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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That labor deal provided a clear picture for how the unions would be integrated, and was instrumental in convincing the American board in January that revenue and cost benefits from a merger would outweigh a standalone restructuring, sources said.Skip to next paragraph
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"Getting that done, that was really a joint effort, and a good one of US Air and AMR working together," said a person familiar with the negotiations.
"That whole process, people could see more clearly the possibilities as opposed to obstacles to not to do a deal. That might have been the catalyst moment for the AMR board," the person said.
American had Rothschild and Weil Gotshal & Manges LLP as financial and legal advisers. Law firm Skadden, Arps, Slate, Meagher & Flom LLP and investment bank Moelis & Co advised American's creditors committee.
Jury is out
Now comes the hard part. The combined carrier is to be branded American Airlines, based in Fort Worth, Texas, where American is currently based, and will be part of the oneworld global airline alliance, of which American is an anchor member.
It remains to be seen whether the new American will replicate the success of Delta, which has expanded its network and upgraded its facilities to attract new customers and improve earnings since its merger with Northwest. United Continental, on the other hand, has struggled to overcome disruptive technology changes that alienated customers.
The new company will have to meld employee groups from the two carriers, and prove that $1 billion in merger synergies can be achieved.
The tie-up is a reversal of fortunes for Parker, 51. As the longest-serving CEO of a major U.S. airline, he kick-started the industry's consolidation wave when his America West Holdings bought US Airways out of bankruptcy in 2005.
But the mega-mergers that followed and fundamentally transformed the industry had eluded him until AMR.
In 2010, Continental CEO Jeff Smisek noted that United had first courted US Airways as a merger partner but then reversed course and ended up with Continental.
"I didn't want him to marry the ugly girl," Smisek said at the time, referring to US Airways. "I wanted him to marry the pretty one, and I'm much prettier."
Smisek later sent Parker an apology, saying that he was "carried away in the moment."
Parker could yet have his revenge - by joining forces with American, US Airways would surpass both United Continental and Delta to become the world's largest airline by revenue and passenger traffic.
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