AMR Ready To Take Flight With US Airways As Creditors Take Closer Look
Everything seems to be heading in the right direction in US Airways’ (NYSE:LCC) plans to merge with bankrupt American Airlines (NYSE:AMR) as AMR’s creditors pushed it to analyze potential consolidation scenarios with US Airways. AMR, the parent company of American Airlines, was earlier rigid towards a stand-alone route to rescue the airline.
US Airways has done well to convince American’s workforce by including favorable elements for them in its merger proposal, fewer job-cuts being the prime element. The airline industry has already witnessed successful M&A deals in the last few years such as Delta (NYSE:DAL) -Northwest, United-Continental (NYSE:UAL) and US Airways-America West. All of these events are increasingly pointing towards this merger materializing in the near future. The effects of growing optimism towards this merger are also showing up on the trading floor as the stock has shot up by almost 125% to $11.21 this year.
We have a Trefis price estimate of $11.92 for US Airways, which implies slight upside from its current market price.
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See our complete analysis of US Airways
The merger between American Airlines and US Airways may turn out to be a strategic fit for both airline carriers as it can bring better cost synergy benefits compared to a stand-alone restructuring plan for American. US Airways has won the confidence of 55,000 member strong labor unions as it promises to avoid 6,200 job cuts, close to the half of the job cuts proposed in the AMRs restructuring plan.
At the same time, it is also confident of achieving annual cost savings of $1.2 billion while AMR is proposing $3 billion synergy benefits by 2017 through its stand-alone rescue strategy. Operating in an industry affected by rising fuel bills, all the carriers are practicing cost optimization strategies to stabilize their CASM (Cost per Available Seat Mile) excluding fuel. A successful merger with American Airlines will definitely contribute to non-fuel cost control and improve EBITDA margins.
Further, the potential opportunities for revenue growth are also promising. US Airways has a strong domestic presence in key hubs like Charlotte Douglas Airport and Washington Reagan Airport while American Airlines has a greater international footprint through its hub at New York’s JFK Airport. The hubs for both these carriers are aptly positioned to feed traffic into each other’s home bases which can enable them to optimize schedules and grow passenger revenue.
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