US Airways Said To Be Making Offer To Buy or Merge with American Airlines; Industry Is Changing

Hoping to finally merge with someone, U.S. Airways is said to be putting together an offer to buy or merge with now bankrupt American Airlines. The deal, however, is far from certain yet, with American previously saying they wanted to remain on their own.

American Airlines recently filed for bankruptcy to restructure and cut costs in an effort to stop hemorrhaging money. While an offer from U.S. Airways to buy or merge with American Airlines is still 6 months down the road at the earliest, a source we talked to, who was not authorized to speak, said the airline has already put together an provisional offer and is prepared to modify it as the situation develops.

Under the proposed deal, U.S. Airways will buy American in a stock and cash deal worth about $14 billion and assume American's outstanding debt. Financing the deal is something U.S. Airways is still working on but believes can be done. The headquarters of the proposed merged airline was not discussed, nor were any airlines hubs other than Phoenix because it would be only 370 miles from LAX, an existing hub for American Airlines and an important international gateway.

Any deal from other carriers will most likely wait until American is able to shed a significant amount of its costly contracts and expenses and this action from U.S. Airways does not preclude others from trying to strike a deal with American Airlines also. The carriers also operate in different global alliances, with American part of OneWorld and U.S. Airways part of the Star Alliance.

Any potential deal will also have to clear federal regulators and our source said U.S. Airways is prepared to swap and sell routes and landing slots to make it happen as part of the deal. We asked the Justice Department's anti-trust division to comment on a possible merger between the two carriers but they declined saying they must wait for the two airlines to make an agreement.

American was the last of the major airlines to file for bankruptcy following the terrorist events of 9/11. United, then Continental, Delta, then Northwest and U.S. Airways have all filed bankruptcy and eventually emerged leaner and better suited for low cost competition they are facing from the growing market share of LCC's, low cost carriers, such as Southwest, AirTran (recently acquired by Southwest), Allegiant, JetBlue, Frontier, Spirit, Sun Country, and Virgin America.

But leaner legacy carriers have caused grumblings among it's employees as they faced reduced benefits, less pay, less privileges and in some cases, less of everything. This has resulted in some horrific stories of crew members and gate agents being outright rude, mean, and aggressive to passengers as their moods slid to somewhere below freezing.

LCC's are here to stay, and while they don't always have the lowest airfare, increasingly, passengers are turing towards them with steadfast loyalty. This is what the so called legacy carriers are up against, competing with LCC's who operate at much lower wages and costs, while still trying to turn a profit.

For now, legacy carriers have been able extract a few billion extra from passengers by charging ancillary fees such as checked baggage, priority boarding, preferred coach seating, ala carte meal boxes, premium entertainment, blankets, pillows, and similar things in an effort to raise revenue to make up for lower airfares as they compete with LCC's.

U.S. Airways was ranked #11 of the top U.S. airlines in customer service for 2011. But it has made progress, reducing the number of lost baggage, U.S. Airways used to be the worst, now coming in #2. It's on time performance has also improved from being nearly last to now #1 or #2 depending on who is reporting the figures. The airline has been undergoing somewhat of a self makeover trying to raise it's standing and position among air carriers in many categories and so far has had good results in doing so.

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