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American Is Doing Great But US Airways Merger Still Needed, CEO Says

DALLAS (TheStreet) -- American Airlines (AAMRQ) is in a tough position, doing fine on its own yet saying it needs a merger with US Airways (LCC).

American announced on Wednesday two new Dallas-Asia routes, and on Thursday it reported a record quarterly profit, leading one to question whether American can't prosper all by itself.

"Of course," said CEO Tom Horton in an interview. "You just have to look at the results. American has been very successful. (But) it will have a stronger network and be more competitive globally with a merger."

Obviously, American has proven that it reorganized successfully in bankruptcy court. "There were those who didn't think that would be the case," Horton said. "We never doubted it. People have been working very hard here over the last couple of years to achieve this."

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The quarter produced a net profit of $530 million, excluding one-time reorganization costs. Revenue rose 6.2% to $6.8 billion, the highest quarterly revenue in American's history. Including items, the net profit was $289 million, compared with a loss of $238 million in the same period a year earlier. The pretax margin was 7.8%, representing the seventh consecutive quarter of improved pretax margins.

"It's improvement both on the top line and the cost line," Horton said. Of course, the airline operating environment is strong, but "it's a little more than the environment," Horton said. "We've been working hard to improve the product, with all the new airplanes; we've been working very hard on the network, and we've been expanding and growing partnerships. (It's) all those things, taken together."

Horton continued to maintain that American is open to a settlement with the Department of Justice, which has sued to block the merger. That case is scheduled to be heard in U.S. District Court in Washington starting Nov. 25.

"We are open to a sensible and common sense settlement from Department of Justice," he said. "We were able to sit down with the Texas attorney general and find significant (common ground.) That is the right template for the Department of Justice." He declined to comment specifically on the possibility of a settlement.

Texas Attorney General Gregg Abbott now backs the merger, which he had previously opposed.

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