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AMR-LCC Merger Moves a Step Ahead
UAL LUV DAL
A new chapter was added to the merger story of
US Airways Group Inc. and American Airlines Inc, a subsidiary of AMR Corporation, as U.S. Bankruptcy Judge Sean Lane gave his green signal for the $11 billion unification. The judge in the Manhattan courtroom turned down the application of a planned $19.9 million severance for Tom Horton, the outgoing CEO of AMR.
Horton's severance package – that was to be paid in cash and stock on an equal share basis – was opposed by the U.S. Trustee on grounds of violating bankruptcy laws.
However, the merger of the two aforesaid airlines – which will create the largest global carrier – will take around six months for completion as it is pending approvals from antitrust regulators of the Department of Justice and US Airways shareholders.
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 Feb, the board of directors of US Airways Group and AMR Corporation gave a 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 newly formed airline – American Airlines Group Inc. – is expected to have nearly 6,700 flights daily and generate annual revenue of roughly $40 billion. Headed by US Airways chief executive Doug Parker, the combined company will also dethrone United Continental Holdings Inc. ( UAL - Analyst Report) from its current status of being the carrier of the highest number of passengers.
Mergers have played an important role in shaping the present scenario of the airline industry in U.S. This is evident from the past three-mega mergers – Northwest Airlines and Delta Air Lines Inc. ( DAL - Analyst Report) in 2008, United Airlines and Continental Airlines in 2010, and AirTran Holdings and Southwest Airlines Co. ( LUV - Analyst Report) in 2011. All the three companies – Delta, United and Southwest – hold commanding positions within the industry and are the long-term beneficiaries on both capacity and cost fronts.
Currently, Delta, United and Southwest carry a Zacks Rank #3 (Hold), while US Airways has a Zacks Rank #4 (Sell).