Bowing to what airline analysts consider the inevitable, US Airways moved a step closer to merging with bankrupt American Airlines Friday when three key unions announced their support.
If the merger goes forward, the US Airways brand would go the way of Pan Am, TWA and Eastern Airlines, consigned to history as the merged carrier flies under the American banner.
Though it remains unclear whether current American management will welcome a US Airways proposal, the marriage would unite US Airways’s strength in the eastern half of the country with American’s influence in the Midwest and West.
Under a US Airways plan, the merged airline would retain current key hubs in Phoenix, Charlotte, Philadelphia, Chicago, Dallas-Fort Worth, Miami, New York and Los Angeles. The corporate headquarters would be in Fort Worth.
The new American Airlines would control almost 25 percent of domestic airline seats, becoming the nation’s largest carrier by that standard. By another measure, with a 6.2 percent share of the global market, the new American would become the world’s leading airline, eclipsing United.
Locally, the combined airlines would control 59 percent of the seats in and out of Reagan National Airport, 7 percent of Dulles International seats and 10 percent of seats at Baltimore-Washington International Marshall Airport.
As with most mergers, jobs would be lost. In this case, analysts said, most of those affected would be airplane mechanics. Bound by union agreements, American has maintained a cadre of in-house mechanics in an era when other airlines have contracted out that work.
Under the bankruptcy protection filing submitted last year by American’s parent company, AMR, chief executive Thomas W. Horton has until September to present the bankruptcy court with a plan to pay off creditors and return the company to solvency.
Though the interest of US Airways in a merger has been clear for months, it is uncertain whether Horton will embrace a deal that could result in displacement of him and his team by US Airways management.
The unions issued a joint statement in support of the merger on Friday.
“On behalf of nearly 55,000 American Airlines front-line employees — including the 17,000 members of the Association of Professional Flight Attendants, the 10,000 members of the Allied Pilots Association and the 26,000 members of the Transport Workers Union — we are pleased to confirm our support of a possible merger between our airline and US Airways,” the statement said.
The agreements between US Airways and the unions would save almost half of the more than 13,000 jobs that American Airlines had proposed to eliminate to reduce costs by $1.25 billion a year.
“The reason they can preserve those jobs is that the merged company will have better economics; it will generate more cash; it will provide a higher yield,” said Vaughn Cordle, an analyst with Airline Forecasts. “The merged company will have to shrink some.”
Cordle estimates that the nation’s air carriers need to raise fares by 5 percent and shrink capacity by 2 to 3 percent to achieve profitability.
“That's not a bad target for the combined American-US Air to shrink,” he said. “The really big shrinkage will come in [American commuter subsidiary] American Eagle, where they have a much larger percentage of seats unfilled. You could see as much as 10 percent shrinkage in the 50-seaters or lower, and they need to be displaced by larger aircraft.”
Experts predicted the merged airline would compete on the grand scale created by the recent mergers of other legacy air carriers, with Delta absorbing Northwest and United joining with Continental. It also must vie for passengers with low-cost carriers who now hold 28 percent of the passenger market. Two of them, Southwest and AirTran, merged recently.
Doug Parker, the chief executive of US Airways, sent a letter to his employees announcing the union agreements.
“First of all, today’s news does not mean we have agreed to merge with American Airlines,” he cautioned. “It only means we have reached agreements with these three unions on what their collective bargaining agreements would look like after a merger, and that they would like to work with us to make a merger a reality.”
To reach a merger agreement, Parker said, US Airways would need the support of American’s creditors, its board of directors and its management team. The unions are among those key creditors.
“They are the critical players and if that’s what they want to do, that’s what’s going to happen,” Cordle said. “Remember, Horton and team work for the creditors. The creditors are dominated by labor.”
Cordle said that American pilots were facing a 21.6 percent pay cut under the American bankruptcy. If the airlines merge, they would get a pay raise, as would US Airways pilots, he said.
“They would be idiots not to go with Doug Parker,” he said.
The burden of an aging fleet of aircraft and high labor costs helped force American into bankruptcy protection in November. Its parent company, AMR, had lost $12 billion since 2001 and was on track to lose another $1.1 billion last year.
The airline industry has lost more than $20 billion worldwide during the past decade.
Delta, Northwest, US Airways and United all had gone through bankruptcy as a means to reduce their costs.
It is uncertain what impact an American-US Airways merger might have on travel at the Washington region’s three major airports. American transported 857,500 passengers through Dulles International in January, compared with just 21,068 by US Airways.
At Reagan National that month, US Airways counted 274,199 passengers, compared with 201,335 carried by American and its subsidiary, American Eagle. At BWI, US Airways carried 93,634 passengers in January, against 70,590 by American and American Eagle.