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American Airlines and US Airways in talks about combination

American Airlines parent AMR and US Airways sign a non-disclosure agreement and will exchange confidential information in an effort to merge their companies.

August 31, 2012|By Gregory Karp

CHICAGO — U.S. airline behemoths United Airlines and Delta Air Lines could be joined by a third mega-carrier, as talks to merge American Airlines and US Airways heated up heading into the Labor Day weekend.

AMR Corp., parent of American Airlines, and US Airways Group Inc. announced Friday that they signed a non-disclosure agreement and would exchange confidential information in an effort to merge their companies. A merged airline would have complementary route networks and achieve the scale necessary to compete head-to-head with the largest carriers, US Airways officials have said.

For consumers, an American-US Airways combination might not be beneficial.

"It is pretty clear that a smoothly executed merger — a historical coin flip at best — would probably create a stronger business entity," said Rick Seaney, chief executive of FareCompare.com. "Unfortunately for passengers, we would likely see an acceleration in the current trend in reduced choice, packed planes and higher ticket prices, albeit finally on newer aircraft."

The non-disclosure agreement means the companies won't be providing more information regarding the status of discussions until there's a deal or they call off talks, the airlines said. The airline companies said they would work in "close collaboration" to evaluate a merger, including working with the creditors committee of AMR, which filed for bankruptcy protection in November.

The companies noted that there's no guarantee that a merger will result.

American also said it signed non-disclosure agreements with other parties but would not say with whom. Reportedly, one is with the parent company of British Airways, International Airlines Group, which potentially seeks to buy a stake in American Airlines, according to the Associated Press. It can only buy a stake and not the whole company because foreign entities by law can control only 25% of a U.S. airline.

However, analysts have said the most likely merger candidate would be US Airways.

AMR Chief Executive Tom Horton has long insisted that the company was not interested in a merger while it was restructuring, saying it was too complex to do both. Meanwhile, US Airways CEO Doug Parker aggressively and publicly campaigned for merger talks.

An American-US Airways combination would allow the airlines to better compete with the two largest U.S. carriers, United Continental Holdings, parent of United Airlines, and Delta Air Lines. Those airlines in recent years have grown bigger by their own mergers.

"You would have the international operations of AMR and the lower cost structure of US Airways," Morningstar analyst Basili Alukos said.

However, combining airlines is no easy feat. The most recent evidence is the mega-merger of United Airlines and Continental Airlines, which combined in 2010. The new United Airlines continues to struggle with integrating the airlines. Its March combination of the United and Continental passenger reservation systems has resulted in numerous glitches and rampant flight delays. And the airline is still struggling to strike joint labor agreements with its unions.

However, a merger of American and US Airways already has the support of AMR labor unions. In April, AMR unions, including pilots, flight attendants and ground workers, said they struck independent deals with US Airways in anticipation and support of a merger.

Shares of US Airways closed up 26 cents, or 2.5%, at $10.66 on Friday.

gkarp@tribune.com

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