Airlines Clear Final Merger Obstacle
Scott Olson/Getty Images Travelers checking in at American Airlines kiosks at Chicago's O'Hare International Airport. A bankruptcy court ruling on Wednesday puts an end to a rocky two-year period for the airline.
A federal court approved American Airlines’ reorganization plan on Wednesday, clearing the way for the airline’s exit from bankruptcy and removing the final hurdle to its merger with US Airways to form the world’s largest airline.
David Gillen: Fewer Choices in the Air Close Video See More Videos » The ruling by Judge Sean H. Lane, of the United States Bankruptcy Court for the Southern District of New York, puts an end to a rocky two-year period for the airline, which sought court protection to reorganize its business, shed debt and rewrite labor agreements.
A central feature of the reorganization plan was the merger with US Airways, a prospect that had the backing of American’s creditors and employees. But the plan was temporarily disrupted after a challenge from the Justice Department over the summer on the grounds that it would hurt competition and lead to higher fares.
Just weeks before the trial was schedule to start, however, and after months of uncertainty, regulators and the airlines settled the suit on Nov. 12. The bankruptcy court found the settlement did not modify the plan of reorganization enough to warrant a new vote by creditors and shareholders.
The airline said it expected the merger to close on Dec. 9. It said that the last day of trading for all outstanding securities, including those of its parent company AMR Corp. as well as shares of US Airways, would be Dec. 6. Once the merger closes, AMR will be renamed American Airlines Group, and be listed on the Nasdaq under the ticker symbol AAL.
The airline as well as labor groups welcomed the ruling, which offers a chance for American to reclaim a top spot among the nation’s carriers. The merged airline will have 6,700 daily flights, 1,500 airplanes and about 100,000 employees. Its combined annual revenue will reach about $38 billion.
American, which has lagged rivals in recent years, was the last of the legacy airlines to file for bankruptcy, stumbling from its perch as the nation’s top carrier after falling behind Delta Air Lines and United Airlines. Both of those airlines had already reorganized their businesses in recent years and had expanded through mergers of their own.
American and US Airways argued that a combination was the best hope to provide travelers with a similar global network capable of competing with Delta and United or risk being left behind.
But American will have to work hard to convince passengers that a larger carrier can offer better and more customer-friendly service. Airline mergers are usually bumpy events, often marred by reservation problems and computer glitches. United, for example, suffered repeated flight delays and disruptions last year because of problems associated with its merger with Continental Airlines.
It will be up to a renewed management team, led by US Airways’ W. Douglas Parker, to instill energy and fresh thoughts at American, where morale has been sapped by labor tensions in recent years. The combined airline, which will keep the name American Airlines, will be based in the Dallas-Fort Worth region.
Mr. Parker has been a cheerleader for airline consolidation for years. He orchestrated the combination of American West with US Airways in 2005 and then sought to merge the carrier with Delta as well as United, unsuccessfully.
After American filed for bankruptcy, Mr. Parker saw an opening to go after a fast merger despite the opposition of American’s managers. He made his case quickly, first with airline employees, then with its creditors. He then persuaded the representatives of his rival’s pilots, flight attendants and mechanics to all back a merger with US Airways provided that Mr. Parker would run the show.
The vote, which crystallized the employees’ defiance against American’s managers and what they described as a failed strategy over the years, proved a turning point in the battle for American’s future.
Thomas W. Horton, American’s chairman and chief executive, had initially outlined a plan for the airline to come out of bankruptcy as an independent carrier, but was eventually forced to endorse the merger proposal once creditors supported it. Mr. Horton will remain as the chairman for a limited time.
Still, the merger has been criticized by consumer groups that fear that losing yet another carrier to a merger would lead to higher airfares and further reduce competition. Similar arguments were raised in August by the Department of Justice when it sued to block the deal.
But just two weeks before the trial was scheduled to begin, antitrust regulators struck a deal with the airline.
As a condition for dropping their objections, federal regulators requested that the airline sell some takeoff and landing rights at Reagan National Airport in Washington and New York’s La Guardia Airport as well as divest gates and ground assets at five other airports: Chicago O’Hare International, Los Angeles International, Boston Logan International, Dallas Love Field and Miami International.
