American Airlines, US Airways Complete Merger

By Susan Carey and Jack Nicas, Wall Street Journal

American Airlines Group Inc. was born Monday morning after AMR Corp.'s American Airlines stepped out of bankruptcy and merged with US Airways Group Inc. The new company is now the world's largest airline by traffic.

The new American said Monday that holders of AMR common share, which ceased trading Friday, will receive an initial distribution of 0.0665 AAL share for each AMR share held.

They could receive more in the next 120 days depending on the trading price and the total allowed claims to AMR's creditors. The two-year restructuring of AMR resulted in outsize recovering for unsecured creditors, who will be repaid in full, AMR's big unions, which will receive a big slab of new equity, and AMR's common holders.

Normally in airline restructurings, creditors receive cents on the dollar of their claims and common holders are wiped out.

The initial distribution of new AAL shares will bring AMR common shareholders 3.5% of the equity of the combined company, the minimum envisioned in the original merger plan.

But if the AAL trading price holds up in the $22-a-share range for the next four months, AMR holders could be in line to own about one-third of the combined company, or roughly $5 billion of equity, according to the new American.

AMR creditors are in line for 68.5% of the equity and US Airways shareholders 28%. The stock swap is valued at about $18 billion in total.

Doug Parker, who became chief executive Monday of the new American, told CNBC he expects the enlarged company to provide a return to shareholders and said he and his team are ready for the hard work ahead of melding the two carriers, a process that will take at least two or three years. The combined company has forecast throwing off $1 billion in annual revenue improvements and cost savings by 2015.

Mr. Parker had been CEO of US Airways and pushed hard for the merger, convincing AMR's labor unions, creditors and, finally, management, of the wisdom of creating a larger airline better able to compete with two U.S. behemoths that already grew through mergers.

Mr. Parker told CNBC that industry consolidation "may" now take a pause. American, United Continental Holdings Inc., Delta Air Lines Inc. and Southwest Airlines Co. all have merged with other carriers in the past six years, and together control more than 80% of U.S. domestic capacity. Leaving aside Southwest, Mr. Parker told CNBC that the three largest carriers "now have the ability to take people everywhere in the world."

The new American has 600 jetliners on firm order, which should provide a big boost to the new American's fortunes, along with the "energized" employees who have widely supported the merger, Mr. Parker said.

He acknowledged that many previous airline mergers haven't gone smoothly and have taken years to implement.

"It's hard work and we know that," he said on CNBC. "We're ready to go to work. We've done this before." He was referring to the 2005 merger of US Airways with his America West Airlines.

Customers of the new American will begin seeing changes in January, when fliers will be able to earn and redeem miles on both frequent flier programs, elite fliers will be recognized by the other carrier and airport lounge reciprocity will kick in. Later, the two will begin putting their flight codes on each other's planes. US Airways intends to leave the global Star Alliance marketing club in late March, and move to Oneworld, a rival alliance anchored by American, Japan Airlines and British Airways.

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