American Airlines, a subsidiary of AMR Corporation is seeking approval from a U.S. bankruptcy court for its legal settlement with Department of Justice (DOJ) that will allow it to merge with US Airways Group Inc.(LCC). The carrier has argued that none of its creditors have opposed the merger, which will create the largest airline company in the world.
Notably, Fort Worth, Texas-based AMR Corp. filed for bankruptcy in Nov 2011, citing unmanageable labor issues that drastically increased its expenses. In Feb 2013, the board of directors of the aforesaid airlines gave the nod to merge, thus providing a means to come out of chapter 11 bankruptcies and pay back its creditors.
The merger received opposition from a small group of 40 travel agents and business flyers though, who fear that the amalgamation will increase fares and reduce competition. The group asked for a restraining order to halt the merger, the ruling on which is expected by this Wednesday.
Recently, both American Airlines and U.S. Airways cleared all competition-related litigation raised by the DOJ along with attorneys general of six states and the District of Columbia in Aug 2013. As part of the clearance, the airlines will have to give up 52 take-off and landing slots at Washington’s Regan National Airport (DCA) and 17 pairs at La Guardia airport in New York (LGA). Further, the carriers have to divest two gates and related facilities at each of the Boston, Chicago, Dallas, Los Angeles and Miami airports.
The DOJ has claimed that opening up of slots to carriers will likely induce more competition within the industry. The DOJ which was earlier favouring the low cost carriers like Southwest Airlines Co. (LUV) and JetBlue Airways Corp. (JBLU), now have to include legacy carriers like Delta Air Lines Inc. (DAL) in the process.
Post-merger, the combined unit will likely have more than 6,500 daily flights to 336 destinations across 56 countries generating annual revenues of roughly $40 billion.
Bankruptcy court clearance will bring some respite for AMR shareholders, who can now expect to get back their investments. Nevertheless, AMR still needs a single operating license from the Federal Aviation Administrator before it could fly as a merged unit.