* AMR bankruptcy spurs talk of new industry mergers
* AMR Latin routes a key prize, but antitrust bar high
* Left out in previous deals, US Airways keen for merger
* Delta eyes new growth, United Continental on sidelines
By Kyle Peterson and Soyoung Kim
Feb 3 After sitting out the mega-mergers
that created the world's two largest airlines in recent years,
US Airways Group is once again courting partners, this
time hoping that its bankrupt rival American Airlines will deem
US Airways Chief Executive Doug Parker, a longtime advocate
for industry consolidation, has confirmed his interest in making
a bid for American's parent AMR Corp.
The fifth-largest U.S. carrier also is open to being
acquired itself, and would consider any serious takeover offers
that could improve shareholder return, according to people
familiar with US Airways' thinking.
But for all the speculation on another round of airline
consolidation, with Delta Air Lines Inc and private
equity firm TPG Capital among those evaluating AMR,
only one pairing makes sense and appears likely in this business
that remains plagued by overcapacity, experts say.
"Most likely, somehow, US Airways will get involved with
American," said Ray Neidl, an aerospace analyst at Maxim Group.
"We've got one airline too many as far as legacy carriers go."
Another merger of major U.S. airlines - following
United/Continental in 2010 and Delta/Northwest in 2007 - faces
But airline and investment banking sources say an alliance
between US Airways and American is more likely because that has
a clearer path to regulatory approval than other combinations.
It also offers valuable growth opportunities.
"I think AMR is more likely to end up in combination with
somebody else simply because the industry dynamics dictate
that," said a senior investment banker who was not authorized to
"There are huge economies of scale in purchasing fuel, the
route structure and the labor negotiations and the negotiations
with aircraft suppliers," the banker said. "There is a reason
why the industry is consolidating and will continue to."
WHERE'S THE VALUE?
Since its Chapter 11 filing in November, AMR has been at the
center of consolidation scenarios, with its strong Latin
American routes the envy of bigger rivals such as Delta and
United Continental. Delta President Edward Bastian on
Thursday reiterated the company's desire to expand its Latin
operations, which represent just 5 percent of total revenue.
But the almost insurmountable antitrust obstacles make Delta
or United Continental - two U.S. airline behemoths - unlikely
buyers of American, experts say.
US Airways has its own headaches. The carrier, which was
formed from a 2005 merger with America West Airlines, has yet to
fully integrate its two labor groups. AMR also has contentious
relations with its own labor force.
Nevertheless, an AMR/US Airways pairing would create the
world's biggest carrier in terms of passenger traffic. The two
airlines flew a total of 297 billion passenger-kilometers in
2010, the most recent year for which data is available from the
International Air Transport Association.
United Airlines and Continental airlines flew 293 billion
passenger-kilometers in 2010, compared with Delta's 267 billion.
US Airways has a large presence in the southeastern and
southwestern United States that AMR may covet. And US Airways'
hub in Philadelphia could feed American's international network.
Additionally, US Airways - now a member of the Star Alliance
- could bolster the global oneworld airline alliance, of which
American is an anchor member. Oneworld is one of the top three
global airline alliances in which members cooperate on routes
and connections, essentially expanding their networks.
US Airways is willing to move to oneworld in the event of a
merger with American, according to people familiar with US
"Basically, what we think about US Airways is they're very
big in the U.S. domestic markets," said Helane Becker, an
analyst with Dahlman Rose & Co. "They would make a good partner
for someone who would want to consolidate more domestic."
US AIRWAYS AS A TARGET
Over the years, US Airways has tried to merge with Delta and
United Airlines, but was rebuffed. Industry experts still see
little chance of US Airways being acquired by either airline,
pointing to too much overlap in their systems.
All three carriers declined to comment on their merger
Delta, which has hired Blackstone and Goldman Sachs to
review potential merger opportunities, is studying several
consolidation options including AMR and US Airways, according to
people familiar with the matter.
Sources close to United Continental said that while the
carrier is studying internally various combinations, it has
little interest in a deal at this point. The company has not
hired outside advisers and remains focused on the integration of
United and Continental, the sources said.
Against this backdrop, a marriage of US Airways and American
stands out as a more likely scenario than any other match. But
it will likely be at least several months, if not a year or
more, before any merger involving AMR materializes.
For now, AMR is downplaying merger possibilities, choosing
to focus on restructuring. CEO Tom Horton has said AMR aims to
emerge from Chapter 11 as an independent carrier.
The company has exclusive rights to submit a reorganization
plan for up to 18 months and is currently focused on shedding
costs and liabilities. That makes it difficult for anyone to
attempt a merger without American's consent.
AMR believes it will have different alternatives to pursue
once its restructuring is complete, with US Airways, JetBlue
Airways and Alaska Air Group all among
potential merger candidates, people close to American said.
A tie-up between US Airways and American "wouldn't be a
marriage made in heaven the way that Delta and Northwest were
and, to a lesser degree, Continental and United," Maxim Group's
Neidl said, referring to networks that featured little
"There would be some synergies between the two systems, but
it wouldn't be as powerful a system as Delta or United after the
combination," he said.