Yahoo Finance AMR-LCC Merger in Legal Roadblock
The proposed merger of US Airways Group Inc. (LCC) and American Airlines Inc, a subsidiary of AMR Corporation suffered a setback following opposition raised by the U.S. Justice Department along with attorneys general of six states and the District of Columbia.
The regulatory body stated that the merger will pose substantial harm for travelers through concentration of power in the hands of a few airlines. With major and legacy airlines of U.S. joining hands, the total number of carriers operating within the industry is becoming less. This is resulting in less competition, reflecting higher airfares and increased fees.
Both US Airways and American Airlines, now, have the option to either contest the federal in court, or go for concessions that will compel the regulators to approve the merger.
However, this piece of news has hurt the shares of both the airlines. US Airways Group Inc. shares registered a steep fall of $2.46, or 13.07% to close at $16.36 on Tuesday Aug 13. The shares of AMR Corp. that trades over the counter slipped $2.64, or 45%, reaching $3.17.
Fort Worth, Texas-based AMR Corp. filed for bankruptcy in Nov 2011, citing unmanageable labor issues that drastically increased the company’s expenses. Soon after, AMR shares were removed from the New York Stock Exchange.
In mid February, the board of directors of the aforesaid airlines gave the nod to the pending merger agreement. Following the completion of the deal, AMR stakeholders will control 72% interest of the new entity, while the remaining 28% will be owned by US Airways shareholders.
In April, the U.S. Bankruptcy Judge Sean Lane gave his green signal for the $11 billion unification. A few months later, in July, the European Union (EU) approved of the deal.
The amalgamation of US Airways Group and AMR Corp. will create the largest global carrier – American Airlines Group Inc. This company will likely have nearly 6,700 flights daily and generate annual revenues of roughly $40 billion.
Following the success of this merger, 80% of the U.S. aviation market will be controlled by four largest carriers – American Airlines Group, United Continental Holdings Inc. (UAL), Delta Air Lines Inc. (DAL) and Southwest Airlines Co. (LUV). The last three airlines have also born out of mergers since 2008.
Currently, US Airways has a Zacks Rank #1 (Strong Buy), while Delta holds a Zacks Rank #2 (Buy). United and Southwest are Zacks Rank #3 (Hold) stocks.
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