Bankrupt American Airlines now ponders merger to US Airways' delight

American Airlines signaled Tuesday that it might be amenable to a merger, a move it has resisted up to now.

US Airways Group Inc., Philadelphia's dominant airline with 70 percent of the flights here, would very much like to be that merger partner.

American's chief executive officer, Tom Horton, told employees, in a letter, that as a path to exiting bankruptcy court reorganization, American is ready to consider "a range of strategic options, including potential mergers."

American's management met Tuesday with the unsecured creditors committee in the bankruptcy proceeding, Horton said, in the statement filed with the Securities and Exchange Commission.

The Fort Worth, Texas-based airline, after reaching tentative agreements with its pilots and the Transport Workers Union representing maintenance workers, has "greater clarity" on its revenue outlook and cost structure, Horton said. The leadership team, board of directors, and creditors committee will examine "the strategic fit of possible combinations, including a thorough economic analysis of synergies, costs, and tax and capital structure implications," Horton said.

American will reach out "to interested parties to inform them of how we intend to proceed," he said.

Horton said he had been a public "proponent" of industry consolidation as one path to a healthier U.S. airline industry. "We have assessed many possible combinations in the past, including, of course, an acquisition of US Airways," he said. "In fact, last year, I approached my counterparts at other airlines about the merits of possible combinations."

Horton said the "exploratory process will take time" and "it is best that we first put our own house in order before considering a complex and challenging airline acquisition."

"But it is also prudent merger strategy, should we take that path, to assure that we begin from a position of greater strength and stability, he told employees."

"We are pleased that AMR's process to explore merger options is moving forward," US Airways spokesman Todd Lehmacher said. "All we have asked for is a fair and balanced opportunity to present our plan vs. others, and we are hopeful this is the beginning of such a process. We remain confident that our plan will maximize value for all stakeholders."

Philadelphia City Councilwoman Blondell Reynolds Brown called on both airlines Tuesday to make sure that Philadelphia remains an airline "hub and major international gateway" if the two merge. Any merger must ensure that "Philadelphia's stability, if not growth, are in place," she said.

Horton had said for months that he wanted American to emerge from bankruptcy as a stand-alone company, and that the airline could get itself out of bankruptcy by cutting costs.

US Airways CEO Doug Parker, whose airline is the product of a combination with America West in 2005 during bankruptcy, is a longtime advocate of mergers. US Airways has approached rivals Delta and United in recent years about potential mergers, only to be rebuffed.

American's bankruptcy has been seized on by US Airways' management, which is aggressively pursuing the airline, lobbying creditors and lining up support from American's three unions for a merger.

US Airways' share price is up 174 percent this year on speculation of a merger. A bankruptcy judge has granted American the exclusive right through late September to present a reorganization plan to the court.

Many analysts say an American-US Airways deal makes sense because the two are in third and fifth place in passenger traffic. A combined carrier — likely to be called American and based in Fort Worth — would be the biggest airline in the world, exceeding No. 1 United and Delta, which is No. 2.

American has strength in flights to Latin America, partnerships with British Airways and Japan Airlines, and a major presence in some of the largest U.S. markets — Chicago, Los Angeles, New York and Miami. US Airways is strong in the Southwest and Southeast. American has a big operation at New York's JFK airport, but with no room to grow there. Some observers think a new American would expand international flights in Philadelphia.