American Airlines and US Airways are reportedly engaging in negotiations on a possible merger. If successful, the merger will create the largest airline in the world, with a total equity value of $11 billion.
The new airline will use the American Airlines name, and it will exceed current leader United Continental Holdings Inc by 2% in terms of traffic. According to 2012 figures, its revenue will be approximately $39 million, which is $2 billion more than that of United Continental. The majority of the merged airline will be owned by creditors, employees of American Airlines’ parent company AMR Corp, and unions. AMR Corp filed for bankruptcy in 2011.
The merger, which has to be approved by the US Bankruptcy Court and regulators, can help the airline industry in the US recover faster. With the elimination of another competitor, airlines will have more freedom to increase fares. A number of major airline mergers had occurred since 2008, including the purchase of Northwest by Delta Air Lines, the United-Continental merger, and the purchase of AirTran Holdings by Southwest Airlines. These mergers have given the airline industry a more stable financial footing.
With the merger, American Airlines will once again be the leading airline in the US, a position that it lost in recent years due to high labor costs. On its own, it is presently the third largest airline in terms of traffic, trailing United Airlines and Delta Air Lines. The merger will also give passengers of American Airlines and US Airways access to more destinations.
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