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August 19, 2013

Analysts say American can fly solo, but will be stronger combined with US Airways

It was what American Airlines executives wanted in the beginning — to emerge from bankruptcy as a leaner, stand-alone carrier shed of debt, pricey labor contracts and burdensome pension obligations.

And if the Department of Justice and Texas Attorney General Greg Abbott get their way, and scuttle the proposed merger with US Airways, the Fort Worth-based carrier will find itself getting just that —what it no longer hankers for.

So just how would American fare flying solo?

Actually, a lot better than before filing for Chapter 11 bankruptcy reorganization in November 2011, industry analysts and others say. But some contend that a tie-up with US Airways would still be preferable for long-term stability.

“It’s in good shape to go it alone,” says Mike Boyd, a Denver-based airline consultant. “A lot of its presence has atrophied east of the Mississippi, and the addition of the US Air system would have fixed that. But there’s nothing lethal or terminal about AA as a stand-alone.”

For starters, there’s the cash on hand — some $7 billion at the end of the second quarter, up from about $4.8 billion going into bankruptcy, says Basili Alokos, a Morningstar analyst. Boyd pointed out that American would emerge from Chapter 11 with lower costs than Dallas-based discounter Southwest, after negotiating new cost-cutting contracts with its unions, “and it’s got labor peace, at least for the time being.”

Moreover, it still has a good mix of profitable international routes and could dust off strategies from the original reorganization plan to do more code-sharing with JetBlue in the northeast and Alaska on the West Coast, where it is less competitive, noted industry consultant Henry Harteveldt of Hudson Crossing.

Of course, it would take some time rejigging the original bankruptcy plan if the airlines are not allowed to merge, said Mark Andrews, a Dallas bankruptcy attorney with Smith Cox.

“To go back to the old plan would require re-soliciting to obtain votes (from creditors), a cumbersome process,” Andrews said. “That could take a considerable amount of time to obtain approvals of a changed plan by giving new disclosures and preparing new ballots, submitting the ballots and counting the votes. The financial circumstances change as well.”

How long could it take? At the very least, Andrews said, a few months, assuming there are favorable court rulings and the creditors are on board. “Otherwise the process would be many months.”

For now, the airlines are preparing for fight for their merger in federal court. Last week, the Department of Justice and six states, including Texas, filed a lawsuit in Washington, claiming that consumers would be hurt by higher fares and fewer choices if the carriers combined. Unless there’s a settlement, the two sides would have to argue before a federal judge in Washington, putting the merger in jeopardy and possibly adding months to American’s bankruptcy case.

Click here to read the full story that appeared in Sunday's Star-Telegram.

-Barry Shlachter



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