AMR, US Airways Evaluating Potential Merger

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Published: September 1, 2012

American Airlines parent AMR and US Airways have signed a non-disclosure agreement as they evaluate a potential merger that would create an airline that rivals United in scope.

The two carriers said on Friday they agreed to share confidential information, work with bankrupt AMR’s creditors committee, and not talk to third parties about any terms of their possible combination.

American has also signed non-disclosure agreements with other parties, according to a memo the company sent to managers on Friday. It did not identify the other parties, but Bloomberg and the Associated Press on Friday reported that British Airways parent International Airlines Group also signed a non-disclosure accord with American.

IAG, a member of the oneworld global alliance of which American is a part, did not immediately respond to a request for comment. The company had said earlier this month that it may consider taking a stake in American.

Many analysts consider US Airways to be the leading contender for AMR, which filed for Chapter 11 bankruptcy protection in November. Combined, US Airways and AMR had USD$ 37 billion in revenue in 2011, about equal with United Continental.

American Airlines initially said it would prefer to emerge from bankruptcy on a standalone basis, but has grudgingly responded to pressure from creditors to consider a merger as its best option for competing with United and Delta, which are themselves the products of mergers.

A source familiar with the situation said the non-disclosure agreement is fairly restrictive as it prevents US Airways from discussing specific terms of a combination with third parties including unions and private equity firms that might be interested in a stake, or other airlines.

US Airways, which declined to comment beyond the news release, has been aggressively campaigning for a merger with AMR. Earlier this year, US Airways won the backing of three unions that represent American ramp workers, pilots and flight attendants by promising to preserve thousands of jobs post-merger.

US Airways, based in Tempe, Arizona, has also contacted Fort Worth, Texas-based American’s creditors and US lawmakers about the possibility of a tie-up with American.

In a staff memo on Friday, US Airways chief executive Doug Parker said the non-disclosure agreement with American would likely stay in place until a deal has been reached, or talks fail.

“We are pleased to be working directly with American to study a potential merger and we consider this very good news,” Parker wrote. He added that the carrier “will not be able to be as open and candid about the discussions with American as we usually are about issues that are important to us.”

Morningstar analyst Basili Alukos said it would be in the best interests of American and US Airways to combine.

“You would have the international operations of AMR and the lower cost structure of US Airways,” Alukos said.

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