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American Airlines seeks to leave bankruptcy protection, merger possible

airplane mergerBankruptcy and the pilots

American Airlines, whose parent group is AMR, has been under Chapter 11 bankruptcy protection since 2011, according to a December 7, 2012 Thomson Reuters News & Insight article. The company filed for bankruptcy because it needed to cut costs, namely $1 billion per year, mostly in labor costs. The AMR pilots union, Allied Pilots’ Association, has agreed to, after extensive and trying negotiations, a new contract. This contract not only gives fair and standard pay, but also 13.5% equity in AMR.

One problem that has arisen, though, through lengthy negotiations, is that the pilots have little confidence in AMR’s management, which includes CEO Tom Horton.

Is a merger in sight?

U.S. Airways Group Inc has, after some speculation, given a merger proposal to AMR. This would help AMR get out of bankruptcy, so the company is now making two plans—one to leave bankruptcy protection alone and is also working on details of a merger. While U.S. Airways would like to see a company that is split 70-30, in terms of AMR creditors holding 70% of the stock and U.S. Airways shareholders holding 30%. Some from AMR say that the 70% number might need to be close to 80%. If the two companies merged, the resulting company would be worth about $8.5 billion, just as much as Delta Air Lines Inc. Not all AMR creditors are onboard with a merger, though. It remains to be seen how and when American Airlines will emerge out of bankruptcy and whether or not the two airlines will merge.

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