All board members of AMR Corporation, the parent company of American Airlines, Inc., and US Airways Group, Inc. have unanimously approved a merger agreement for the two companies to combine to create what is likely to be the world’s largest airline.
The new company will have an implied combined equity value of approximately $11 billion based on the price of US Airways’ stock as of February 13, according to American Airlines.
Operating under the American Airlines name, the combined airline will have a global network and a strong financial foundation. Key is that the combined carriers will remain within the oneworld Alliance, of which American Airlines is a founding member. This will mean US Airways leaving the Star Alliance, of which it is currently a member.
The new American will have combined firm orders for more than 600 new mainline aircraft, most of which will be Airbus and Boeing single-aisle jets ordered and optioned by American Airlines in 2011. US Airways, meanwhile, has outstanding orders for 22 Airbus A350 XWB widebodies, as well as eight A330-200s and 42 A321s.
Tom Horton, chairman, president and CEO of American Airlines, will serve as chairman of the combined airline’s board of directors through its first annual meeting of shareholders. Horton will also serve as the combined airline’s representative to the oneworld Alliance, of which he is currently chairman, and to the International Air Transport Association for the same duration.
Doug Parker, chairman and CEO of US Airways, will serve as chief executive officer of the combined airline and a member of its board. Parker will assume the additional position of chairman following the conclusion of Horton’s service.
The board of directors will initially be made up of 12 members: three American Airlines representatives, including Tom Horton; four US Airways representatives, including Doug Parker; and five AMR-creditor representatives.
Under the terms of the merger agreement, US Airways shareholders will receive one share of common stock of the combined airline for each share of US Airways common stock then held. US Airways equity holders will receive 28 per cent of all the diluted equity of the combined airline.
The remaining 72 per cent diluted equity ownership of the combined airline will be issuable to stakeholders of AMR and its debtor subsidiaries which filed for bankruptcy reorganization under Chapter 11 of the U.S. Bankruptcy Code, as well as American’s labor unions and current AMR employees.
The merger is to be effected under AMR’s bankruptcy reorganization plan, which is subject to confirmation and consummation in accordance with the requirements of the U.S. Bankruptcy Code.
According to American, the combined airline will offer more than 6,700 daily flights to 336 destinations in 56 countries. The enlarged American is expected to maintain all hubs currently served by American Airlines and US Airways.
Both airlines expect that the regional carriers they own – AMR Corporation’s American Eagle and US Airways’ Piedmont and PSA – will continue to operate as distinct entities, providing service to the combined airline.
The company will be headquartered near Dallas/Fort Worth International Airport and will maintain a significant corporate and operational presence in Phoenix, where US Airways’ current headquarters are located.
“The combination of American and US Airways brings together two highly complementary networks with access to the best destinations around the globe and gives us a strong platform to provide our customers the most connected, comfortable travel experience available,” says Horton.
Horton continues: “The operational and financial strength of the combined airline is expected to enable continued investment in new products and technologies and will create exciting new opportunities for our people, even as we deliver strong cash flow and sustainable profitability.”
Adds Horton: “This merger provides enhanced potential for full recovery for our creditors. In addition, I am pleased that we were able to obtain the support of a sizable portion of our unsecured creditors for a plan that provides a recovery of at least a 3.5 per cent aggregate ownership stake in the combined airline for our shareholders. It is unusual in Chapter 11 cases – and unprecedented in recent airline restructurings – for shareholders to receive meaningful recoveries.”