American Airlines

Shortly after American entered Chapter 11, US Airways launched a hostile bid to cause a merger of the two airlines while American is under bank­ruptcy protection. While management at Ameri­can initially resisted this move, the unions of both airlines, the creditors of American, and the stockholders of both airlines ultimately came out in favor of it. In February 2013, the companies

announced agreement to the plan of merger, sub­ject to the approval of the Bankruptcy Judge and the Justice Department.

The merger plan agreed to by the compa­nies’ boards of directors includes combining the airlines under the American Airlines brand, but with the US Airways management team in charge. The US Airways name would cease to exist. Creditors of American would receive the largest part of the stock of the new company, which is expected to reimburse them in full, with interest. US Airways stockholders would receive the balance of new company stock, except for a carve out of 3.5 percent for existing stockholders of American Airways.16

If approved, the new American Airlines company would be the largest airline in the world and would be a commanding presence in eight of the busiest airports in the United States. (See Fig. 35-22.) It would also remain a member of the Oneworld global airline alliance. The new arrangement would give American Airlines a 26 percent U. S. market share, with United at 19.3 percent, Delta at 19.2 percent, Southwest at

18.2 percent, and all other airlines combining for

17.3 percent.

Informed sources uniformly predicted gov­ernment acceptance of the proposed merger plan based on prior merger approvals of United – Continental, Delta-Northwest and Southwest-Air

Tran. But on August 13, 2013, the Department of Justice, joined by six states and the District of Columbia filed suit to block the merger. This action came as a particular surprise since the European Commission had approved the basic plan only a week earlier. The proposed merger partners announced their full intention to fight the lawsuit and they expect to prevail. The most recent conventional wisdom is to expect some sort of compromise with the DOJ to lessen any anti-competitive effects of the proposed merger.

During the period 2000 through 2012 the domestic airline industry went through signifi­cant consolidation, yet airline fares rose at a rate less than food (27 percent), beverage prices (38 percent), and housing costs (30 percent). The average increase in prices of all items monitored by the federal government increased 32 percent. The monitored airline fares, however, do not include the add-on fees that airlines have increas­ingly imposed on travelers in recent years.