For US Airways LCC.N, the merger-hungry fifth-largest U.S. airline, a bankrupt American Airlines may present an irresistible takeover target, but many in the aviation world think the headaches and hassles of consolidation are not worth the payoff of such a tie-up.
American, a unit of AMR Corp AMR.N, filed for Chapter 11 bankruptcy protection on Tuesday in a bid to shed some of its uncompetitive costs and restructure its debt.
Bankruptcy leaves the company vulnerable to potential takeover attempts from would-be suitors like US Airways, whose chief executive Doug Parker has long promoted consolidation as a means to slim down an industry plagued by overcapacity. US Airways once tried and failed to buy Delta Air Lines (DAL.N) as it restructured in bankruptcy.
Since the Delta/Northwest and United/Continental mergers, American and US Airways have been considered logical partners for a potential combination, but analysts have said American's high labour costs and unresolved contracts with its unions make any deal too difficult to negotiate.
Sweeping cost cuts in bankruptcy could remove one potential hurdle, but analysts and bankers noted that US Airways still has its own challenges of having to integrate labour groups following its 2005 merger with America West Airlines.
"Strategically that's one of the final combinations that could make sense, but there's a real issue for US Airways to do a deal, as well as the fact that US Airways is still slightly smaller," said one industry banker who asked not to be named because he was not authorized to speak with the media.
A second industry banker added: "US Airways still has two airlines. If they can't combine those two houses, how they can combine with American? Today there is no labour deal at US Airways, and those labour deals still need to be negotiated."
Analysts also said the benefits of any merger are less clear for American Airlines.
"From the standpoint of US Airways, it would be a huge opportunity," said airline industry consultant Robert Mann. "It would take them into markets they don't have access to today from a hub standpoint.
"Looking at it from the American Airlines' perspective, it doesn't make the combined American and US Airways network competitive with Delta or United (Airlines)," he said.
For a merger to appeal to American Airlines, Mann said, it would have to bolster American's international routes. American Airlines is a global airline that hopes to lure business travellers with international partnerships and a hub-and-spoke model that focuses on cities that are major business centres.
US Airways has a strong presence on the U.S. East Coast but has less to offer in foreign markets.
Airlines in bankruptcy are logical targets for a rival willing to attempt a takeover, because the would-be acquirer can present a proposal to a committee of airline creditors rather than directly to the management team, which might be less inclined to take the deal.
Bankrupt airlines also are attractive takeover targets because they have court protection to cut costs and restructure debt.
Neither American nor US Airways would comment on merger prospects on Thursday.
American has long expressed confidence in its prospects as a stand-alone airline, although its two biggest rivals United and Delta were formed from mergers that so far are successful.
US Airways failed to acquire Delta through a hostile takeover bid in 2006, and Delta later merged with Northwest Airlines, which restructured in Chapter 11 at the same time as Delta, to become the No. 2 U.S. carrier.
US Airways also had two rounds of fruitless merger talks with UAL Corp. UAL merged with Continental Airlines last year to form the world's biggest carrier -- the new United Airlines, a unit of United Continental Holdings (UAL.N).
(Reporting by Kyle Peterson and Soyoung Kim; editing by Gunna Dickson)