American Airlines and US Airways Outline Path to Marriage

After months of courting, American Airlines and US Airways selected Valentine’s Day to formally confirm their engagement after the boards of directors of both companies unanimously approved a definitive merger agreement. This paves the way for the two entities to combine to form the world’s largest carrier with a combined equity value of approximately $11 billion. The transaction is conditioned on the approval by the US Bankruptcy Court for the Southern District of New York, regulatory approvals, approval by US Airways shareholders, other customary closing conditions, and confirmation and consummation of the merger. The final marriage is expected to take place in the third quarter of 2013.

Operating under the recently refreshed American Airlines brand, the combined airline will offer more than 6,700 daily flights to 336 destinations in 56 countries. The ‘new American Airlines is expected to maintain all the hubs currently served by the two carriers as there is very little crossover between their two networks. In fact an analysis of the two carriers’ flight schedules for February 2013 shows only 12 non-stop routes that both airlines directly compete either through their mainline businesses or regional partners.

These competitive routes consist links from Charlotte Douglas to Chicago O’Hare, Dallas/Fort Worth International, Miami International and New York La Guardia; from Philadelphia to Chicago O’Hare, Dallas/Fort Worth International, Miami International; from Phoenix to O’Hare, Dallas/Fort Worth International and Los Angeles and from Washington Reagan National to Nashville and Raleigh Durham.

“Today, we are proud to launch the new American Airlines - a premier global carrier well equipped to compete and win against the best in the world.  Together, we will be even better positioned to deliver for all of our stakeholders, including our customers, people, investors, partners, and the many communities we serve.”

Tom Horton
President and Chief Executive Officer, American Airlines

Alongside their mainline activities, both American Airlines and US Airways 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 seamless service to the combined airline. The company will be headquartered in Dallas-Fort Worth and will maintain a significant corporate and operational presence in Phoenix.

The combined airline will provide the most service across the East Coast and Central regions of the US, including the East Coast shuttle, enhancing the combined carrier's competitive position. It will have a strengthened network in western US markets and the arrival of US Airways’ flights will bolster American's industry-leading position in Latin America and the Caribbean. The carrier will be a full member of the oneworld alliance and discussions have already started over US Airways departure from rival Star.

The transaction is expected to generate more than $1 billion in annual net synergies in 2015, including $900 million in network revenue synergies, resulting predominantly from increased passenger traffic, taking advantage of the combined carrier's improved schedule and connectivity, an improved mix of high-yield business, and the redeployment of the combined fleet to better match capacity to customer demand. In addition, American Airlines' landmark agreements with Airbus and Boeing, designed to transform the American Airlines fleet over the next four years, will solidify the combined airline's fleet plan into the next decade. The combined airline is planning to take delivery of more than 600 new aircraft, including 517 narrowbody aircraft and 90 widebody international aircraft.

Under the terms of the merger agreement, US Airways stockholders will receive one share of common stock of the combined airline for each share of US Airways common stock then held. The aggregate number of shares of common stock of the combined airline issuable to holders of US Airways equity instruments (including stockholders, holders of convertible notes, optionees and holders of restricted stock units) will represent 28 per cent of 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 American’s parent AMR Corporation and its debtor subsidiaries that filed for relief under its Chapter 11 bankruptcy protection filing, American's labor unions, and current AMR employees.

The merger is to be effected pursuant to a plan of reorganisation for the Debtors in their currently pending cases under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York and is subject to confirmation and consummation in accordance with the requirements of the Bankruptcy Code.

Thomas Horton, Chairman, President and Chief Executive Officer of American Airlines, will serve as Chairman of the combined airline's Board of Directors through its first annual meeting of shareholders, and will also serve as the combined airline's representative to the oneworld Alliance, of which he is currently chairman, and International Air Transport Association for the same duration. Doug Parker, Chairman and CEO of US Airways, will serve as Chief Executive Officer and a member of the Board of Directors. Parker will assume the additional position of Chairman of the Board following the conclusion of Horton's service.

"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,” said Tom Horton, Chairman, President, and Chief Executive Officer of American Airlines. “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.”

According to Doug Parker, Chairman and Chief Executive Officer, US Airways, the agreement “marks an exciting new chapter” for the two US carriers. “American Airlines is one of the world's most iconic brands. The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to travel, when they want to go," he said.

In the table below we highlight the largest domestic and international points in the combined American Airlines and US Airways network based upon their February 2013 flight schedule.