We Were Wrong About American Airlines

Print Email

American Airlines and U.S. Airways Group Inc. (NYSE: LCC) will combine in a merger worth $11 billion. AMR bondholders will own 72% of the combined business. U.S. Airways CEO Doug Parker will be chief executive. AMR CEO Tom Horton basically has been kicked out. He will be chairman for about a year.

24/7 Wall St. said the American Airlines brand would disappear. Its bankruptcy would lead to a merger, we reasoned, and the merger partner’s brand would survive. 24/7 was wrong.

In our “Ten Brands That Will Disappear in 2013” article last June, we wrote:

American’s parent AMR filed for Chapter 11 bankruptcy in Nov. 2011. The airline itself still operates largely as it did prior to the filing, but with some of the advantages the bankruptcy of a parent brings. Labor costs will be cut, along with debt service and lease obligations for airplanes. AMR says it plans to emerge from Chapter 11 as a viable airline. But that will not happen. US Airways (NYSE: LCC) already has made it clear that it wants to buy American’s assets. As soon as the rumors of a potential buyout started in April, some of American’s largest unions said they backed such a plan as a way to protect jobs. Earlier this month, US Airways CEO Doug Parker announced his desire to merge the two airlines. With US Airways probably willing to give AMR’s creditors a good deal to get American’s assets, the potential deal received tremendous support from bondholders and analysts. US Airways has much to gain from this transaction, as its position in the carrier market has been eroded by the mergers of Northwest and Delta and the later combination of United and Continental.