The merger of US Airways Group Inc. and American Airlines Inc, a subsidiary of AMR Corporation is perhaps just round the corner with the European Union’s (EU) approval expected next week. This is more likely as airlines have agreed to cut-down slots on the transatlantic route.
Toward the start of July, the EU expressed its concerns over the concentration of slots at the London Heathrow Airport in the hands of the to-be merged company, leaving no room for competition. This prompted US Airways and American Airlines to drop some of their rights at the London hub, allowing a rival carrier to commence a daily both-way service between Philadelphia and London.
Fort Worth, Texas-based AMR Corporation filed for bankruptcy in Nov 2011, citing unmanageable labor issues that drastically increased the company’s expenses. Repetitive attempts on part of the airline to solve the problem by negotiating with the unionized workforce proved futile.
In mid February, the board of directors of the aforesaid airlines gave the nod to the pending merger agreement. Following the completion of the deal, AMR stakeholders will control 72% interest of the new entity, while the remaining 28% will be owned by US Airways shareholders.
The amalgamation of US Airways Group and AMR Corporation will create the largest global carrier– American Airlines Group Inc. This company will likely have nearly 6,700 flights daily and generate annual revenue of roughly $40 billion.
Although the U.S. Bankruptcy Judge Sean Lane gave his green signal for the $11 billion unification in early April, the antitrust regulators of the Department of Justice and US Airways shareholders are still reviewing the transaction.
Over the last five years, mergers have played a pivotal role in shaping the present scenario of the airline industry in the U.S. This is evident from the past mergers involving Northwest Airlines and Delta Air Lines Inc. (DAL - Free Report) in 2008; United Airlines and Continental Airlines in 2010, creating United Continental Holdings Inc. (UAL - Free Report) ; and AirTran Holdings and Southwest Airlines Co. (LUV - Free Report) in 2011.
With major and legacy airlines of U.S. joining hands, the total numbers of carriers operating within the industry are becoming less. This is resulting in less competition, reflecting higher airfares.
Currently, Delta, United and Southwest carry a Zacks Rank #3 (Hold), while US Airways has a Zacks Rank #1 (Strong Buy).