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Why US Airways Wants a Deal with American

Flores noted that Parker's management team raised $8 billion to pursue the Delta merger. "I believe they would do it again," he said.

USAPA spokesman James Ray recalled that Bruce Lakefield, now chairman of the board of US Airways, is a former Lehman Brothers executive who presided over the merger with America West . The deal resulted partially from Lakefield's success in devising new methods to raise investment capital.

"It will be interesting to see if Lakefield can put another deal together," Ray said.

American intends to fund its restructuring with $4.1 billion in cash. But in a report issued Wednesday, Wolfe Trahan analyst Hunter Keay said $4.1 billion may not be enough.

"Given the likelihood of continuing cash burn throughout the course of the Chapter 11 process, the need for a debtor-in-possession loan at some point down the road should still be considered as a potential outcome," Keay wrote.

"We could easily see a DIP lender suggesting far more aggressive actions, up to and including a combination with another airline," Keay wrote. It could well be that such a lender would ally with a US Airways management that promises sweeping changes, and that can bring experience in managing a successful merger to the table.

Although American has said it wants to use bankruptcy to reduce costs, it seems clear that to compete with Delta and United, American must also boost revenue and economies of scale. Unlike previous merger partners Northwest and Continental, US Airways has little to offer internationally, but it could offer American a broader domestic footprint.

Key assets include a Charlotte, N.C. , hub that provides the only competition to Atlanta for gathering southeast passengers, and a strong presence at Washington Reagan National Airport, long a profit center. Significantly, American has minimal overlap with these two key operations.

US Airways' Phoenix hub connects passengers between the East and West, offering an opportunity for consolidation with American's bigger Dallas hub. US Airways' Philadelphia hub and American's hub at New York's Kennedy International both offer abundant trans-Atlantic service, providing an opportunity to build synergies between two airports. (Philadelphia has better connections; Kennedy has more local traffic.) Aviation consultant Sandy Rederer said that American also has "a lot of internal technology infrastructure that US Airways lacks."
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