US Airways Shareholders Approve $11 Billion Merger With American Airlines

July 12, 2013

Did you know?, International

US Airways Shareholders Approve $11 Billion Merger With American Airlines

American Airlines

By Tim Catts & Mary Schlangenstein
Bloomberg

US Airways Group Inc. (LCC) shareholders moved the carrier a step closer to an $11 billion merger with AMR Corp. (AAMRQ)’s American Airlines by approving the combination in a vote today.

The all-stock tie-up, which will create the world’s largest airline, was approved at the company’s annual meeting in New York, US Airways Chief Executive Officer Doug Parker said. Specifics of the vote weren’t immediately provided. US Airways shareholders will own 28 percent of the combined carrier, with 72 percent going to creditors in AMR’s bankruptcy.

The new American will have the heft to compete with United Continental Holdings Inc. and Delta Air Lines Inc., which also were created in a wave of consolidation that began in 2005 and swept up 5 of the 10 biggest U.S. carriers. The companies expect to complete the merger this quarter, in conjunction with AMR’s exit from bankruptcy protection.

An exchange ratio for shares of Tempe, Arizona-based US Airways in the merger hasn’t been set.

The combination must be approved by the court overseeing AMR’s bankruptcy and by the U.S. Justice Department, which is assessing whether it will create a monopoly in any markets. Federal regulators won’t issue a decision before an Aug. 15 hearing at which Fort Worth, Texas-based AMR will seek court approval for its reorganization plan, people familiar with the matter said last month.

Attorneys general from 18 states have joined the Justice review, and a group of consumers has sued to block the combination in federal court in San Francisco.

Displacing United Airlines
The merger will produce annual savings and new revenue totaling more than $1 billion by 2015, the airlines have said. The combined airline will displace United Continental as the largest carrier, based on passenger traffic, and will operate more than 6,700 daily flights.

The new airline will keep American’s name and its Fort Worth headquarters. US Airways executives will hold the top leadership positions. AMR CEO Tom Horton will serve as chairman until the combined airline’s first annual meeting.

US Airways began pursuing a merger with American within months of the larger carrier’s Nov. 29, 2011, bankruptcy filing. After building support for the combination among American’s unions and creditors, the two airlines announced a merger agreement on Feb. 14 this year.

US Airways hub Phoenix
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US Airways said that the merger proposal passed overwhelmingly:

Vote Shares Percent
Yes 132,273,780    99.8%
No 257,757    0.2%
Total 132,531,537    100%

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Video: US Airways Shareholders Approve $11 Billion Merger With American Airlines

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Aviation observers expect that regulators will approve the deal, most likely in September 2013, as the Justice Department did with the recent airline mergers of United and Continental, Delta and Northwest, and Southwest and Air Tran.
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Charlotte Douglas International Airport will be the combined airline’s 2nd-busiest hub, behind only Dallas/Fort Worth International Airport. US Airways operates almost 650 daily flights from Charlotte Douglas. At Charlotte Douglas, for example, US Airways accounts for about 90 percent of daily flights, and after the merger with American that will increase to about 94 percent.

Philadelphia International Airport will remain a hub for the new American Airlines. Philadelphia is currently the 2nd-busiest hub for US Airways, but it is very close to New York’s JFK International Airport, an American hub.

Airport Monopolies

US Airways’ network in the eastern third of the United States was inherited from predecessor airlines Piedmont Airlines, Allegheny Airlines, Pacific Southwest Airlines, and America West.

The new American would control nearly 70 percent of the market share at Washington’s Reagan National Airport after US Airways acquired from Delta Air Lines 2 years ago 42 slots – which translate into round-trip flights.

In exchange, Delta got 132 slots at New York’s LaGuardia airport used by US Airways Express flights. Delta also paid $66.5 million to US Airways, which in turn got international rights to fly in 2015 to Sao Paulo, Brazil.

In 2010, the Justice Department required Continental to sell takeoff and landing rights at its hub in Newark, N.J., to Southwest Airlines as a condition to regulatory approval to merge with United.

Source: Linda Loyd, Philadelphia Inquirer

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