The news that AMR Corp. (AAMRQ), the parent company of American Airlines, would be merging with US Airways Group (LCC) sent shares soaring as high as 92 percent to $2.50 on Thursday. Shares of US Airways on the other hand, fell about 10 percent to as low as $13.16. The deal leaves AMR’s creditors in possession of 72 percent of the company, while US Airways shareholders will retain 28 percent.
Aside from the $1 billion yearly savings and $40 billion yearly revenue that is the projected as a result of the merger, AMR’s creditors will be repaid with interest, while 3.5 percent of the company will be reserved for existing stakeholders. Furthermore, both companies are promising rather spectacularly that integration will be completed by September of this year.
Provided the merger receives clearance from the Justice Department and regulatory entities, and is given the green light by the bankruptcy judge presiding over AMR’s restructuring process, it would make American Airlines by far the largest airline in the United States. United Airlines (UAL) and Delta (DAL), whose share prices today dropped as much as 3.5 percent and 5.1 percent respectively, would be American Airline’s only competition in terms of major carriers, though in recent years much more of the challenge has been coming from smaller, low-cost carriers.
In terms of logistics, the two companies will complement one another nicely, as each services a significant number of domestic routes that are not covered by the other (almost 200 routes in total). While both companies are assuring a fast-tracked timeline for operational integration, there are sure to be some disruptions in terms of the various policies involving reservations, seating, frequent flyer miles, and connecting flights.
The move comes against a backdrop of consolidation in the airline industry both in the U.S. and in Europe, a phenomenon for which U.S. Airways CEO Doug Parker has long been an unequivocal enthusiast. The new American Airlines will sport a market cap of $11 billion dollars.
[Image via Flickr]
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer