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American And US Airways Move Closer to a Merger With NDA Agreement

Aug. 31, 2012
4 min read
American And US Airways Move Closer to a Merger With NDA Agreement
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The Wall Street Journal published an article back in July about American Airlines' upcoming attempts to approach possible merger partners in the wake of its bankruptcy late last year.

According to the article, the airline was sending non-disclosure papers both to other airlines as well as possibly private equity firms as it starts private talks with a host of potential partners. In a letter to AMR (the airline's parent company) employees, CEO Tom Horton said: ""It now makes sense to carefully evaluate a range of strategic options, including potential mergers, which could make the new American even stronger."

News has just come that American has signed a non-disclosure agreement with US Airways to provide a confidential exchange of information - making the likelihood of a merger that much more real, though far from certain.

The announcement (below) came after American made a tentative deal with its pilot union, and has made headway in talks with its ground crew and and mechanics unions, though negotiations with flight attendants are still underway.

Though rumors have persisted of a possible merger with US Airways, until now, American had claimed it was simply going to reorganize under bankruptcy on its own. This represents a huge shift in its public strategy and one that could have major repercussions both on the airline industry and on consumers. Horton claims that American first wanted to get its own house in order before pursuing any merger possibilities so it could start out from a position of "strength and stability."

Back when American sent US Airways the NDA, US Airways released a statement saying: "We are pleased that AMR's process to explore merger options is moving forward. All we have asked for is a fair and balanced opportunity to present our plan versus others, and we are hopeful this is the beginning of such a process. We remain confident that our plan will maximize value for all stakeholders."

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Many believe that by combining forces the two airlines would have a stronger network, fleet and workforce to compete against major rivals Delta and United, and as this Yahoo article points out, both Delta and Northwest emerged from bankruptcy on their own before merging, and United had to go through Chapter 11 and come back out the other side before joining with Continental.

Some see this outreach to potential investors and/or partners as a concession by the airline to its creditors, who include the powerful unions. Whatever the case, the developments over the coming months should be interesting.

What About the Miles?
If American does merge with US Airways, my guess is that they'd stay in the oneworld alliance and the mileage program would still be called AAdvantage. American AAdvantage and US Airways Dividend Miles both have their strengths and weaknesses, so it really depends on what you value in awards. American's off-peak awards are much more flexible and they allow one-way awards at half the price of a roundtrip. US Airways has more fees on awards, but they also allow stopovers and very flexible routing. I use United for most Star Alliance redemptions since they have the lowest fees and allow one-way awards, so I probably value my AA miles more than US Airways.

I wouldn't panic because we are still a far way off from any real changes to the frequent flyer programs. Delta announced their merger with Northwest in April 2008 and the programs weren't officially merged until October 2009. Only time will tell how this plays out, but I'll be keeping you informed along the way!

Formal News Release:


FORT WORTH, Texas and TEMPE, Ariz. – AMR Corporation (“AMR”), the parent company of American Airlines®, and US Airways Group, Inc. (NYSE: LCC) today announced that they have entered into a non-disclosure agreement (“NDA”), under which the companies have agreed to exchange certain confidential information and, in close collaboration with AMR’s Unsecured Creditors Committee, to work in good faith to evaluate a potential combination.

The companies do not expect to provide any further announcements regarding the status of any such discussions unless and until the parties have entered into a transaction or discussions between the parties have been terminated. Furthermore, AMR and US Airways have each agreed while they are evaluating a potential combination that they and their representatives will not engage in discussions with other parties concerning a potential combination of AMR and US Airways. The companies noted that there can be no assurance that a transaction will result from these discussions.
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