US Airways Sees Progress Toward American Airlines Merger

US Airways Group Inc. (LCC) is making “great progress” toward a merger with American Airlines that would cure network failings at the AMR Corp. (AAMRQ) unit, Chief Executive Officer Doug Parker said.

American’s push to restructure in bankruptcy as a stand- alone carrier won’t be enough to fix weaknesses at the third- largest U.S. airline, including a loss of market share, Parker said today at US Airways’ annual meeting in New York.

Parker’s comments extended his public pressure for a tie-up with American, which has said it wants to exit Chapter 11 and then consider a combination, with itself as a likely acquirer. US Airways expects American to begin considering alternatives to its own plan after resolving labor concessions, possibly later this month, he said.

“That’s all we’re asking for -- a chance to show our plan against others,” Parker said at the meeting. “We’re highly confident the benefits of the network would be far superior to any other alternative available to American today.”

US Airways has received “tremendous” support from bondholders and analysts for a merger with Fort Worth, Texas- based AMR, Parker said. A combination of American and US Airways would surpass United parent United Continental Holdings Inc. as the world’s largest airline based on passenger traffic.

Unit Revenue

American’s restructuring strategy is already showing progress, with an industry-leading unit revenue performance, as well as operational and customer service that are “the best they’ve been in many years,” Andy Backover, a spokesman, said in an e-mailed statement.

“Our hub locations and our international alliance and joint-venture partners place us in an enviable position relative to the highest concentrations of high-value customers,” Backover said. “All of this progress supports our confidence in the strength of our plan for success.”

US Airways rose 4.3 percent to $12.48 at the close in New York. The shares have more than doubled this year.

The judge overseeing AMR’s bankruptcy has said he’ll rule by June 22 on whether the company can void existing labor contracts, unless concessionary agreements are reached first. American has failed to secure accords in the most recent round of talks with unions for flight attendants and mechanics, and is continuing negotiations with pilots. The airline wants to cut annual labor costs by $1.25 billion during its restructuring.

American in May reached an agreement with the unsecured creditors committee in its bankruptcy to explore options to its stand-alone plan.

Market Share

Compared with before American sat out a wave of airline consolidation earlier in this decade, the carrier’s market share has fallen to No. 4 from third in the western U.S., to fourth from first in the country’s midsection and to fifth from third in the East.

“This is a structural weakness the bankruptcy cannot fix,” Parker said. A combination of Tempe, Arizona-based US Airways and American would be first in market share in the U.S. East and midsection and third in the West, he said.

“Put them together and the result is a network that can compete with anyone,” Parker said.

US Airways has reached tentative contracts with American’s three largest unions, and leaders of those labor groups attended today’s shareholder meeting. US Airways is working to build support among AMR’s unsecured creditors.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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