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AMR Corporation and US Airways file a motion to set merger trial for November 12, 2013

AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc. (Dallas/Fort Worth), and US Airways Group, Inc. (US Airways) (Phoenix) have announced that they filed a motion to set a trial date and a supporting brief in the United States District Court for the District Of Columbia in connection with the lawsuit filed by the U.S. Department of Justice (DOJ) regarding the merger of the two airlines. In the motion, American Airlines and US Airways have requested a November 12, 2013 trial date.

In their filing, the Companies explain that their proposed trial date is very reasonable by recent historical standards. The DOJ request for 180 days, especially with one of the parties in bankruptcy, however, would be unprecedented and unreasonable in the circumstances. Based on the DOJ merger cases litigated to a decision since 2001, the average time from the DOJ’s complaint to trial is 70 days.

Top Copyright Photo: Ole Simon/AirlinersGallery.com. American Airlines’ Boeing 777-223 ER N781AN (msn 29586) approaches Madrid for landing.

American Airlines: AG Slide Show

US Airways: AG Slide Show

Bottom Copyright Photo: Michael B. Ing/AirlinersGallery.com. Airbus A319-132 N814AW (msn 1281) lands at Long Beach near Los Angeles.

The Justice Department to block the AMR Corporate-US Airways Group merger

American Airlines 2013 logo

BREAKING NEWS

The Department of Justice (DOJ) (Washington) filed an antitrust lawsuit today affectively blocking the AMR Corporation (American Airlines) (Dallas/Fort Worth) and US Airways Group (US Airways) (Phoenix) merger. The DOJ seeks to block the merger “because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service”.

US Airways logo-1

The DOJ just issued this statement:

Justice Department Files Antitrust Lawsuit Challenging Proposed Merger Between US Airways and American Airlines. Merger Would Result in U.S. Consumers Paying Higher Airfares and Receiving Less Service; Lawsuit Seeks to Maintain Competition in the Airline Industry.

The Department of Justice, six state attorneys general and the District of Columbia filed a civil antitrust lawsuit today challenging the proposed $11 billion merger between US Airways Group Inc. and American Airlines’ parent corporation, AMR Corp.  The department said that the merger, which would result in the creation of the world’s largest airline, would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and receiving less service.

The Department of Justice’s Antitrust Division, along with the attorneys general, filed a lawsuit in the U.S. District Court for the District of Columbia, which seeks to prevent the companies from merging and to preserve the existing head-to-head competition between the firms that the transaction would eliminate.   The participating attorneys general are:   Texas, where American Airlines is headquartered; Arizona, where US Airways is headquartered; Florida; the District of Columbia; Pennsylvania; Tennessee; and Virginia.

“Airline travel is vital to millions of American consumers who fly regularly for either business or pleasure,” said Attorney General Eric Holder.   “By challenging this merger, the Department of Justice is saying that the American people deserve better.   This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices.   Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace.”

Last year, business and leisure airline travelers spent more than $70 billion on airfare for travel throughout the United States.    In recent years, major airlines have, in tandem, raised fares, imposed new and higher fees and reduced service, the department said.

“The department sued to block this merger because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers.   Both airlines have stated they can succeed on a standalone basis and consumers deserve the benefit of that continuing competitive dynamic.”

American and US Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues.   They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual route-wide revenues.  Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares, the department said in its complaint.

According to the department’s complaint, the vast majority of domestic airline routes are already highly concentrated.  The merger would create the largest airline in the world and result in four airlines controlling more than 80 percent of the United States commercial air travel market.

The merger would also entrench the merged airline as the dominant carrier at Washington Reagan National Airport, with control of 69 percent of the take-off and landing slots.   The merged airline would have a monopoly on 63 percent of the nonstop routes served out of Reagan National airport.   As a result, Washington, D.C., area passengers would likely see higher prices and fewer choices if the merger is allowed, the department said in its complaint.   Blocking the merger will preserve current competition and service, including flights that US Airways currently offers from Washington’s Reagan National Airport.

The complaint also describes how, in recent years, the major airlines have succeeded in raising prices, imposing new fees and reducing service.  The complaint quotes several public statements by senior US Airways executives directly attributing this trend to a reduction in the number of competitors in the U.S. market:

  • President Scott Kirby said, “Three successful fare increases – [we are] able to pass along to customers because of consolidation.”
  • At an industry conference in 2012, Kirby said, “Consolidation has also…allowed the industry to do things like ancillary revenues…. That is a structural permanent change to the industry and one that’s impossible to overstate the benefit from it.”
  • As US Airways CEO Parker stated in February 2013, combining US Airways and American would be “ the last major piece needed to fully rationalize the industry.”
  • A US Airways document said that capacity reductions have “enabled” fare increases.

“The merger of these two important competitors will just make things worse –exacerbating current airline industry trends toward reduced service, increasing fares and increasing passenger fees,” added Baer.

As the complaint describes, absent the merger, US Airways and American will continue to provide important competitive constraints on each other and on other airlines.   Today, US Airways competes vigorously for price-conscious travelers by offering discounts of up to 40 percent for connecting flights on other airlines’ nonstop routes under its Advantage Fares program. The other legacy airlines – American, Delta and United – routinely match the nonstop fares where they offer connecting service in order to avoid inciting costly fare wars.   The Advantage Fares strategy has been successful for US Airways because its network is different from the networks of the larger carriers. If the proposed merger is completed, the combined airline’s network will look more like the existing American, Delta and United networks, and as a result, the Advantage Fares program will likely be eliminated, resulting in higher prices and less services for consumers. An internal analysis at American in October 2012, concluded, “The [Advantage Fares] program would have to be eliminated in a merger with American, as American’s large, nonstop markets would now be susceptible to reactionary pricing from Delta and United.”   And, another American executive said that same month, “The industry will force alignment to a single approach–one that aligns with the large legacy carriers as it is revenue maximizing.”   By ending the Advantage Fares program, the merger would eliminate lower fares for millions of consumers, the department said.

The complaint also alleges that the merger is likely to result in higher ancillary fees, such as fees charged for checked bags and flight changes.   In recent years, the airlines have introduced fees for those services, which were previously included in the price of a ticket. These fees have become huge profit centers for the airlines.   In 2012, domestic airlines generated more than $6 billion in fees from checked bags and flight changes alone.   The legacy carriers often match each other when one introduces or increases a fee, and if others do not match the initiating carrier tends to withdraw the change.   By reducing the number of airlines, the merger will likely make it easier for the remaining carriers to coordinate fee increases, resulting in higher fees for consumers.

The department also said that the merger will make coordination easier among the legacy carriers.  Although low-cost carriers such as Southwest and JetBlue offer consumers many benefits, they fly to fewer locations and are unlikely to be able to constrain the coordinated behavior among those carriers.

American Airlines is currently operating in bankruptcy.   Absent the merger, American is likely to exit bankruptcy as a vigorous competitor, with strong incentives to grow to better compete with Delta and United, the department said. American recently made the largest aircraft order in industry history, and its post-bankruptcy standalone plan called for increasing both the number of flights and the number of destinations served by those flights at each of its hubs.

The department’s complaint describes US Airways executives’ fear of American’s standalone growth plan as “industry destabilizing.”   The complaint states that US Airways worries that American’s growth plan would cause “others” to react “with their own enhanced growth plans…,” and that the resulting effect would increase competitive pressures throughout the industry.   The department said the merger will allow US Airways’ management to abandon these aggressive growth plans and continue the industry’s current trend toward higher prices and less service.

The department’s complaint states that executives of both airlines have repeatedly said that they do not need the merger to succeed.   The complaint states that US Airways’ CEO observed in December 2011, that “A[merican] is not going away, they will be stronger post-bankruptcy because they will have less debt and reduced labor costs.”   US Airways’ executive vice president wrote in July 2012, that, “There isNO question about AMR’s ability to survive on a standalone basis.”   And, as recently as January 2013, American’s management presented plans that would increase the destinations it serves in the United States and the frequency of its flights, and would position American to compete independently as a profitable airline with aggressive plans for growth.

AMR is a Delaware corporation with its principal place of business in Fort Worth, Texas.   AMR is the parent company of American Airlines.   Last year American flew more than 80 million passengers to more than 250 destinations worldwide and took in more than $24 billion in revenue.   In November 2011, American filed for bankruptcy reorganization.

US Airways is a Delaware corporation with its principal place of business in Tempe, Ariz.   Last year US Airways flew more than 50 million passengers to more than 200 destinations worldwide and took in more than $13 billion in revenue.

Analysis: How American Airlines and US Airways executives wrecked their own merger proposal by Rick Newman: CLICK HERE

Meanwhile AMR and the US Airways Group responded with this statement:

AMR Corporation, the parent company of American Airlines, Inc., and US Airways Group, Inc. today announced that they intend to mount a vigorous and strong defense to the U.S. Department of Justice’s (DOJ) effort to block their proposed merger.

“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this procompetitive merger will deny customers access to a broader airline network that gives them more choices.

“Further, this merger provides the best outcome for AMR’s restructuring. The widespread support from the employees and financial stakeholders of both airlines underscores the fact that this is the best path forward for both airlines and the customers and communities we serve.

“We will mount a vigorous defense and pursue all legal options in order to achieve this merger and deliver the benefits of the new American to our customers and communities as soon as possible.”

Benefits of the New American:

Promotes Competitiveness

With more than 6,700 daily flights to 336 destinations in 56 countries around the world, the new American Airlines will strengthen communities nationwide through better service and travel to more destinations both domestically and internationally. Importantly, the combined airline expects to maintain current hubs of both airlines and expand service from those hubs, resulting in more choices for customers. The result for consumers is that the new American will be a highly competitive alternative to other domestic and global carriers.

Greater Long-Term Opportunities for Employees

Employees of the combined airline will benefit from being part of a company with a more competitive and strong financial foundation, which will create greater opportunities over the long term. The merger will also provide the path to improved compensation and benefits for employees.

More Choices, Increased Service, and an Enhanced Travel Experience for Customers

Customers will benefit from new flying options, more choices, increased service and an enhanced travel experience. We expect our complementary flight networks to increase efficiency and provide more options for customers. Greater connectivity with oneworld® alliance partners will give customers more options for travel and benefits both domestically and internationally.

The merger provides the best outcome for American’s restructuring with creditors and equity holders receiving nearly unprecedented recoveries and having approved the Plan of Reorganization overwhelmingly.

As previously announced, the boards of directors of both AMR and US Airways approved a plan to combine to create the new American Airlines, a premier global carrier.

American Airlines: AG Slide Show

US AIrways: AG Slide Show

US Airways reports a record Second Quarter net profit

US Airways Group, Inc. (US Airways) (Phoenix) today reported its second quarter 2013 financial results. For the second quarter 2013, pretax profit excluding net special items was $409 million, the highest in Company history. Net profit excluding net special items was a record $324 million, or $1.58 per diluted share. Net profit excluding net special items for the second quarter 2012 was $321 million, or $1.61 per diluted share. The Company’s 2013 second quarter net profit excluding net special items was negatively impacted by a non-cash provision for income tax of $85 million. There was no provision for income tax recorded in 2012.

On a GAAP basis, the Company reported a net profit of $287 million for its second quarter 2013, or $1.40 per diluted share. This compares to a net profit of $306 million, or $1.54 per diluted share, for the same period in 2012. The Company’s 2013 second quarter net profit was negatively impacted by a non-cash provision for income tax of $67 million.

See the accompanying notes in the Financial Tables section of this press release for a reconciliation of GAAP financial information to non-GAAP financial information.

Revenue and Cost Comparisons

Total revenues in the second quarter were a record $3.9 billion, up 2.9 percent versus the second quarter 2012 on a 3.4 percent increase in total available seat miles (ASMs). Total revenue per ASM was 16.22 cents, down 0.5 percent versus the same period last year driven by a 2.8 percent decrease in passenger yield, offset by a record quarterly load factor of 85.1 percent.

Total operating expenses in the second quarter were $3.4 billion, up 1.0 percent over the same period last year. Mainline cost per available seat mile (CASM) was 12.88 cents, down 2.0 percent on a 4.2 percent increase in mainline ASMs. Excluding special items, fuel and profit sharing, mainline CASM was 8.21 cents, down 0.4 percent versus the same period last year. Express CASM excluding special items and fuel was 14.34 cents, up 1.1 percent on a 0.3 percent decrease in ASMs.

Liquidity

As of June 30, 2013, the Company had a record $4.0 billion in total cash and investments, of which $350 million was restricted. This is up approximately $1.1 billion from the Company’s first quarter 2013 total cash and investments balance of $2.9 billion, of which $352 million was restricted.

During the second quarter, the Company raised approximately $870 million in net incremental cash through a series of financing transactions. These transactions included the refinancing of the Company’s term loan (resulting in approximately $270 million in incremental cash); the issuance of high yield bonds in an aggregate principal amount of $500 million; and a $100 million C-tranche to its 2012-2 EETC.

Special Items

The Company recognized approximately $55 million of net special items before taxes in the second quarter. Operating special items totaled $24 million and were primarily related to merger costs. The Company also recognized approximately $31 million in nonoperating special items primarily related to debt extinguishment charges due to non-cash write offs of debt discount and debt issuance costs in connection with conversions of the Company’s 7.25% convertible senior notes and repayment of the Citicorp North America term loan. The net tax effect of these special items was approximately $18 million.

Merger Update

The Company and its representatives continue to work closely with their counterparts at American in merger integration planning. The Company continues to expect the transaction to close in the third quarter. Recent accomplishments include:

  • June 10: US Airways and American announced the new Board of Directors and the senior leadership team for the new American Airlines Group Inc.
  • June 10: The Securities Exchange Commission (SEC) Form S-4 Registration Statement was declared effective by the SEC.
  • June 19: US Airways’ Chairman and CEO Doug Parker and American Airlines’ Senior Vice President, General Counsel & Chief Compliance Officer Gary Kennedy, jointly testified before the Senate Subcommittee on Aviation, Operations, Safety and Security about the benefits of the new American Airlines to customers, employees, financial stakeholders and communities.
  • July 12: US Airways’ shareholders approved the proposed merger with 99.8 percent in favor and 0.2 percent against.
  • To date, leadership teams have been announced for operations, finance, revenue management, marketing, human resources, corporate communications, and legal and labor relations.

Copyright Photo: Bruce Drum/AirlinersGallery.com. Airbus A319-112 N733UW (msn 1205) in the Pittsburgh Steelers motif taxies to the active runway at the Charlotte hub.

US Airways: AG Slide Show

US Airways stockholders approve the merger with American Airlines

US Airways Group, Inc. (Phoenix), the parent of US Airways (Phoenix), today announced that its shareholders approved the merger agreement with AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc. (Dallas/Fort Worth).

The merger agreement was approved by the affirmative vote of the holders of a majority of the outstanding shares of US Airways stock, which represented over 99% of the votes cast by US Airways shareholders on the proposal. Of the 132,788,060 shares voted, 132,273,780 shares voted in favor of the proposal; 257,757 shares voted against; and 256,523 abstained. Shareholders also approved other proposals related to the merger.

Doug Parker, chairman and CEO of US Airways, and incoming CEO of the combined company, said, “We are pleased that our shareholders overwhelmingly supported our merger with American Airlines.  This approval is a major milestone on our path to completing the merger, and we continue to make excellent progress overall thanks to the focused efforts of the dedicated representatives from both companies. By bringing together two highly complementary networks and generating significant revenue synergies, the new American Airlines will deliver enhanced value for its shareholders.  I want to thank our shareholders, our customers and our more than 100,000 dedicated employees for their support throughout this process and look forward to moving forward as an even stronger airline.”

As previously announced, AMR and US Airways agreed to combine to create the new American Airlines, a premier global carrier.  Headquartered in Dallas-Fort Worth, the new American Airlines will become a highly competitive alternative for consumers to other global carriers and is expected to offer more than 6,700 daily flights to 336 destinations in 56 countries.  The combined airline will offer customers more choices and increased service across a larger worldwide network and through an enhanced oneworld® Alliance.  Together, American Airlines and US Airways are expected to operate a mainline fleet of almost 950 aircraft and employ more than 100,000 team members worldwide.

The merger is subject to regulatory approvals, other customary closing conditions and confirmation of AMR’s Plan of Reorganization by the U.S. Bankruptcy Court for the Southern District of New York.  The companies continue to expect to complete the combination in the third quarter of 2013.

Top Copyright Photo: Michael B. Ing/AirlinersGallery.com. Airbus A330-323X N275AY (msn 370) departs from London (Heathrow).

US Airways: AG Slide Show

American Airlines: AG Slide Show

Bottom Copyright Photo: Andi Hiltl/AirlinersGallery.com. Boeing 767-323 ER N336AA (msn 25193) lands at Zurich.

American and US Airways announce the senior management team for the merged company

AMR Corporation (Dallas), the parent company of American Airlines, Inc. (Dallas/Fort Worth), and US Airways Group, Inc. (US Airways) (Phoenix) today announced the senior leadership team responsible for guiding the new American Airlines after the closing of the companies’ expected merger.

As previously announced, Tom Horton, 52, will serve as Chairman of the Board of the new American Airlines.  Doug Parker, 51, will serve as Chief Executive Officer and a member of the Board of Directors.  The senior leadership team announced today includes:

  • Scott Kirby, 45, President: responsibilities include planning, marketing, sales, alliances, pricing/yield management and operations
  • Elise Eberwein, 48, Executive Vice President, People and Communications: responsible for human resources, media relations, internal communications, social media and public affairs
  • Beverly Goulet, 58, Chief Integration Officer: will lead the complex integration process of merging American Airlines and US Airways into one airline
  • Robert Isom, 49, Chief Operating Officer and Chief Executive Officer of US Airways, Inc. post-close: responsible for all aspects of airline operations, including customer service, flight operations, maintenance, regional carrier management, cargo, safety and security
  • Stephen Johnson, 56, Executive Vice President, Corporate Affairs: responsibilities include corporate and legal affairs, government and regulatory affairs, labor relations, and real estate
  • Derek Kerr, 48, Chief Financial Officer: responsible for oversight of all financial areas, including financial planning and analysis, corporate finance and treasury functions, purchasing, controller and audit functions and investor relations
  • Maya Leibman, 47, Chief Information Officer: responsible for all information technology systems, including systems development, infrastructure, and planning
  • William Ris, 65, Senior Vice President, Government Affairs: responsible for all federal and international government and regulatory affairs and public policy

Kirby, Eberwein, Isom, Johnson and Kerr will join the new American from US Airways; Goulet, Leibman and Ris will join from American.

American Airlines and US Airways also noted that Dan Garton will step down as President and Chief Executive Officer of American Eagle Airlines later this year.  A successor will be named prior to Mr. Garton’s departure.

AMR and US Airways also announced today the members of the Board of Directors of the combined company after the closing of the companies’ expected merger. The new Board will be comprised of the following individuals, who the companies believe have the experience, breadth and perspective to guide the new American Airlines to create value for all of the company’s stakeholders:

  • John T. Cahill, Lead Independent Director
  • James F. Albaugh
  • Jeffrey D. Benjamin
  • Michael J. Embler
  • Matthew J. Hart
  • Alberto Ibarguen
  • Richard C. Kraemer
  • Denise M. O’Leary
  • Ray M. Robinson
  • Richard P. Schifter

As previously announced, AMR and US Airways agreed to combine to create the new American Airlines, a premier global carrier. Headquartered in Dallas-Fort Worth, the new American Airlines will become a highly competitive alternative for consumers to other global carriers and will provide greater flight opportunities, with more than 6,700 daily flights to 336 destinations in 56 countries. The combined airline will offer customers more choices and increased service across a larger worldwide network and through an enhanced oneworld® Alliance.  Together, American Airlines andUS Airways are expected to operate a mainline fleet of almost 950 aircraft and employ more than 100,000 people worldwide.  The merger is subject to regulatory approvals, approval by US Airways shareholders, other customary closing conditions and confirmation of American Airlines’ Plan of Reorganization by the U.S. Bankruptcy Court for the Southern District of New York.

Bottom Line: The new American with be CEO Doug Parker’s airline managed by mostly his former US Airways managers. Although the American name is retained (as it was with US Airways), it is really America West Airlines now operating as the new American Airlines when the merger is approved.

Copyright Photo: Marcelo F. De Biasi/AirlinersGallery.com. Old and new AA tails meet at Washington (Reagan National), a key strategic airport for the new American.

American Airlines: AG Slide Show

US Airways: AG Slide Show

Video: The two companies salute their rich heritage:

American Airlines and US Airways receive a DOJ request for additional information for its proposed merger

AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc. (Dallas/Fort Worth), and US Airways Group, Inc. (the parent of US Airways) (Phoenix) announced that, on March 4, 2013, each company received a request for additional information (Second Request) from the U.S. Department of Justice (DOJ) in connection with the proposed merger of the two airlines.

A DOJ Second Request is a standard part of the regulatory process. A Second Request extends the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, during which the parties may not close the transaction, until 30 days after American Airlines and US Airways have substantially complied with the Second Request (or the waiting period is otherwise terminated by the DOJ). American Airlines and US Airways expect to respond promptly to the Second Request and to continue working cooperatively with the DOJ as it conducts its review of the proposed combination.  American Airlines and US Airways continue to expect the combination to be completed in the third quarter of 2013.

The merger is conditioned on the approval by the U.S. 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 Plan of Reorganization.

Copyright Photo: Wingnut. American Airlines’ Boeing 777-323 ER N717AN (msn 31543) in the new look made its first appearance at London (Heathrow) yesterday.

AMERICAN AIRLINES AIRCRAFT TAILS

American Airlines: AG Slide Show

US Airways: AG Slide Show

It is official: American Airlines and US Airways to merge

AMERICAN AIRLINES AIRCRAFT TAILS

AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc., and US Airways Group, Inc. (US Airways) (Phoenix) today announced that the boards of directors of both companies have unanimously approved a definitive merger agreement under which the companies will combine to create a premier global carrier, which will have an implied combined equity value of approximately $11 billion based on the price of US Airways’ stock as of February 13, 2013.

AMR logo

Operating under the American Airlines name, one of the most recognized brands in the world, the combined airline will have a robust global network and a strong financial foundation.  The merger will offer benefits to both airlines’ customers, communities, employees, investors, and creditors.  Customers will have access to more choices and increased service across the combined company’s larger worldwide network and through an enhanced oneworld® Alliance, of which American Airlines is a founding member.  With firm orders for more than 600 new mainline aircraft, the combined airline will have one of the most modern and efficient fleets in the industry, and a solid foundation for continued investment in technology, products, and services.

American-US Airways Aircraft

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.  Mr. Parker will assume the additional position of Chairman of the Board following the conclusion of Mr. Horton’s service.  The Board of Directors will initially be made up of twelve members.  The Board will be comprised of three American Airlines representatives, including Tom Horton, four US Airways representatives, including Doug Parker, and five AMR creditor representatives.

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% of the diluted equity of the combined airline. The remaining 72% diluted equity ownership of the combined airline will be issuable to stakeholders of AMR and its debtor subsidiaries that filed for relief under Chapter 11 (the “Debtors”), American’s labor unions, and current AMR employees.

The merger is to be effected pursuant to a plan of reorganization (the “Plan”) 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. The Plan is subject to confirmation and consummation in accordance with the requirements of the Bankruptcy Code.

In connection with the merger agreement, AMR has entered into a support agreement with certain unsecured creditors holding approximately $1.2 billion of prepetition unsecured claims against the Debtors.  Pursuant to the support agreement, the creditors party thereto have agreed, subject to certain conditions, to support a plan of reorganization implementing the merger and incorporating a compromise and settlement of certain intercreditor and intercompany claims issues.  Provisions of the support agreement relating to the treatment of prepetition unsecured claims against the Debtors and the treatment of existing equity interests in AMR are summarized further below.

The combined airline will offer more than 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, resulting in more travel options for customers.  Both airlines 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.

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

“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.

“Over the past year, the American team stood tall as we established a rock solid foundation for long-term success through an efficient and effective restructuring.  As part of this process, after months of exhaustive analysis and a thorough review of all alternatives, we concluded that this merger is the best outcome for our company, delivering not only the greatest value for our financial stakeholders, but also positioning us well for sustainable success over the long term.

“This merger provides enhanced potential for full recovery for our creditors.  In addition, I am pleased that we were able to obtain the support of a sizable portion of our unsecured creditors for a plan that provides a recovery of at least a 3.5% aggregate ownership stake in the combined airline for our shareholders.  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, whom I have known as a friend for more than 25 years, and with the leadership teams of both companies to assure a smooth integration and the creation of a new industry leader.”

Doug Parker, Chairman and Chief Executive Officer of US Airways, said, “Today marks an exciting new chapter for American Airlines and US Airways.  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.”

Parker continued, “Today’s announcement is possible only because of the important work carried out over the past year by Tom Horton and the American team.  No one cares more about the long-term success of American Airlines and its people than Tom.  Through a successful restructuring and this merger, Tom and the American team have established an excellent foundation for the new American Airlines to become a premier global airline.  I am grateful for all that Tom has done to ensure that American is in the best position possible for future success and am delighted he has agreed to remain on board to assist with the transition.

“I am particularly pleased for the employees of both US Airways and American.  This merger will create a stronger company, with the path to improved compensation and benefits and greater long-term opportunities for all our employees.  We are grateful to have the support of both companies’ unions and thank them and their leaders for their hard work and vision.  We look forward to a bright future for our employees and enhanced service and choice for our customers.  With today’s announcement, we start becoming one team and one new airline.”

More Choices, Increased Service, and an Enhanced Travel Experience for Customers

The transaction will combine American Airlines’ and US Airways’ complementary flight networks, increasing efficiency and providing more options for customers.  The result for consumers is a highly competitive alternative to other global carriers.  Importantly, the combined worldwide network will offer superior breadth of schedule to high value travelers.

The combined airline is expected to:

  • Provide the most service across the East Coast and Central regions of the U.S., including the East Coast shuttle, enhancing the combined carrier’s competitive position
  • Expand its presence and further strengthen the network in the Western U.S.
  • Bolster American’s industry-leading position in Latin America and the Caribbean
  • Enhance connectivity within the oneworld Alliance – including joint businesses with British Airways and Iberia across the Atlantic and with Japan Airlines and Qantas across the Pacific – creating more options for travel and benefits both domestically and internationally
  • Serve 21 destinations in Europe and the Middle East
  • Maintain current hubs of both American Airlines and US Airways, resulting in more choices for customers
  • Improve traffic flows through the existing hubs of both carriers
  • Expand service from those hubs to offer increased service to existing markets and service to new cities
  • Provide an industry-leading travel experience through innovative initiatives intended to increase comfort and connectivity for all customers
  • Improve valuable loyalty program benefits through expanded opportunities to earn and redeem miles across the combined network

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, most of which will be equipped with advanced in-seat inflight entertainment systems offering thousands of hours of programming, inflight Wi-Fi offering connectivity throughout the world, and “Main Cabin Extra” seating with 4-6 inches of additional legroom in the Main Cabin.  The combined carrier’s fleet will also feature fully lie-flat, all-aisle access premium seating on American’s new Boeing 777-300ER aircraft and Airbus 321 Transcontinental deliveries slated for later this year. Similar to US Airways’ Airbus A330 international Envoy service, American will also retrofit existing 777-200 and 767-300 aircraft to include fully lie-flat premium seating in an effort to provide a consistent experience for customers flying on the combined carrier.

Customers can continue to book travel and track and manage flights and frequent flyer activity through AA.com or USAirways.com, and will continue to enjoy all benefits and rewards of the AAdvantage and Dividend Miles frequent flyer programs.  At this time, there are no changes to the frequent flyer programs of either airline as a result of the merger agreement.  All miles in both programs will continue to be honored.  Upon merger approval, additional information will be provided to customers of both frequent flyer programs on any future program updates, including account consolidation or benefit alignment.

Employees to Benefit from Greater Long-Term Opportunities

Employees of the combined airline will benefit from being part of a company with a more competitive and stable financial foundation, which will create greater opportunities over the long term.  Each carrier’s employees will receive reciprocal travel privileges as quickly as possible.  The merger will also provide the path to improved compensation and benefits for employees.

“Together we will combine the proud histories of both airlines and create one team that recognizes the contributions of all employees to our airlines’ great customer service and financial success.  Our future has never looked brighter thanks to the outstanding people of both American Airlines and US Airways,” concluded Parker.

As previously announced, the unions representing American Airlines pilots, flight attendants and ground employees, as well as the union representing US Airways pilots, have agreed to terms for improved collective bargaining agreements effective upon the closing of the merger. In addition, the union representing US Airways flight attendants has reached a tentative agreement that includes support for the merger. The American Airlines unions representing pilots and flight attendants are working with their US Airways counterparts to determine representation and single agreement protocols.

Superior Value for Stakeholders

American Airlines stakeholders and US Airways shareholders are expected to benefit from the significant upside potential of the new combined airline, which is expected to have approximately $40 billion in revenues based upon the combination of each company’s projected 2013 performance.  The combination is expected to deliver enhanced value to American Airlines stakeholders and is projected to be significantly accretive to EPS for US Airways shareholders in 2014.

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.  Estimated cost synergies of approximately $150 million are net of the impact of the new labor combined contracts at American Airlines and US Airways.  The companies expect one-time transition costs for the merger of approximately $1.2 billion, spread over the next three years.

The abovementioned provisions of the support agreement relating to the treatment of prepetition unsecured claims against the Debtors and existing equity interests in AMR under a plan are summarized as follows:

  • Holders of existing AMR equity interests will receive an aggregate initial distribution of 3.5% of the common stock of the combined airline on the effective date of the plan, with the potential to receive additional shares if the value of common stock received by holders of prepetition unsecured claims would satisfy their claims in full;
  • So-called “double dip” creditors (i.e., holders of prepetition unsecured claims as to which both AMR and American Airlines are obligors, either directly or indirectly) will receive shares of mandatorily convertible preferred stock equal to the full amount of their claims.  These shares will convert into common stock of the combined airline at 30 day intervals during the 120 day period following the effective date of the plan, based on a formula tied to the market price of the common stock of the combined airline;
  • So-called “single dip” creditors (i.e., holders of prepetition unsecured claims that are not guaranteed) will receive a combination of shares of the same class of mandatorily convertible preferred stock as the “double dip” creditors will receive and shares of common stock of the combined airline;  and
  • American Airlines’ labor unions and other employees will receive an aggregate of 23.6% of the common stock of the combined airline ultimately distributed to holders of prepetition unsecured claims against the Debtors.

The support agreement can be terminated in certain instances, including the failure of the Debtors to achieve certain milestones toward confirmation and consummation of the plan.

Clear Roadmap to Completion

The merger is conditioned on the approval by the U.S. 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 Plan.  The combination is expected to be completed in the third quarter of 2013.  During the period between the signing and closing of the transaction, a transition-planning team comprised of leaders from both companies will develop a carefully constructed integration plan to help assure a smooth and sustainable transition.

Advisors

Rothschild is serving as financial advisor to American Airlines, and Weil, Gotshal & Manges LLP, Jones Day, Paul Hastings, Debevoise & Plimpton LLP and K&L Gates LLP are serving as legal counsel.  Barclays and Millstein & Co. are serving as financial advisors to US Airways, and Latham & Watkins LLP, O’Melveny & Myers, Cadwalader, Wickersham & Taft LLP, and Dechert LLP are serving as legal counsel to US Airways.  Moelis & Company and Mesirow Financial are serving as financial advisors to the Unsecured Creditors Committee. Skadden, Arps, Slate, Meagher & Flom LLP and Togut, Segal & Segal LLP are serving as the Unsecured Creditors Committee’s legal counsel.

Tax Benefit Preservation Plan

In conjunction with execution of the Merger Agreement, US Airways also announced today that its Board of Directors has adopted a tax benefit preservation plan designed to help preserve the value of the net operating losses and other deferred tax benefits of US Airways and the combined enterprise resulting from the merger with AMR.  The tax benefit preservation plan, which is effective immediately and will remain in place no longer than the closing of the merger, is designed to reduce the likelihood that changes in the US Airways investor base would limit the future use of the tax benefits by US Airways or the combined enterprise, which would significantly impair the value of the benefits to all shareholders.

As part of the plan, the US Airways Board of Directors has declared a dividend of one common stock purchase right, which are referred to as “rights,” for each outstanding share of US Airways common stock.  The rights will be exercisable if a person or group, without the approval of the US Airways board or other permitted exception, acquires beneficial ownership of 4.9% or more of US Airways’ outstanding common stock.  The rights also will be exercisable if a person or group that already beneficially owns 4.9% or more of the common stock of US Airways, without board approval or other permitted exception, acquires additional shares (other than as a result of a dividend or a stock split).  If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase US Airways common stock at a 50% discount.  Rights held by the person or group triggering the rights will become void and will not be exercisable.  The rights will expire immediately upon the occurrence of certain events, including the closing of the merger or the termination of the merger agreement.  In addition, the certificate of incorporation of the combined company will contain limitations on certain acquisitions and dispositions of shares effective from and after the closing of the merger, also with the objective of preserving the value of net operating losses and other deferred tax benefits.

US Airways shareholders with ownership positions near or above the 4.9% threshold specified in the tax preservation plan are urged to review its terms carefully.  Further details about the plan will be contained in a Form 8-K to be filed today by US Airways with the Securities and Exchange Commission.

Combined Domestic Route Map:

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Combined International Route Map:

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US Airways reports its highest annual profit in company history

US Airways Group, Inc. (US Airways) (Phoenix) today reported its fourth quarter and 2012 financial results. For full year 2012, the Company reported a record net profit of $537 million, or $2.79 per diluted share, which excludes net special items totaling a credit of $100 million. This compares to a full year 2011 net profit of $111 million excluding net special items, or $0.68 per diluted share. On a GAAP basis, the Company reported a record net profit of $637 million, or $3.28 per diluted share for 2012, up 797 percent over the 2011 net profit of $71 million, or $0.44 per diluted share.

For the fourth quarter 2012, net profit excluding net special items was $46 million, or $0.26 per diluted share. Net profit excluding net special items for the fourth quarter 2011 was $21 million, or $0.13 per diluted share. On a GAAP basis, the Company reported a record net profit of $37 million for its fourth quarter 2012, or $0.22 per diluted share, compared to a net profit of $18 million, or $0.11 per diluted share, for the same period in 2011. As previously disclosed, the Company’s fourth quarter and full year results were negatively impacted by approximately $35 million due to Hurricane Sandy. See the accompanying notes in the Financial Tables section of this press release for a reconciliation of GAAP financial information to non-GAAP financial information.

US Airways Group, Inc. Chairman and CEO Doug Parker stated, “We couldn’t be happier with the performance of US Airways in 2012. Our 32,000 hard-working team members did a phenomenal job of running a safe and reliable airline for our customers and these record financial results are the result of their efforts.

A strong demand environment and record passenger yields led to improved revenue performance. Total revenues in the fourth quarter were a record $3.3 billion, up 3.9 percent versus the fourth quarter 2011 on a 1.4 percent increase in total available seat miles (ASMs). Total revenue per ASM was a record 15.58 cents, up 2.5 percent versus the same period last year driven by a two point increase in passenger load factor.

For the full year 2012, total revenues were a record $13.8 billion, up 5.9 percent versus 2011. Total revenue per ASM increased 3.9 percent to a record 15.64 cents, driven by a 3.5 percent increase in passenger yield and a record load factor of 82.9 percent, up from 82.3 percent in 2011.

Total operating expenses in the fourth quarter were $3.2 billion, up 3.5 percent over the same period last year. Mainline cost per available seat mile (CASM) was 13.55 cents, up 2.8 percent on a 0.7 percent increase in mainline ASMs. Excluding special items, fuel and profit sharing, mainline CASM was 8.73 cents, up 2.9 percent versus the same period last year. Express CASM excluding special items and fuel was 14.54 cents, down 2.7 percent on a 4.8 percent increase in ASMs.

For the full year 2012, total operating expenses were $13.0 billion, up 2.7 percent versus 2011. Excluding special items, fuel and profit sharing, mainline CASM increased 0.5 percent to 8.39 cents. Express CASM excluding special items and fuel decreased 1.5 percent to 14.49 cents.

Liquidity

As of December 31, 2012, the Company had $2.71 billion in total cash and investments, of which $336 million was restricted, up from $2.31 billion, of which $365 million was restricted on December 31, 2011.

Special Items

The Company recognized approximately $9 million of net special items in the fourth quarter, which are primarily related to corporate transaction and auction rate securities arbitration costs.

Copyright Photo: Bruce Drum. The remaining Boeing 737-400s will be the next type to be retired by US Airways. Boeing 737-4B7 N439US (msn 24781) climbs away from the runway at Charlotte.

US Airways: AG Slide Show

US Airways Group reports a third quarter net profit of $192 million, excluding special items

US Airways Group, Inc. (US Airways) (Phoenix) today reported its third quarter 2012 financial results. For the third quarter 2012, the Company reported a net profit excluding special items of $192 million, or $0.98 per diluted share, the second highest third quarter profit excluding special items in Company history. This compares to $95 million, or $0.51 per diluted share in the Company’s third quarter 2011. On a GAAP basis, the Company reported a record net profit of $245 million for its third quarter 2012, or $1.24 per diluted share, compared to a net profit of $76 million, or $0.41 per diluted share, for the same period in 2011.

Revenue and Cost Comparisons

Strong passenger demand and record consolidated third quarter yields led to improved revenue performance. Total revenues in the third quarter were a record $3.5 billion, up 2.8 percent versus the third quarter 2011 on a 2.7 percent increase in total available seat miles (ASMs). Total revenue per ASM was a record 15.22 cents, up 0.1 percent versus the same period last year, driven by a 0.6 percent increase in passenger yields.

Total operating expenses in the third quarter were $3.3 billion, up 0.3 percent over the same period last year. Mainline cost per available seat mile (CASM) was 12.70 cents, down 1.8 percent on a 2.8 percent increase in mainline ASMs. Total average fuel price per gallon fell 2.4 percent versus last year to $3.07 per gallon. Excluding special charges, fuel, and profit sharing mainline CASM was 7.95 cents, down 1.4 percent versus the same period last year. Express CASM excluding special charges and fuel was 13.97 cents, down 4.5 percent on a 2.4 percent increase in Express ASMs.

Liquidity

As of September 30, 2012, the Company had $2.8 billion in total cash and investments, of which $347 million was restricted. That is up from $2.4 billion, of which $384 million was restricted, on September 30, 2011.

Special Items

The Company recognized $14 million of net operating special charges in the third quarter of 2012, primarily consisting of charges related to corporate transaction and auction rate securities arbitration costs. In addition, the Company recorded $67 million of net nonoperating special credits which included a $69 million gain related to the slot transaction with Delta Air Lines, Inc.

Copyright Photo: Bruce Drum. Former America West Airlines’ Airbus A320-231 N631AW (msn 077) is now operating as US Airways taxies to the gate at Seattle/Tacoma International Airport. US Airways is still two airlines – East and West, with separate aircraft and crews for both divisions.

US Airways: 

American and US Airways announce they are now formally exploring a merger

American Airlines (Dallas/Fort Worth) and US Airways (Phoenix) announced today they are now officially exploring a merger. The following statement was issued this morning:

“AMR Corporation (“AMR”), the parent company of American Airlines®, and US Airways Group, Inc. today announced that they have entered into a non-disclosure agreement (“NDA”), under which the companies have agreed to exchange certain confidential information and, in close collaboration with AMR’s Unsecured Creditors Committee, to work in good faith to evaluate a potential combination.

The companies do not expect to provide any further announcements regarding the status of any such discussions unless and until the parties have entered into a transaction or discussions between the parties have been terminated. Furthermore, AMR and US Airways have each agreed while they are evaluating a potential combination that they and their representatives will not engage in discussions with other parties concerning a potential combination of AMR and US Airways. The companies noted that there can be no assurance that a transaction will result from these discussions.”

Top Copyright Photo: Bruce Drum. American is a large Boeing operator with Airbus aircraft on order. Boeing 737-823 N959AN (msn 30828) taxies at Miami.

American Airlines: 

US Airways: 

Bottom Copyright Photo: Bruce Drum. US Airways has a large Airbus fleet. The company is also getting ready to phase out its last Boeing 737-300 after Labor Day. Boeing 737-301 N574US (msn 23739) departs from Charlotte.