Airline Analysts: AA, US Airways Merger Increasingly Likely - Business Travel News

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Airline Analysts: AA, US Airways Merger Increasingly Likely

January 07, 2013 - 01:45 PM ET

By Jay Boehmer

American Airlines and US Airways on Friday announced that their respective pilots unions approved a framework that would govern "the terms of employment for pilots" in the event of a merger between the two carriers. Several analysts viewed the memorandum of understanding as another signal that the likelihood of a deal continues to grow.

"With the American Airlines pilots reaching a pilot contract and labor groups at both airlines coming to an agreement in anticipation of a merger, the next logical step would be an announcement," according to a Monday research note from Dahlman Rose & Co. analyst Helane Becker.

The carriers in a joint statement indicated that the MOU "will assist all of the stakeholders, including the Boards of AMR and US Airways, in making an informed decision as to whether a merger should ultimately be pursued."

Some analysts expect merger discussions to top the agenda at a Wednesday meeting of AA's board of directors. AA CEO Tom Horton in a Jan. 3 memo told employees that the carrier continued to "evaluate the potential benefits, costs and risks of a potential merger," with plans to reach a decision "within weeks."

Buckingham Research Group analyst Daniel McKenzie in a Monday research note said the MOU "raises the probability that US Airways executes on a merger with AMR." Even before that agreement was announced, Buckingham analysts "assigned an 80 percent probability" of a deal happening. If AA declined to merge, the carrier would "suffer the wrath of their creditors who expect a materially better recovery than AMR can offer as a standalone carrier," according to McKenzie.

In addition to the MOU, Wolfe Trahan analyst Hunter Keay in a Friday research note pointed to other harbingers of a merger. He noted that market capitalization for U.S. network carriers grew 30 percent in the past six weeks. Although AA stocks were delisted as the carrier reorganizes under bankruptcy court protection, unsecured bonds in the airline also "have rallied hard," according to Keay. Both serve as further indications that the market is anticipating a deal.

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