Article 1

Summary:

The Justice Department unexpectedly moved to block the merger of American Airlines parent AMR Corp. and US Airways Group Inc., threatening to upend what was viewed as the final step in the consolidation that has helped return U.S. airlines to profit after years of heavy losses.

Citation:

Carey, S., Kendall, B., & Nicas, J. (2013, Aug 13). U.S. moves to block US airways-american airlines merger; antitrust regulators say deal would hurt consumers. Wall Street Journal (Online). Retrieved from http://search.proquest.com/docview/1419793400?accountid=8500

Link: http://search.proquest.com.remote.baruch.cuny.edu/docview/1419793400/fulltext/1407F0241325E6D1616/1?accountid=8500

Article 2

Summary:

NEW YORK–A federal judge on Thursday confirmed AMR Corp.’s plan to exit bankruptcy-court protection through a merger with US Airways Group Inc., leaving a U.S. antitrust lawsuit as the deal’s final, if formidable, barrier.

Citation:

Checkler, J. (2013, Sep 12). Bankruptcy judge gives nod to AMR-US airways merger; deal still faces justice department’s antitrust lawsuit. Wall Street Journal (Online). Retrieved from http://search.proquest.com/docview/1432028014?accountid=8500

Link: http://search.proquest.com.remote.baruch.cuny.edu/docview/1432028014/1407E227038105D9A63/7?accountid=8500

The reason I chose this article is because it falls in the same industry as the one in our presentation (Northwest Airlines) and is related quite a bit to our case.

Background:

AMR Corporation, the parent company of American Airlines is in the same situation as many of its competitors were at different point of times. It struggled with higher wages, fuel and pension costs because of which they eventually filed for Bankruptcy protection under Chapter 11 in November 2011. The company posted a mammoth loss of $1,979[1] million for the year ended 2011, majorly effected by a combined expense of $15,357 million of Wages and Fuel Costs (roughly 64% of the revenues). American Airlines was not the only airline facing difficulties related to their pensions — United, Delta Air Lines Inc. and US Airways Group Inc all left their pensions in recent years when filing for bankruptcy, costing more than $11 billion.[2] On filing for bankruptcy, AMR would no longer have its defined benefit pension plan, helping absorb nearly $7 billion in debt.[3]

Over the past 2 years it has maintained normal operations even after the bankruptcy filing. It took advantage of Chapter 11 and cut major costs relating to pension and other expenses. Throughout 2012, it negotiated with various unions after which it expects to reduce approximately 10,500 positions in the near future; thereby saving a lot of labor costs. Another form of cost saving they adopted was that they resorted to fuel hedging agreements in order to reduce the hit taken by it due to fuel price fluctuations.

Current status:

The Company recorded a consolidated net income of $220 million in the second quarter of 2013 compared to a net loss of $241 million in the same period last year. The Company’s consolidated net income reflects $124 million of charges to reorganization items. On June 30, 2013, the Company had $6.2 billion in unrestricted cash and short-term investments[4]

The company announced its merger with US Airways in February 2013. All was going well with the plan till the US Department of Justice recently decided to oppose and filed a lawsuit to block the merger. The company was making profits, it had cut costs, had filed a bankruptcy-exit plan with the bankruptcy court. The approval of the plan would enable both parties to close the merger deal by the 3^rd quarter of 2013 as planned. This exit plan even had the support of the creditors and unions.

• The contention of the antitrust regulators as mentioned in the lawsuit is that the merger would leave 4 airlines controlling more than 80% of the U.S. market which would not bode well for the passengers. It would mean higher airfares, higher fees and fewer choices.
• The airlines contend the combination would reduce costs, give fliers more choices and serve as a counter-weight to merger-enlarged rivals, United Continental Holdings Inc. and Delta Air Lines Inc.
• Investors are worried that if the merger does not go through, the company would face the risk of a return to bankruptcy.

As per the existing plan, AMR creditors and bondholders were to be repaid in full, with interest, and existing shareholders were to receive at least 3.5% ownership stake in the new airline. Such large recoveries are rarities in Chapter 11 cases. The merger would give 72% of the combined airline to AMR shareholders, unsecured creditors, labor unions and some employees. US Airways’ shareholders would get the rest.

On September 12, 2013, a federal judge approved the exit plan submitted by AMR Corp., subject to the outcome of the antitrust lawsuit. The financial implications of the deal either ways would be huge for the entire industry. If the deal does go through, the industry would return to being profitable after a long period of time. The result could also be that the apprehensions of the antitrust regulators come true and the passengers may suffer. On the other hand, if the deal does not go through, AMR Corp. might be facing a return to bankruptcy. The company would have to prepare a new reorganization and exit plan to emerge from court protection as an independent company, revise its financial projections and renegotiate with creditors and bondholders and unions – all of which would take considerable time and could prove to be an expensive process.