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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. 

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Stars aligned 

A big point in Parker's favor was the fact that American has had difficult labor relations for more than a decade. The pilots union rejected a new concessionary contract last August, in part due to fears that approval would be seen as a vote of confidence in AMR management and undermine the case for US Airways.

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The pilots grudgingly approved the contract a few months later, but only after AMR's influential bondholders assured the union that they would not support any restructuring plan unless American remakes its board and management team.

"There's a toxic employee situation at AMR because frankly the employees don't trust their management," said Michael Boyd, an Evergreen, Colorado-based aviation consultant whose firm has worked with Parker.

"From that perspective, you've got labor unions on both sides of this who really would like to see Doug Parker run this larger airline."

Meanwhile, the mega airline mergers in 2008 and 2010 that created today's Delta Air Lines and United Continental Holdings Inc, were increasingly marginalizing both American and US Airways.

Wall Street analysts and investors were almost unanimous in saying that a marriage was the best shot at reversing the fortunes of the two airlines, seen as too small to compete effectively against a Delta or United, and too large to be as nimble as the smaller carriers like JetBlue.

Reflecting investor enthusiasm about the prospects of a merger, shares of US Airways have risen 57 percent since the spring of 2012, when the airline reached agreement with American's main labor unions to support a potential merger.

While a combination would still need approval from U.S. regulators, both US Airways and American believe that would not be a problem since Delta-Northwest and United-Continental mergers were approved.

According to some antitrust experts, US Airways and American would likely be allowed to combined if they agreed to divest assets in some cities to preserve competition. 

Five-way talks in Dallas 

While the support for a deal grew among American employees and creditors, it remained a tough sell to AMR management, which wanted to emerge out of bankruptcy as an independent company and consider any deals on its own terms.

Under an agreement with creditors, American entered into merger talks with US Airways last summer, but the American executives spent several months talking up the risk of integrating different unions, while talking down the benefits of combination, people familiar with the situation said.

It took five-party discussions in Dallas to change the tide. These talks took away much of the year-end holidays for the two airlines' executives, the pilots unions on each side, and AMR's creditors committee.

They spent the month of December trying to negotiate a joint labor contract that would cover both unions in the event of a merger. A tipping point came shortly after Christmas, which resulted in a memorandum of understanding on Dec. 28.

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