The Deal: Stormy Skies Ahead for American, US Airways
NEW YORK (The Deal) -- Hours after the Department of Justice's surprise announcement on Tuesday, Aug. 13, that it filed suit to block the planned $11 billion merger of US Airways Group (LCC) and AMR Corp. (AAMRQ), the airlines pledged to fight vigorously to win approval. Investors and creditors of the two companies had better hope they succeed.
The DOJ, in arguing against a merger that would create the world's largest air carrier, included numerous quotes from executives at the two companies from prior to the deal's announcement saying that both airlines would be fine without a deal. But analysts say that while it is true that neither airline would be in immediate jeopardy absent a merger, neither is well positioned to compete over the long term on their own.
The airlines are not moving on to plan B just yet.
US Airways CEO Doug Parker, who would run the combined airline, on Tuesday told executives focused on integrating the two companies to proceed with their work. Sources close to the two airlines continue to hope a settlement is possible, although comments from Assistant Attorney General for Antitrust William Baer suggest a trial is more likely.Should the airlines lose in court, AMR, the bankrupt parent of American Airlines Inc., would face the more immediate risk but the smaller US Airways would also have issues to deal with. AMR had hoped to use the deal as a path to exit Chapter 11 protection. The company in the months leading up to the Feb. 14 merger announcement had been formulating a standalone plan as an alternative, but sources say creditors overwhelmingly favored combining with US Airways because that option allowed a better payback, as well as creating a more powerful company. American Airlines even without a deal is blessed with large operations in major markets including Chicago, Los Angeles, New York and Miami, and has a strong alliance with British Airways plc that gives it extensive access to London's coveted Heathrow Airport. But the company would lack the scale of archrivals United Continental Holdings (UAL) and Delta Air Lines (DAL) -- both of which were given approval to do mergers in recent years -- and, more importantly, would have to deal with disgruntled labor groups.
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