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US Airways Confirms Exploration of Possible Merger With AMR

American Airlines Inc. and US Airways Group Inc. planes sit on the tarmac at Ronald Reagan National airport in Washington, D.C. Photographer: Andrew Harrer/Bloomberg
American Airlines Inc. and US Airways Group Inc. planes sit on the tarmac at Ronald Reagan National airport in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

Jan. 25 (Bloomberg) -- US Airways Group Inc., the smallest full-service domestic carrier, confirmed it’s evaluating a possible merger with American Airlines parent AMR Corp. in bankruptcy.

Millstein & Co., Barclays Plc and the law firm of Latham & Watkins LLP have been hired to help Tempe, Arizona-based US Airways evaluate AMR options, Chief Executive Officer Doug Parker told analysts and investors today on a conference call.

His comments marked the first acknowledgment of any AMR-related interest, after US Airways declined to respond last week when two people familiar with the matter said a potential merger was under study. With the industry shrinking in tie-ups in the past four years, further contraction is possible while “no longer imperative,” Parker said today.

“We can now decide whether it’s best to operate as a standalone or to participate in further consolidation over time, and that’s what we intend to do,” Parker said. US Airways is “always interested in studying potential value-enhancing opportunities.”

US Airways shares rose 17 percent, the most since July 2009, to $7.52 at the close in New York. Most of the increase came before Parker spoke and after the carrier reported a fourth-quarter profit that beat analysts’ estimates.

‘Laser Focused’

AMR, the third-largest U.S. airline, filed for Chapter 11 protection on Nov. 29 after annual losses that began in 2008. That step reignited industry speculation that the carrier would be a takeover target, with US Airways, the fifth-largest U.S. carrier, most often cited by analysts as a partner.

AMR declined to discuss Parker’s comments. The company is “laser focused” on working through bankruptcy to achieve increased revenue and a competitive cost and debt structure, said a spokesman, Sean Collins, in a statement.

“We are in the early stages of this process, but we are confident that we have the ability to create significant value and strengthen our foundation for long-term success,” he said.

TPG Capital and Delta Air Lines Inc. also are evaluating possible bids for American, people familiar with the matter have said. TPG and Delta have said they aren’t commenting about any interest in AMR, and Delta CEO Richard Anderson deflected a question about industry mergers on a conference call today.

‘Both Looking’

“The only difference in what happened with US Airways today and Delta is that US Airways was willing to own up to it,” said James M. Higgins, a Ticonderoga Securities LLC analyst. “I think the same stuff is going on in the background and they are both looking.”

US Airways is preparing a merger plan that would boost revenue and fix a weak domestic route system at American, the people familiar with the matter said last week. President Scott Kirby is leading the analysis, said the people, who asked not to be identified because the discussions are private.

“We expect AMR will remain in bankruptcy for quite some time and, therefore, we and our advisers will be studying the situation for quite some time,” Parker said.

A US Airways-American combination would hold about a 20 percent domestic market share, according to Jeff Straebler, an independent airline analyst based in Stamford, Connecticut. That would put the blended carrier on roughly equal footing with United Continental Holdings Inc., Delta and Southwest Airlines Co., Straebler said last week.

“It’s going to be a long, drawn-out process,” Jim Corridore, a Standard & Poor’s equity analyst, said in an interview. “Both Delta and US Airways are going to let AMR do the heavy lifting in bankruptcy before they do anything.”

United is now the biggest U.S. carrier after its former parent, UAL Corp., merged with Continental Airlines Inc. in 2010. No. 2 Delta bought Northwest Airlines Corp. in 2008, and No. 4 Southwest acquired AirTran Holdings Inc. last year.

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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