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Merger between American Airlines and US Airways left in jeopardy, AMR Corporation (OTCMKTS:AAMRQ)

Written by on August 14, 2013

Chances of American Airlines (principal subsidiary of AMR) of leaving bankruptcy were left in risk when the Justice Department of U.S. sued to block its merger with US Airways Group Inc(NYSE:LCC).

The lawsuit may force AMR Corporation (OTCMKTS:AAMRQ) to abandon its plan of restructuring supported by creditors and employees who anticipated to be part of a carrier so that it may be able to lead Delta Air Lines, Inc. (NYSE:DAL) and United Airlines, according to the analysts, investors and consultants.

Refusal of a merger would leave American Airlines as a weak No. 3 in the United States behind Delta and United rather than surpassing them to become largest carrier of the world. The company would have to make a fresh start in shaping a reorganization plan involving cost-saving labor contracts and consensuses with creditors and investors.

The U.S. Justice Department sued to block the merger on the basis that it would increase fares and hurt competition. Tempe, AMR and Arizona-based US Airways declared to contest the U.S. lawsuit. Investors disposed of the shares of airline as a result of which the Bloomberg U.S. Airlines Index drop to the largest since April.

The merger between AMR and US Airways would shrink competition and increase prices because the new carrier would be less willing to discount tickets against Delta and United, as said by U.S. Justice Department.

US Airways is competing strongly and earning record profits, as said by the U.S. complaint. American Airlines is completely capable of emerging from the proceedings of bankruptcy on its own with a competitive cost structure, profitable present business and plans for growth.

US Airways and American Airlines can persist for a long time, as said by president of aviation consultant Boyd Group International Inc. (Michael Boyd) in Evergreen, Colorado.

The merger plan calls for a full recovery for all the creditors of AMR, equity stakes for most American employees and a 3.5 % aggregate equity stake for present AMR shareholders.

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