A

CONTEMPORARY REPORT

ON

MERGER OF AMERICAN AIRLINES AND US AIRWAYS

MASTER OF BUSINESS ADMINISTRATION

PACIFIC BUSINESS SCHOOL

SUBMITTED BY SUBMITTED TO

REENA SISODIYA SHIVANI KAWADIYA

Acknowledgement “It is not possible to prepare a project report without the assistance & encouragement of other people. This one is certainly no exception.”

On the very outset of this report, I would like to extend my sincere & heartfelt obligation towards all the personages who have helped me in this endeavor. Without their active guidance, help, cooperation & encouragement, I would not have made headway in the project.

I am extremely thankful and pay my gratitude to my faculty Shivani kawadiya for her valuable guidance and support on completion of this project in its presently.

I extend my gratitude to Pacific Business School for giving me this opportunity. At last but not least gratitude goes to all of my friends who directly or indirectly helped me to complete this project report.

Any omission in this brief acknowledgement does not mean lack of gratitude.

Thanking You Reena Sisodiya

CONTENT

Sr. No.

Particulars Page no.

1. Introduction 4

2. American Airlines 5-7

3. US Airways 8-10

4. Merger of both companies 11-13

5. Expert’s comments on the merger 14-15

6. Reasons behind the merger 16

7. Legal controversies at the time of merger 17

9. Expansion of the American Airlines Group 18-20

10. Major advantages of the merger 23

11. Benefits to the employees and stakeholders 24-25

12. How it can be good for customers 26

13. Conclusion 27

14. Bibliography 28

MERGER

The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

The merging of one estate or title in another."Merger can be applied for when the freehold and leasehold estates become vested in the same person"

Mergers and acquisitions (abbreviated M&A) are both aspects of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

Mergers and acquisitions activity can be defined as a type of restructuring in that they result in some entity reorganization with the aim to provide growth or positive value.

AMERICAN AIRLINES

American Airlines, Inc. (AA) is a major U.S. airline headquartered in Worth, Texas. It operates an extensive international and domestic network, with scheduled flights throughout North America, the Caribbean, South America, Europe, and Asia. Its route network centers around five "cornerstone" hubs in Dallas/Fort Worth, New York, Los Angeles, Miami, and Chicago. Its primary maintenance base is located at Tulsa International Airport (TUL).

American Airlines is part of the One world airline alliance, and coordinates fares, services, and scheduling with British Airways, Finn air, and Iberia in the transatlantic market and with Japan Airlines and Qantas in the transpacific market. Envoy Air, SkyWest, Inc., SkyWest Airlines, and ExpressJet Airlines operate regional flights for American Airlines under the American Eagle brand. Chautauqua Airlines fed the American Airlines network under the American Connection brand; it will then operate flights for the American Eagle brand due to the discontinuation of the American Connection brand.

Founded- 1930

CEO- Doug Parker

Hubs-

Dallas/Fort Worth International Airport John F. Kennedy International Airport(New York) Los Angeles International Airport Miami International Airport O’Hare international Airport (Chicago)

Destinations- 273

Slogan- The new American is arriving.

Commenced operations

1934

Hubs Dallas/Fort Worth International Airport

John F. Kennedy International Airport(New York)

Los Angeles International Airport

Miami International Airport O'Hare International

Airport (Chicago)

Focus cities LaGuardia Airport (New York)

Frequent-flyer program

AAdvantage

Airport lounge Admirals Club

Alliance Oneworld

Fleet size 631

Destinations 273 (excluding US Airways exclusive destinations) excl. code-shares[1]

Company slogan

The new American is arriving.

Parent company American Airlines Group

Headquarters Fort Worth, Texas, USA

Key people Doug Parker (CEO) Scott Kirby (President) Tom Horton (Chairman)

Website www.aa.com

American Airlines, Inc. (AA) is a major U.S. airline headquartered in Fort Worth, Texas. It operates an extensive international and domestic network, with scheduled flights throughout North America, the Caribbean, South America, Europe, and Asia. Its route network centers around five "cornerstone" hubs in Dallas/Fort Worth, New York, Los Angeles, Miami, and Chicago. Its primary maintenance base is located at Tulsa International Airport (TUL).American Airlines is part of the One world airline alliance, and coordinates fares, services, and scheduling with British Airways, Finn air, and Iberia in the transatlantic market and with Japan Airlines and Qantas in the transpacific market. Envoy Air, SkyWest, Inc., SkyWest Airlines, and ExpressJet Airlines operate regional flights for American Airlines under the American Eagle brand. Chautauqua Airlines fed the American Airlines network under the American Connection brand; it will then [when?] operate flights for the American Eagle brand due to the discontinuation of the American Connection brand. The former parent company of American Airlines, AMR Corporation, filed for Chapter 11 bankruptcy protection in November 2011, and in February 2013 announced plans to merge with US Airways Group, creating the largest airline in the world. AMR and US Airways Group completed the merger on December 9, 2013, with the new holding company American Airlines Group, Inc. being listed on NASDAQ that day, although the actual integration of the airlines under a single air operator's certificate will not be completed until a much later date. The combined airline will carry the American Airlines name and branding, and will maintain the existing US Airways hubs in Charlotte, Philadelphia, Phoenix, and Washington D.C. for a period of at least five years under the terms of a settlement with the US Department of Justice and several state attorneys-general.

US AIRWAYS

US Airways is a major U.S. airline headquartered in Tempe, Arizona, USA. It operates an extensive international and domestic network, with 193 destinations in 24 countries in North America, South America, Europe, and the Middle East.

The airline is an affiliate member of One world and utilizes a fleet of 343 mainline jet aircraft, as well as 278 regional jet and turbo-prop aircraft operated by contract and subsidiary airlines under the name US Airways Express. The carrier operates the US Airways Shuttle, a US Airways brand which provides hourly service between Boston, New York City, and Washington, D.C. As of October 2013, US Airways employed 32,312 people worldwide and operated 3,028 daily flights (1,241 US Airways Mainline, 1,790 US Airways Express).

Founded – 1937

CEO- Robert Isom

Hubs-

Charlotte/Douglas International Airport Philadelphia International Airport Phoenix Sky Harbor International Airport Ronald Reagan Washington National Airport

Subsidiaries –

• Piedmont airlines

• PSA airlines

Destinations- 193

Slogan- Fly with us

Founded 1937 (as All American Aviation)

Hubs Charlotte/Douglas International Airport

Philadelphia International Airport

Phoenix Sky Harbor International Airport

Ronald Reagan Washington National Airport[1]

Frequent-flyer program

Dividend Miles

Airport lounge US Airways Club

Alliance Oneworld (affiliate)[2]

Subsidiaries Piedmont Airlines PSA Airlines

Fleet size 349 (Mainline), 278 (Express)[3]

Destinations 193[3]

Company slogan Fly with US

Parent company American Airlines Group

Headquarters Tempe, Arizona, USA[4]

Key people Robert Isom (CEO)[5]

Website usairways.com

US Airways is a major U.S. airline owned by the American Airlines Group. It operates an extensive international and domestic network, with 193 destinations in 24 countries in North America, South America, Europe, and the Middle East.

The airline is an affiliate member of One world and utilizes a fleet of 343 main line jet aircraft, as well as 278 regional jet and turbo-prop aircraft operated by contract and subsidiary airlines under the name US Airways Express. The carrier operates the US Airways Shuttle, a US Airways brand which provides hourly service between Boston, New York City, and Washington, D.C. As of October 2013, US Airways employed

32,312 people worldwide and operated 3,028 daily flights (1,241 US Airways Mainline, 1,790 US Airways Express).

In February 2013, American Airlines and US Airways announced plans to merge, creating the largest airline in the world. The holding companies of American an d US Airways merged effective December 9, 2013. In preparation for their eventual integration, the airlines began offering reciprocal frequent flyer benefits on January 7, 2014, and US Airways announced plans to leave Star Alliance to join One world as an affiliate member of American Airlines on March 31, 2014. The combined airline will carry the American Airlines name and branding, and will maintain the existing US Airways hubs in Charlotte, Philadelphia, and Phoenix for a period of at least five years under the terms of a settlement with the Department of Justice and several state attorneys-general. US Airways management will run the combined airline from the American headquarters in Fort Worth, Texas.

Merger of American Airlines and US Airways

In November, 2011 the former parent company of American Airlines, AMR Corporation, filed for Chapter 11 bankruptcy protection and in February 2013 announced plans to merge with US Airways Group, creating the largest airline in the world.

AMR and US Airways Group completed the merger on December 9, 2013, with the new holding company American Airlines Group, Inc. being listed on NASDAQ that day,

although the actual integration of the airlines under a single air operator's certificate will not be completed until a much later date. 

The combined airline will carry the American Airlines name and branding, and will maintain the existing US Airways hubs in Charlotte, Philadelphia, Phoenix, and Washington D.C. for a period of at least five years under the terms of a settlement with the US Department of Justice and several state attorneys-general.

 In preparation for their eventual integration, the airlines began offering reciprocal frequent flyer benefits on January 7, 2014 and US Airways announced plans to leave Star Alliance to join One world as an affiliate member of American Airlines on March 31, 2014.

 US Airways management will run the combined airline from the American headquarters in Fort Worth, Texas.

On February 14, 2013, AMR Corporation and US Airways Group officially announced that the two companies would merge to form the largest airline (and airline holding company) in the world, with bondholders of American Airlines parent AMR owning 72% of the new company and US Airways shareholders owning the remaining 28%.

In January 2012, US Airways Group, the parent company of US Airways, expressed interest in taking over AMR Corporation, the parent company of American Airlines. In March, AMR's CEO Tom Horton said that the company was open to a merger. US Airways (US) told some American Airlines (AA) creditors that merging the two carriers could yield more than $1.5 billion a year in added revenue and cost savings. On April 20, American Airlines' three unions said they supported a proposed merger between the two airlines. Under Chapter 11 bankruptcy protection, American Airlines had been looking to merge with another airline. Earlier in July, a bankruptcy court filing stated that US Airways was an American Airlines creditor and "prospective merger partner"; on August 31, US Airways CEO Doug Parker announced that American Airlines and US

Airways had signed a nondisclosure agreement, in which they would discuss the possibility of a merger.

In February 2013, American Airlines and US Airways announced plans to merge, creating, by some measurements, the largest airline in the world. In the deal, which was expected to close in the third quarter of 2013, stakeholders of AMR would own 72% of the company and US Airways shareholders would own the remaining 28%. The combined airline will carry the American Airlines name and branding; the holding company will be renamed American Airlines Group Inc. The US Airways' management team, including CEO Doug Parker, will retain most operational management positions. The headquarters for the new airline will also be consolidated at American's current headquarters in Fort Worth, Texas. US Airways will exit Star Alliance upon completion of the merger, and American will retain its One world alliance. Judge Sean Lane approved the merger on March 27, 2013, but declined to approve a proposed $20 million severance package to AA executive Thomas W. Horton. On July 12, US Airways shareholders approved the proposed merger.

On August 13, 2013, the United States Department of Justice along with attorneys general from the District of Columbia, Arizona (headquarters of US Airways), Florida, Pennsylvania, Tennessee, Texas (headquarters of American Airlines), and Virginia filed a lawsuit seeking to block the merger, arguing that it would mean less competition and higher prices. American Airlines and US Airways both said that they would fight against the lawsuit and defend their merger. In early October 2013, the District Attorney of Texas quit the anti-trust lawsuit.

An additional requirement is that American sell two gates at O'Hare International Airport, Los Angeles International Airport, Logan International Airport, Dallas Love Field and

Miami International Airport. Some of the slots will be sold to low-cost carriers such as JetBlue and Southwest Airlines.

A private antitrust suit, filed by a group of 40 passengers and travel agents, also sought to block the merger. American's bankruptcy court judge refused to enjoin the two airlines from merging, saying that the group did not demonstrate that the merger would irreparably harm them. The plaintiffs' lawyer appealed and was turned down at the U.S. District Court level and was further rebuffed at the Supreme Court after Justice Ruth Bader Ginsburg denied a stay request filed by him.

Expert’s comments on the merger

USA is still technically two separate airlines - East and West operating under the US Airways name with separate contracts, crews and assigned aircraft. As the US Airways management led by CEO Doug Parker gets ready to take over the "new" merged American Airlines (Dallas/Fort Worth), the International Association of Machinists and Aerospace Workers (IAM) has reminded US Airways management that not all is well in the current US Airways, let alone a new larger airline. The IAM today issued this

statement:

The International Association of Machinists and Aerospace Workers (IAM) today announced it declined management's invitation to participate in the “new” American Airlines’ opening bell ceremony in New York City celebrating the carrier’s first day of stock trading on the NASDAQ.

“Make no mistake, this airline has ignored and disrespected IAM members at US Airways by its shameless refusal to settle a fair contract,” said IAM District 142 President Tom Higginbotham. “To stand there with American’s management and pretend there are no labor problems and celebrate ‘one airline’ would be an outright lie.”

IAM members at US Airways have been in contract negotiations for almost three years. The carrier’s management, headed by Doug Parker, who will assume the reins at the “new” American, has refused to settle new accords with IAM members at pre-merger US Airways. Earlier this year, the IAM requested a release from contract talks from the National Mediation Board (NMB), a federal agency, which, if granted, could lead to a strike.

The IAM and Transport Workers Union (TWU) formed an alliance earlier this year, the TWU-IAM Employee Association, to jointly represent mechanic & related, fleet service and stockroom employees at the new airline. The agreement stipulates the TWU-IAM Association will request a single carrier determination from the NMB, a pre-requisite to integrating unionized workforces.

This request will only occur once contracts are settled for IAM-represented workers at pre-merger US Airways. Workforce integration will be delayed for approximately 32,000 workers at the carrier, by far the largest percentage of the combined workforce, until the airline settles agreements with the IAM.

“This is a merger in name only,” said IAM District 141 President Rich Delaney. “As long as this management team refuses to settle a fair contract, approximately 32,000 employees will remain separated and the merger’s synergies will not be realized.”

The IAM represents approximately 14,000 mechanic and related, fleet service, maintenance training specialist and stockroom employees at US Airways.

Reasons behind the merger

Pursuant to the Agreement and Plan of Merger among US Airways Group, Inc. (US Airways), AMR Corporation (AMR) and AMR Merger Sub, Inc., dated February 13, 2013, as amended, the parties have agreed to a merger (Merger) to form a new airline group (New American). The U.S. Department of Transportation (DOT) shares the interest of the U.S. Department of Justice (DOJ) in preserving competition (United States v. US Airways Group, Inc. (D.D.C.)). In addition to maintaining competition, it is imperative that any airline merger serves the broader interest of the Traveling public. This is at the core of DOT’s mission. To protect this compelling interest, US Airways and AMR agree to maintain service to Medium, Small and Non-hub airports from Ronald

Reagan Washington National Airport (DCA) in accordance with the terms set out in this agreement.

Over many decades, the airlines serving DCA have developed a pattern of service to communities of all sizes. The existing pattern of service at DCA reflects a delicate balance of federal, state and local interests – endorsed to a significant extent by Congress. It asserts that preserving nonstop service to a range of destinations from DCA, including Medium, Small, and Non-hub airports, is part of DOT’s statutory mission and the Administration’s transportation Policy. It further asserts that nonstop air service links to DCA are essential for the continued economic vitality and growth of these communities. Importantly, American airlines group believes the goal of preserving nonstop service to small and medium-sized communities is wholly compatible with the goal of preserving competition.

Legal controversies at the time of merger

The United States Department of Justice, along with attorneys general from six states and the District of Columbia, filed a lawsuit in August 2013 seeking to block the merger, arguing that it would mean less competition and higher prices. Both American Airlines and US Airways said that they would fight the lawsuit and continue with their merger after regulatory approval. On November 12, the airlines reached a settlement with the

U.S. Justice Department and several state attorneys general to settle the lawsuit and allow the merger to be finalized.

An antitrust suit, filed by a group of 40 passengers and travel agents, also sought to block the merger. However, American's bankruptcy court judge refused to enjoin the two airlines from merging, saying that the group did not demonstrate that the merger would irreparably harm them. The plaintiffs' lawyer appealed and was turned down at the U.S. District Court level and was further rebuffed at the Supreme Court after Justice Ruth Bader Ginsburg denied a stay request filed by him.

The Department of Justice announced that a settlement of its lawsuit was reached on November 12, 2013. The settlement will require the merged airline to give up landing slots or gates in 7 major airports. Under the deal, the new American is required to sell 104 slots at Ronald Reagan Washington National Airport and 34 slots at LaGuardia Airport.

Following the Department of Justice approval, US Airways and AMR announced that the merged company will trade on the NASDAQ stock exchange under the symbol AAL.

Expansion of American Airlines Group

According to the new airline group, "The new American has a robust global network with nearly 6,700 daily flights to more than 330 destinations in more than 50 countries and more than 100,000 employees worldwide. The combined airline has the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Customers will soon enjoy access to more benefits and increased service across the

combined company's larger worldwide network and through an enhanced one world® Alliance. US Airways will exit Star Alliance on March 30, 2014 and will immediately enter one world on March 31, 2014. With an expanded global network and a strong financial foundation, American will deliver significant benefits to consumers, communities, employees and stakeholders." 

Although American and US Airways have come together as one company, the process to achieve a Single Operating Certificate is expected to take approximately 18 to 24 months. In the meantime, customers should continue to do business with the airline from which travel was purchased just as they did before the merger. In short, it is "business as usual." The airlines' separate websites, aa.com and usairways.com, as well as the two airlines' reservations systems and loyalty programs, will continue to operate separately until further in the integration process. 

The common and preferred stock of American Airlines Group will trade on the NASDAQ Global Select Market under the symbols "AAL" and "AALCP," respectively.

American Eagle

American Eagle is the regional marketing brand of American Airlines. Currently, four airlines fly as American Eagle, with Chautauqua operating as American Connection.

Envoy Air, a wholly owned subsidiary of American Airlines was previously known as American Eagle Airlines prior to the merger with US Airways. PSA Airlines, a wholly owned subsidiary of US Airways and an operator for US Airways Express, will operate 30 new CRJ-900 aircraft in American Eagle livery starting spring 2014.

Livery

IIn addition to a new logo, American Airlines introduced a new livery for all aircraft in the fleet. The airline calls the new livery and branding "a clean and modern update". The current design features an abstract American flag on the tail, along with a silver-painted fuselage, as a throw-back to the old livery. The new design was painted by Leading Edge Aviation Services in California. Starting in January 2014, following the merger of US Airways with American Airlines, all US Airways aircraft will be progressively painted in American Airlines livery. The Doug Parker CEO of American Airlines Group announced that TWA heritage aircraft will be added in the future “We will continue that tradition at American, including introducing a TWA aircraft in the future and keeping a US Airways livery aircraft. That also means we will keep a heritage American livery in the fleet”.

Who’s in charge :-  Parker, the US Airways CEO, was the mastermind of the merger, and is now in charge of the new American. US Airways president Scott Kirby is now president of the merged airline. In fact, you can expect many US Airways executives to get key titles at the combined airline.In one sense, that’s to be expected, because the merger also marks American’s emergence from Chapter 11 bankruptcy protection. It’s common for corporate executives to leave when mergers take place, and also normal that executives look for new opportunities once a company has been reorganized.

Day to day operations: - Many things change in mergers, from the colors on airplane tails to the types of uniforms worn by employees. In American’s case, it picked out a new tail design in January, which will continue at least for now. (Parker isn’t saying yet whether it will continue.) But some things will stay the same in this merger, at least for a while.

To begin with, airports will still have American and US Airways counters and gates for a while. It will take 18 to 24 months for the airlines to be completely merged. So, for now, if your ticket is booked on American, show up there. If it’s booked on US Airways, go to that gate. The airlines probably will receive their single operating certificate in 2015.

Flights and routes: - Merged airlines always say that passengers won’t notice any difference in the places where they fly. And, there are always cutbacks and eliminations. Just ask Pittsburgh, a major hub for US Airways, Cincinnati, a hub for Delta Air Lines, Memphis, a hub for Northwest Airlines, and St. Louis, the home base for TWA. All of them saw service eliminated as their companies were involved in mergers.One place that will immediately be affected by the American-US Airways merger is Washington’s Reagan National Airport. In order to win approval from the Justice Department, US Airways and American agreed to sell 134 takeoff and landing slots at Washington’s Reagan National Airport, as well as 34 slots at at New York’s LaGuardia Airport. Those slots basically translate to the ability to operate flights from those places.Late last week, the government gave Southwest Airlines and Virgin America permission to buy the LaGuardia slots. It will mark the first time Virgin America has operated from LaGuardia, where Southwest already has flights.

After the merger, the airline will operate 44 fewer daily departures at Washington National and 12 fewer daily departures at LaGuardia. Currently, the two airlines collectively operate about 290 daily departures from Washington and 175 daily departures from LaGuardia.

Meanwhile, US Airways and American agreed to give up two gates — the physical spots where planes and depart — at Boston’s Logan Airport, Chicago O’Hare, Love Field in Dallas, Miami International Airport, and Los Angeles International Airport. Attorneys general from across the U.S. were worried about the impact that the merger might have, forcing the airlines to reach a deal with Justice before the consolidation could take place.

American and US Airways have plenty of examples to look to in getting their merger off the ground. The Delta-Northwest merger seems to be the best example of a workable transition, although it has not been without a few bumps, while United and Continental still are encountering problems two years after their deal took effect.

Combined fleet

American Airlines + US Airways fleet[24]

Aircraft Airline In Orders Passengers Notes

Service F J W Y Total

Airbus A319-100

USAA

9316

—50

— 128

112102

124110

Airbus A320-200

US 68 — — 12

138 150

Airbus A321-200

Transcontinental

AA 12 76[25] 10 20

36 36 102

Airbus A321-200

US 94 TBA

Airbus A321neo AA — 130[26]

TBA Ordered by American. Deliveries

begin 2017.

Airbus A330-200

US 15 20 — 238 258

Airbus A330-300

US 9 — 28

— 263 291

Airbus A350-900

AA — 22[27] 36 — 294 330 Ordered by US Airways. Deliveries

begin 2017.

Boeing 737-400 US 10 — — 12 132 144 All to be retired in

2014.

Boeing 737-800 AA 280 76 16 — — 132 148

16 — — 148 160

Boeing 737 MAX 8

AA — 100[28]

TBA

Boeing 757-200Domestic

USAA

84 — 22 — — 166 188

Boeing 757-200International

USAA

33 — 16 — — 166 182

Boeing 767-200ER

USAA

106

— 1810

020

— 186128

204268

Last Flight AA : 7 May 2014. Last Flight US : Dec 2014.

Boeing 767-300ER

AA 58 — — 30

— 195 225 Half being retired. Other

half being retrofitted.

Boeing 777-200ER

AA 47 — 8 52

30 157 247

Boeing 777-300ER

AA 11 10[29] 8 52

30 220 310

Boeing 787-8 AA — 12[28] TBA Deliveries begin 2014.

[30]

Boeing 787-9 AA — 30[28] TBA Deliveries begin 2014.

[30]

McDonnell Douglas MD-82

AA 89 — 16 — — 124 140 To be phased out

by 2018.

McDonnell Douglas MD-83

AA 74 — 16 — — 124 140 To be phased out

by 2018.

Embraer 190 US 20 — 11 — 88 99

Total 1023 506

Major advantages of the merger

A code share agreement between American and US Airways, creating more convenient access to the combined company's global network.

More choices and connectivity, with nine hub airports across the U.S. 

Global access to a stronger one world alliance creating more options for travel and benefits both domestically and internationally 

Consolidation of loyalty programs and expanded opportunities to earn and redeem miles across the combined network 

Full integration of policies, websites, kiosks and customer-facing technology to ensure a consistent worldwide travel experience 

The combined airline expects to share more details around these key customer benefits early next year. 

The combination is expected to deliver enhanced value to American Airlines' stakeholders and US Airways' investors. The transaction is expected to generate more than $1 billion in annual net synergies by 2015. 

Benefits to employees

Employees of the new American will benefit from being part of a company with a more competitive and stronger financial foundation, which will create greater career opportunities over the long term.

The completed merger also provides the path to improved compensation and benefits for employees. 

Alignment of pay, benefits, work rules and other guidelines for employees of both airlines will be phased in over time so that all changes can be carefully considered.

Represented employees will continue to work under their respective Collective Bargaining Agreements, with the modifications provided under the negotiated Memoranda of Understanding for certain groups.

American's non-represented Agents, Representatives and Planners will operate under their current terms and conditions of employment with merger-related adjustments. 

Alignment of pay, benefits, work rules and other guidelines for employees of both airlines will be phased in over time so that all changes can be carefully considered. Represented employees will continue to work under their respective Collective Bargaining Agreements, with the modifications provided under the negotiated Memoranda of Understanding for certain groups. American's non-represented Agents, Representatives and Planners will operate under their current terms and conditions of employment with merger-related adjustments. 

The combination is expected to deliver enhanced value to American Airlines' stakeholders and US Airways' investors. The transaction is expected to generate more than $1 billion in annual net synergies by 2015. 

Benefits To Stakeholders

American Airlines stakeholders and US Airways shareholders are expected to benefit from the significant upside potential of the new combined airline, which is expected to

have approximately $40 billion in revenues based upon the combination of each company’s projected 2013 performance.  The combination is expected to deliver enhanced value to American Airlines stakeholders and is projected to be significantly accretive to EPS for US Airways shareholders in 2014.

The transaction is expected to generate more than $1 billion in annual net synergies in 2015, including $900 million in network revenue synergies, resulting predominantly from increased passenger traffic, taking advantage of the combined carrier’s improved schedule and connectivity, an improved mix of high-yield business, and the redeployment of the combined fleet to better match capacity to customer demand.  Estimated cost synergies of approximately $150 million are net of the impact of the new labor combined contracts at American Airlines and US Airways.  The companies expect one-time transition costs for the merger of approximately $1.2 billion, spread over the next three years. 

The abovementioned provisions of the support agreement relating to the treatment of prepetition unsecured claims against the Debtors and existing equity interests in AMR under a plan are summarized as follows:

Holders of existing AMR equity interests will receive an aggregate initial distribution of 3.5% of the common stock of the combined airline on the effective date of the plan, with the potential to receive additional shares if the value of common stock received by holders of prepetition unsecured claims would satisfy their claims in full;

So-called “double dip” creditors (i.e., holders of prepetition unsecured claims as to which both AMR and American Airlines are obligors, either directly or indirectly) will receive shares of mandatorily convertible preferred stock equal to the full amount of their claims.  These shares will convert into common stock of the combined airline at 30 day intervals during the 120 day period following the effective date of the plan, based on a formula tied to the market price of the common stock of the combined airline;

So-called “single dip” creditors (i.e., holders of prepetition unsecured claims that are not guaranteed) will receive a combination of shares of the same class of mandatorily convertible preferred stock as the “double dip” creditors will receive and shares of common stock of the combined airline;  and

American Airlines’ labor unions and other employees will receive an aggregate of 23.6% of the common stock of the combined airline ultimately distributed to holders of prepetition unsecured claims against the Debtors.

The support agreement can be terminated in certain instances, including the failure of the Debtors to achieve certain milestones toward confirmation and consummation of the plan.

How this merger can be good for consumers

Airlines industry expert George Hobica of is more optimist than many of his peers on the potential impact of the American-US Airways merger. He outlines 9 “silver lining” reasons that the merger might actually be good for consumers including:

1. There will be real savings for the airlines, which can be passed along to consumers.

2. Fares won’t increase all that much, if at all.

3. Service and flight experience should improve.

4. You’ve been paying for these bankruptcies through your taxes all along.

5. Foreign-based airlines are expanding service from the U.S., which helps keep international fares moderate.

CONCLUSION

It is to be concluded that this merger is the best outcome for the company, delivering not only the greatest value for their financial stakeholders, but also positioning them well for sustainable success over the long term. The deal creates the world’s largest airline, a position American once held until a wave of consolidation in the airline industry over the past few years. The American Airlines and US Airways merger, Doug Parker’s goal, became official, with American headed back to financial markets as a publicly traded company. (It can be found on NASDAQ under the symbol AAL.) It is very beneficial for employees of the company as well as the customers of American Airlines. They have a long way to go to integrate their  loyalty programs, systems, operations, workforces and fleet. This will take some time, but they are sure to keep us updated as changes occur.They are committed to keeping us informed as they combine into one carrier and will continue to communicate with us as they reach other important milestones.

BIBLIOGRAPHY

1. www.aa.com 2. Wikipedia3. Times of India4. www.google.com 5. www.usairways.com