Airways executives had estimated that American had enough cash to sustain operations at least through May of 2012, according to people familiar with the situation.

Chief Executive Doug Parker quickly mobilized a team to devise a strategy to move on American, a much larger rival. Within about a month, Jim Millstein, a restructuring executive formerly with the U.S. Treasury, and Barclays were brought in as financial advisers, and Latham & Watkins LP was hired as legal counsel .

Parker wanted to act fast because he felt that American would try to exit bankruptcy quickly, the sources said. But after US Airways' hostile bid for Delta Air Lines had failed in early 2007, the last thing Parker wanted was to appear overly aggressive.

In the face of AMR CEO Tom Horton's initial resistance, the US Airways team spent several months wooing American's creditors and labor unions, hoping to persuade them to put pressure on management to come to the table.

In April last year, American's three largest unions voiced support for a US Airways takeover. And in May, AMR's official unsecured creditors committee convinced Horton to explore a merger as an alternative to an independent restructuring plan.

Parker "recognized who effectively would be the arbiters of this deal and he put together a campaign to bring them over to his side," said Robert Mann, an airline consultant in Port Washington, New York.

A person familiar with the discussions said Parker and US Airways President Scott Kirby decided early in the process that they would only proceed if they had the support of American employees. "That was a lesson learned from Delta. If we don't have them, it won't happen. And they led the way," the person said.

On Wednesday, the boards of AMR and US Airways approved the $11 billion merger, and an announcement is expected early on Thursday. 

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