American and US Airways target $1b in synergies from merger

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American Airlines and US Airways anticipate that their merger will generate more than $1 billion in net annual revenue synergies in 2015.

Synergies are split between $900 million in network revenue synergies and $550 million in cost savings that are partially offset by $400 million in labour harmonisation expenses, say Doug Parker, chairman and chief executive of US Airways, and Tom Horton, chairman and chief executive of American parent AMR, during an investor call today.

American and US Airways are expected to generate $40 billion in combined revenues this year, they say.

"This is an extremely complementary merger," says Parker in Dallas today. "I've long been a proponent of industry consolidation. This is the last needed piece to rationalise the [US] airline industry."

The carriers generated $38.7 billion in combined revenue and carried more than 170 million passengers in 2012.

Moody's Investors Services calls the deal a credit positive for US Airways and "supportive" to the Baa3 ratings that it assigns to American's senior enhanced equipment trust certificates.

One source of cost savings will be reductions in the combined carriers' management ranks. Parker says that they hope to achieve most of these cuts through attrition and voluntary departures.

American and US Airways anticipate the deal to close in the third quarter. However, it must first receive approvals from the bankruptcy court, US Airways shareholders and the US Department of Justice (DOJ) following an antitrust review.

The airlines cannot begin planning many specifics of the merged carrier, including route optimisation, fleet deployment and orders, and staffing numbers, until they receive DOJ approval.

Parker says that they do no anticipate any issues from the DOJ regarding antitrust approval. He reiterates this point when asked about slots at Washington National airport, despite the fact that regulators raised concerns about competition at the airport and New York LaGuardia after US Airways and Delta Air Lines proposed a slot swap at the airfields in 2009.

US Airways ultimately received 42 slot pairs at National but the carriers had to divest eight slot pairs to increase competition at the airport, when the deal was approved in December 2011.

"We expect [DOJ approval] to be complete to allow us to close and AMR emerging from bankruptcy in the third quarter of 2013," says Parker.

American and US Airways will determine the management team of the combined carrier and name integration leaders ahead of receiving antitrust approval, he says.

"It's all in the execution," says Horton. "If we don't get this right the revenue synergies don't exist."

The new American will remain headquartered in Fort Worth, Texas, operate 6,700 daily flights to 336 destinations worldwide with a combined fleet of 948 mainline aircraft. It will be a member of the Oneworld alliance.