Will US Airways Get AMR Corp. to Walk Down the Aisle?

US Airways (NYSE:LCC), the fifth largest U.S. carrier, is hoping to make progress on anti-trust approvals for its proposed merger with AMR Corp., the owner of American Airlines, which is presently in bankruptcy proceedings.

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The Hart-Scott-Rodino (HSR) Antitrust Improvements Act requires that companies contemplating a merger must first approach the U.S. Federal Trade Commission and Department of Justice to determine whether the transaction will hurt competition.

US Air is hoping to fulfill this requirement with AMR as a willing and consensual party to the proposed merger. Even though AMR has not yet given a clear signal that it is accepting this approach, the contents of a ‘protocol’ worked out with the unsecured creditors committee allow the consideration of alternative restructuring plans, which US Air hopes could include a merger.

But there are hurdles. Publicly, the position of AMR has been to work itself out of bankruptcy on a standalone basis before considering a merger. Moreover, given that US Air is required to file its proposal for regulatory compliance as early as next month, AMR is unlikely to be ready to say ‘I do’ in such a short time frame.

AMR is also hoping to conclude its negotiations with labor on fresh terms that would generate $1.25 billion in savings – essential for it to be competitive in an airline market that has already seen some major mergers. AMR may not take a merger decision until these collective bargaining agreements are under its belt. In any case, if the labor agreements are not in place by June 22, Bankruptcy Judge Sean Lane may consider favorably a request by AMR to cancel the operation all current labor deals and impose unilaterally new terms for labor. AMR’s labor unions, on the other hand, are of the view that these cost savings would be inadequate, and that a merger would be the only viable solution in the long term.

Though AMR extended last month the role of Mckinsey LLC to include evaluation of merger proposals and due diligence requests, there is still considerable uncertainty regarding the scope of a merger with US Air, and therefore the latter’s move to kick start the anti-trust proceedings may not fructify.

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