Troubles at American Airlines, a unit of AMR Corp AMR.N, could bring the airline closer to a merger with US Airways LCC.N, especially if American opts to restructure in bankruptcy someday, experts say.
Although most analysts do not expect the third-largest U.S. carrier to restructure in court, some said a speedy, prepackaged bankruptcy could slash AMR's labor costs and position it for consolidation, even if that is not the carrier's intention.
"If you were thinking of acquiring American Airlines or talking to them from a merger standpoint, you would probably want to wait for them to go through bankruptcy or to go into bankruptcy before you tried to buy them," said Helane Becker, an analyst with Dahlman Rose & Co.
Four of the six carriers involved in the last three big U.S. airline mergers were in bankruptcy or used it to position themselves for deals.
American declined to comment on potential mergers and said earlier this week that bankruptcy was "not our goal," but the No. 3 U.S. carrier did not explicitly rule out a Chapter 11 filing or even distance itself much from the possibility.
U.S. airline shares tumbled on Monday on renewed concerns that economic weakness could dampen travel demand in the fall. Shares of American suffered the worst, however, falling 33 percent on Monday amid rampant speculation that the carrier would fare worse than rivals and be forced into Chapter 11.
American shares have recovered some of their losses since the stunning sell-off, but remain well below $3, versus $7.1 at the start of 2011 and above $40 in early 2007.
US Airways also declined to talk about how problems at American might impact a strategic outlook framed by consolidation. But the company's pro-consolidation stance is well-documented.
"We know the value it creates despite the difficulties involved," US Airways President Scott Kirby said in a September investor presentation.
"We have a history of being opportunistic," he said. "And we do what is best for all of our constituents, shareholders, employees and all the communities, which are indeed open to it."
US Airways, the product of a 2005 merger with America West Airlines, failed to acquire Delta Air Lines (DAL.N) through a hostile takeover bid in 2006 while Delta was in bankruptcy. 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).
Airline consultant Robert Mann said US Airways would view any AMR bankruptcy as an irresistible opportunity to take over its larger rival.
"A guy like (US Airways CEO Doug) Parker would swoop in immediately if that were to occur," Mann said. "If (AMR) prefers to stay independent then they really need to stay out of bankruptcy."
Bankruptcy laws allow a smaller airline, like US Airways, to own a bigger one, like American. Mann believes AMR may try to avoid bankruptcy if only to protect itself from a potential hostile takeover.
Industry consultant Darryl Jenkins believes an American bankruptcy is remote this year or next, and said the carrier's first priority should be reaching a contract with its pilots after four years of bargaining.
"I don't know that it's the best match in the world," Jenkins said of a US Airways-AMR merger.
US Airways also has long-standing problems with its pilots union, which is also without a contract.
Jenkins believes US Airways "is doing fine" as a stand-alone carrier and has strong marketing alliances.
"I know they want to do something more. This is not the time," Jenkins said.
American, which lost money in the second quarter while rivals showed profits, boasts a strategy of focusing its route structure on hubs in key business destinations.
American also has invested heavily in deeper transatlantic and transpacific partnerships within its oneworld alliance to bolster its operations. Most recently, AMR and Qantas Airways (QAN.AX) agreed to coordinate operations on services between Australia/New Zealand and the United States.
"They do believe that the full annual value of those joint ventures is in the hundreds of millions of dollars, which would clearly do quite a bit to improve their position," Mann said.
"The problem is that it's a work in progress and has been for quite a while with no apparent acceleration toward achieving those goals," he said.
(Reporting by Kyle Peterson and John Crawley; Editing by Richard Chang)