AMR and US Airways Said to be Closer to Merger

American Airlines parent AMR Corp. and US Airways Group Inc. are moving closer to a merger, and a decision could come early next month, people familiar with the matter said.

Teams from each carrier are discussing how to combine departments, including personnel, compensation and severance, said the people, who asked not to be identified because details are private. AMR's board will meet Jan. 9 to decide whether to go ahead, with an announcement possible within days, said the people. The talks may yet be scuttled or delayed, they said.

The push follows AMR's efforts to reorganize in bankruptcy before a merger and US Airways's quest to lead a takeover that would create the world's largest airline. The chief unresolved issues pending with AMR's unsecured creditors committee, which must approve any exit plan, are how to divide the equity in a new company and who would run it, three people said.

US Airways President Scott Kirby and Denise Lynn, senior vice president for people at American, have been involved in talks with pilots from each carrier, along with Jack Butler, the attorney for the creditors' panel, two people said.

An agreement may be completed this week on work rules for each pilot group until a joint contract is negotiated with a merged carrier, one person said. Kirby is leading the merger analysis for US Airways Chief Executive Officer Doug Parker, people familiar with his role have said.

AMR is “actively taking part in ongoing discussions” with its pilots, US Airways and the smaller airline's pilots, Michael Trevino, a spokesman, said in an e-mailed response to questions about department-level planning, the board and a possible merger announcement by the Fort Worth, Texas-based carrier.

US Airways declined to comment about meetings with AMR, said Todd Lehmacher, a spokesman for the Tempe, Arizona-based airline.

Parker, Kirby and Butler met yesterday with the board of the US Airline Pilots Association, which represents US Airways pilots, in Charlotte, North Carolina, said James Ray, a union spokesman. He declined to comment on the substance of the talks. Lehmacher also declined to comment.

US Airways rose 0.5 percent to $13.55 at 10:03 a.m. in New York. The shares have more than doubled this year on merger speculation to lead gains in the Bloomberg U.S. Airlines Index.

Bond Rally

Investor optimism about a merger also has helped fuel a rally in AMR debt. The $460 million of 6.25 percent convertible notes due October 2014 traded yesterday at 84.75 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes traded at 17.75 cents after AMR's bankruptcy filing on Nov. 29, 2011.

AMR CEO Tom Horton has said the company's future should be resolved “soon,” after completing contract changes that provided $1.06 billion in labor savings, and that he hasn't ruled out a merger. In the past he backed a stand-alone bankruptcy exit, with tie-ups to be considered after that.

He met last week with the Allied Pilots Association board to discuss AMR's progress in bankruptcy and plans for the future that include adding about 550 new jets to replace aging planes and increasing international service to attract more business fliers.

After becoming CEO when AMR filed for bankruptcy, Horton focused first on the idea of remaining independent. US Airways began pursuing a merger in January and said in April that its bid was backed by unions for American's pilots, flight attendants and mechanics and baggage handlers.

A combination of American, the third-biggest U.S. carrier, and No. 5 US Airways would surpass United Continental Holdings Inc. as the world's largest airline, based on passenger traffic.

The case is in re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Bloomberg News

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