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American, US Airways agree on mega-merger by Aaron Karp 14 Feb.13

The boards of directors of American Airlines parent AMR Corp. and US Airways have “unanimously approved a definitive merger agreement under which the companies will combine to create a premier global carrier” with an equity value of $11 billion, the two airlines announced Thursday morning.

The new, combined airline will be called “American Airlines” with US Airways chairman and CEO Doug Parker heading the company as CEO. It will be based at Dallas/Fort Worth International Airport. AMR chairman, president and CEO Tom Horton will temporarily serve as chairman of the board of the new company through its first annual shareholders meeting.

The combined carrier is expected to generate $1 billion in annual net synergies by 2015. Including mainline and regional aircraft, the new American will have more than 1,500 aircraft in its fleet and more than 600 new aircraft on order.

American has been operating under Chapter 11 bankruptcy protection since November 2011, and had originally planned to emerge from bankruptcy as a standalone entity. However, US Airways executives and American’s unionized workers have been pushing for a merger for months, with speculation heating up over the last week that a deal was imminent.

The board of the new company will be comprised of three American representatives, including Horton, four US Airways representatives, including Parker, and five representatives from AMR’s creditor’s committee.

According to American and US Airways, US Airways stockholders will receive one share of common stock of the new American for each share of US Airways common stock they now hold. In aggregate, US Airways shareholders will hold 28% of the combined airline while 72% will be held by AMR stakeholders, which will include American’s labor unions and current AMR employees.

The merger is contingent on a US bankruptcy court approving AMR’s plan of reorganization to emerge from Chapter 11 as part of the combined carrier. The US Department of Justice must also clear the deal, which is expected.

The new American will operate 6,700 daily flights to 336 destinations in 56 countries. “The combined airline is expected to maintain all hubs currently served by American Airlines and US Airways,” the companies said.

“Today, we are proud to launch the new American Airlines,” Horton said, adding, “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. 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.”

He continued, “It is unusual in Chapter 11 cases—and unprecedented in recent airline restructurings—for shareholders to receive meaningful recoveries. I look forward to working closely with Doug Parker.”

Parker said, “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.”

The merger would leave the US with just three full-service international airlines, down from six five years ago, as the US Airways brand would join Continental Airlines and Northwest Airlines as existing only in the history books.