American, US Airways agree to merge; announcement Thurs.Posted: Updated:
DALLAS –– American Airlines' parent company AMR and US Airways voted late Wednesday afternoon to approve a merger, which would create the world's largest airline.
Sources tell News 8 the official announcement will happen at Dallas/Fort Worth International Airport on Thursday. Another will follow later in the day in Phoenix.
The new carrier will retain the Fort Worth-based American Airlines name and headquarters will stay in Tarrant County, just south of D/FW Airport. But the Tempe, Ariz.-based US Airways name and brand will eventually disappear.
Sources tell News 8 that US Airways CEO Doug Parker will lead the new airline. He has actively lobbied for the combination for 14 months.
Industry experts say it's still too early to know the impact the merger will have on jobs, or the US Airways Hub at Sky Harbor.
“They’re not sure how it’s going to play out, where they’re going to put their chips once they merge," said Mike Sunnucks of the Phoenix Business Journal.
US Airways employs an estimated 9,000 people in the Phoenix metro area. It's not known whether this deal with bring transfers or potential cuts.
However, since it's believed the headquarters will move to Texas, Arizona will lose a Fortune 500 company based in the Valley.
“They do a lot of charity work, they’re involved with a lot of things. They buy suites to sports games, a lot of seasons tickets, the naming rights to the arena, all of that is going to change," said Sunnucks.
AMR CEO Tom Horton’s role in the new airline, if any, was immediately uncertain. Last week, News 8 reported that Horton was being considered for a ceremonial position on the new board of directors such as non-executive chairman. But Horton, who remains unpopular with American’s own labor unions, had been lobbying his board for a more prominent role in the new airline.
Doug Parker, 51, once worked at American Airlines. He held a number of financial management positions at American from 1986 until 1991, according to his US Airways biography.
But his executive star began to rise in 2005 when, as CEO of America West Airlines, he successfully purchased a bankrupt US Airways and moved its headquarters from Charlotte, North Carolina to Tempe, Arizona.
"Under Parker's leadership, the airline has achieved record revenue growth, operational performance and profit margins that have outpaced most industry peers," the bio added.
Parker, a married father of three, tried unsuccessfully to purchase Delta Airlines when it was reorganizing under bankruptcy protection in 2006. Using lessons learned from the failed Delta deal, he approached Horton in 2011 about a possible deal.
For months, though, Horton and American insisted they were only interested in emerging from bankruptcy as a standalone carrier.
But American's labor unions, which have long had a deep level of mistrust for American management, began to lobby hard for a merger with US Airways. Parker agreed to deals with American’s Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union which would help them transition to a new contract if the airlines combined.
The Allied Pilots Association, specifically, negotiated $87 million in improvements per year for its pilots –– mainly in increased pay and retirement contributions, along with training pay and per diem.
"The unions actually were very successful in this case in guiding the company toward a merger they were in favor of,” said Mark Drusch, a former airline executive with Continental, Delta and Lufthansa who is now the Chief Supplier Relations Officer for Fareportal, a New York-based travel company.
“It's good for us as consumers because we won't have labor issues for quite some time,” he said. “I can tell you, in the last 20 years, this is probably the only time where the unions would have such a strong say on what would happen to the company in bankruptcy."
But as pieces of a possible merger between American and US Airways began falling into place in late December and January, insiders tell News 8 that Horton turned against the deal since it appeared Parker would lead the new airline.
"His claws are in the carpet trying to keep his job," said one source familiar with talks.
But Horton has done the job AMR’s Board of Directors hired him for in November 2011.
Under his 15 month control at American, the airline has reduced its labor costs by 17 percent, shed its expensive pension plan and replaced it with a defined contribution plan similar to a 401(k). American also reduced its overall number of employees by 8,900 through attrition, layoffs or voluntary departures.
In addition, Horton also won concessions from labor to fly larger regional aircrafts and bolster code-sharing with other airlines, making the legacy carrier much more nimble than it had been previously.
Passengers on both American Airlines and USAirways will not notice any immediate changes, experts said. Both carriers will continue to operate on their own until the Federal Aviation Administration grants them a single operating certificate.
But in the long run, experts expect fares to increase since fewer airlines will be offering seats for sale. Ticket prices in North Texas might not see a noticeable increase, however, because competition will heat up in 2014 once the Wright Amendment expires. That will allow Southwest Airlines to fly directly to destinations across the country without having to stop in neighboring states.
American's AAdvantage Miles and USAirways Dividend Miles will continue to accrue and eventually be merged into a single account, industry experts expect.
Experts said there is little overlap in the two airlines' current flight operations. Domestically, American maintains its biggest presences in Dallas/Fort Worth and Miami while also maintaining hubs in New York, Chicago and Los Angeles.
By contrast, US Airways has strong operations in Phoenix, Charlotte and Philadelphia; the latter two hubs will help strengthen American's presence on the east coast with lucrative business travelers.
Since Sky Harbor is also a Southwest Hub, Sunnucks hopes that will help keep prices competitive. He said airfare may increase depending on where you're traveling.
“Some of those flights could go up significantly, other flights could stay the same, of if Southwest ups their ante in some markets, it could actually go down," said Sunnucks.
Aside from Walmart, American Airlines is the largest employer in North Texas with 22,450 employees on its payroll locally.
Parker has said publicly that he thinks the two airlines can merge operations with minimal job loss. But some positions will have to go, experts said, especially at headquarters where two marketing teams, corporate communication groups and other departments would be duplicated.
Completing a merger between the two airlines will take one to two years, experts have said, and requires a number of approvals.
First, the boards of both airlines must approve a merger. Then creditors in the American Airlines bankruptcy, along with the judge, must also approve the business marriage. In addition, the U.S. Department of Transportation, U.S. Department of Justice and the European Union will also have to give the combination their blessings once they're certain it won't stifle competition.