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US Airways lands $11 billion merger with American

Friday - 2/15/2013, 6:38am  ET

FILE - In this June 23, 2008 file photo, a US Airways jet takes off as an American Airlines jet is prepped for takeoff at Sky Harbor International Airport in Phoenix. The merger of US Airways and American Airlines has given birth to a mega airline with more passengers than any other in the world. (AP Photo/Matt York, File)

What the merger could mean for you

WTOP's Kristi King reports

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DAVID KOENIG
AP Airlines Writers

DALLAS (AP) -- US Airways CEO Doug Parker has landed the big merger he sought for years. Now the soon-to-be CEO of the new American Airlines has to make it work.

The new airline needs to repaint hundreds of planes. Frequent flier programs have to be combined. American's on-time performance must improve. And the airline needs to win back business travelers who have drifted to competitors. But Parker's nothing if not persistent.

After months of courting, the companies on Thursday announced an $11 billion merger that will turn American into the world's biggest airline, with 6,700 daily flights and annual revenue of roughly $40 billion. It's a coup for Parker, who runs the much-smaller US Airways Group Inc. and believes that mergers help airlines achieve higher revenue and consistent profits.

When the deal closes later this year, the four biggest U.S. airlines -- American, United, Delta and Southwest -- will all be the products of mergers that began in 2008. Those deals have helped the industry control seats, push fares higher and return to profitability. But it's not easy to stitch two airlines together.

Some of Parker's work has already been done. American parent AMR Corp. has cut costs and debt since it filed for bankruptcy protection in late 2011. Pilots from both airlines have agreed on steps that should make it easier to combine their groups under a single labor contract, a big hurdle in many airline mergers. But when the deal closes -- expected by September as part of AMR's plan to emerge from bankruptcy protection -- there will still plenty to do.

The new company will have to combine the separate computer systems that American and US Airways use for reservations and other functions, while avoiding the glitches that have plagued United since it switched to Continental's system. The airline will have to fly better. Last year, American ranked 14th out of 15 airlines for on-time performance, according to government statistics. It canceled flights at a higher rate than its closest rivals. It had the second-worst rate of complaints, better only than United, which was hit by periodic computer outages.

The executive likely to be charged with making the airline run more smoothly is US Airways' chief operating officer, Robert Isom. He said his company fixed similar problems in 2007 through regimented maintenance schedules, stricter rules on how long to wait for connecting passengers, and using bonuses to encourage workers to hit performance goals. US Airways ranked fifth in on-time arrivals last year.

Leaders of American's unions say they're ready to help the airline perform better. They should be -- after all, they helped kick American's current management to the curb by supporting a merger with Parker running the combined company.

"Without us, a merger would not have occurred in bankruptcy," said Keith Wilson, president of the Allied Pilots Association.

"We think we're going to get a change of culture," added Laura Glading, president of the flight attendants' union at American.

The union leaders say employees will have more job security at a larger airline that's better able to compete with United and Delta. Their support of a merger was critical because the unions held three of the nine seats on the committee of AMR's bankruptcy creditors.

A lawyer who advised that committee, Jay Goffman of Skadden, Arps, Slate, Meagher & Flom, said the influential committee became convinced that a merger would produce an airline that could boost revenue faster than American by itself. "And frankly, the fact that the unions were fully supportive of a merger made a big difference," Goffman said.

Over the past year, Parker and AMR CEO Tom Horton were adversaries who had wildly different strategies for their companies. Parker raided Horton's turf to enlist American's labor unions in his campaign for a merger. Horton seemed more aloof, preferring that American remain on its own. As the airlines held private discussions during the fall and into winter, speculation centered on which man would end up running the company if there were a merger.

Those differences were set aside Thursday when the men stood before TV cameras for a news conference at Dallas-Fort Worth International Airport. A backdrop was splashed with the logos of both airlines. Parker and Horton traded banter about each other's looks and about working at adjoining cubicles at American 25 years ago.

Horton called Parker "my good, longtime friend," and Parker said Horton was "the best -- he knows this business."

If Horton was disappointed in not getting to run the new American, he didn't admit it.

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