US Airways, American to Meet Tuesday

US Airways, American to Meet Tuesday

By MIKE SPECTOR And SUSAN CAREY

American Airlinesits creditors committee and US Airways Group Inc. are set to meet on Tuesday to discuss revenue increases and cost savings that could be realized in a merger as part of crucial negotiations that could determine whether the rival airlines pursue a deal, said people familiar with the plans.

The gathering is viewed as significant because potential financial synergies are among the most critical issues that will determine whether a marriage will create a more valuable airline for creditors of American parent AMR Corp. than another plan for the company to reorganize independently, the people said. Lawyers and bankers advising the parties are expected to attend the meeting, and some airline executives could also be present, some of the people said.

One person cautioned the date of the meeting could change.

Fort Worth, Texas-based AMR filed for bankruptcy protection last November and is weighing a merger with US Airways as well as a plan to emerge from court proceedings as an independent airline.

The meeting at the New York offices of Weil, Gotshal & Manges LLP, the law firm representing American, is part of an effort to get the airlines and American’s creditors to come to some kind of consensus on how much additional revenue and costs savings a marriage would generate, said people familiar with the process.

Combining the airlines has the potential to increase sales by creating a larger network of routes and save money through the elimination of redundant executives, airplanes, headquarters and other facilities, the people said. The parties for weeks have been analyzing minute details of the airlines’ operations to form opinions on overall synergy numbers, some of the people said.

US Airways, in hot pursuit of a marriage all year, said publicly in April that a merger would create roughly $1.2 billion in financial benefits. American representatives believe a deal would be less beneficial to the combined airline’s finances, according to people familiar with the matter.

Another possible point of contention could be two airlines’ view on so-called transition costs—the expenditures on repainting planes, closing facilities, hooking together computer systems and negotiating new labor contracts for all unionized employees as part of a merger, one of the people said.

The summit, called a “Big Tent” meeting by some involved in the process, comes at a pivotal time, as American approaches a year under bankruptcy protection and tries to negotiate a new contract with disgruntled pilots so it can finish restructuring. The meeting is the next in a series of similar gatherings the parties have had since confidential merger discussions started two months ago and aims to build on previous negotiations over synergies and a number of other details related to the airlines, the people said.

Depending on how the gathering goes, some creditors believe US Airways could make a formal merger proposal to American and its creditors in coming weeks. Other people familiar with the matter cautioned that US Airways hasn’t yet decided when it will make a formal merger proposal, though it is keen to do so.

American’s hedge-fund bondholders, unions and other creditors have been clamoring to see the direction American chooses for emerging from bankruptcy proceedings and how they would be treated under each scenario.

American and US Airways signed a confidentiality agreement in late August so they could exchange nonpublic financial information. Since then, working groups from the two airlines’ fleet, finance, real-estate and information-technology operations have scrutinized possible merger synergies, according to people familiar with the deliberations.

As advisers explore a merger, they’re spending time looking at recent big airline deals that combined United Airlines Corp. and Continental Airlines Inc. in 2010 and Delta Air Lines Inc. and Northwest Airlines Corp. in 2008, people familiar with the matter said. They are studying what each airline’s financial projections were when the mergers were announced and whether those predictions have been realized, the people said.

American initially criticized US Airways as small and desperate. But the company’s creditors committee eventually pressured the airline to explore a merger alongside a standalone reorganization plan, leading to the current secret discussions.

US Airways, for its part, has been muzzled by the terms of the confidentiality agreement after months of robust and public efforts to promote a combination with American.

Write to Mike Spector at mike.spector@wsj.com and Susan Carey at susan.carey@wsj.com