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AA-US Air merger is looking a lot more likely since pilots joined the conversation

Dec 13, 2012 12:41 am

Skift Take

Delta’s Virgin deal showcases how competitive the market has become thanks to consolidation and increases the probability of the eventual AA-US merger up to 75 percent, according to one analyst.

— Samantha Shankman

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Micah Hannigan  / Flickr.com

An old US Airways jet at Phoenix Sky Harbor International Airport. Micah Hannigan / Flickr.com


AMR Corp. debt rose to the highest price in more than 16 months after pilots from its American Airlines unit and US Airways Group Inc. joined talks to evaluate a possible merger, boosting the likelihood of a combination.

Inclusion of the pilot unions in confidential talks overseen by bankrupt American’s creditors committee may lead AMR to accept a merger offer by Christmas, Vicki Bryan, senior bond analyst with Gimme Credit LLC, said in a note today. Ray Neidl, a Maxim Group LLC analyst, said the union involvement may give “additional momentum” for a possible combination.

US Airways has been pushing for a merger since January, arguing a tieup as part of American’s restructuring is the only way for the carrier to compete with larger rivals United Continental Holdings Inc. and Delta Air Lines Inc. Tempe, Arizona-based US Airways already has secured labor agreements with American’s unions, contingent on a merger.

“AMR, frankly, is too small and too unprofitable to ever seriously complete as a standalone” against Delta and United, Bryan said. “Its labor relations record is appalling and its strategy for reorganization essentially is the same plan pursued over the past decade which landed it in bankruptcy.”

AMR’s $460 million of 6.25 percent convertible notes due October 2014 rose 1.5 percent to 83.25 cents on the dollar at 11:29 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That is the highest price since Aug. 2, 2011, for the notes, which traded at 17.75 cents after AMR’s Nov. 29, 2011, bankruptcy filing.

Merger option

US Airways rose less than 1 percent to $12.90 at 12:37 p.m. in New York. The shares have more than doubled this year.

American, based in Fort Worth, Texas, is close to completing its reorganization plan and the merger option is being assessed along with its preference to emerge from court protection on a stand-alone basis, Chief Executive Officer Tom Horton said Dec. 10.

The odds of a merger between the carriers before AMR leaves bankruptcy rose to 75 percent with the agreement to include pilots in talks and Delta’s plan to buy 49 percent of Virgin Atlantic, Neidl said yesterday. The Delta move will increase competitive pressure on AMR, he said.

Editors: James Callan and James Langford.

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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