Combined American Airlines/US Airways Now Official

american-air-new.jpg

CHICAGO – American Airlines’ emergence from Chapter 11 and its merger with US Airways Group Inc. officially took flight Monday as trading on the new company began.

The value of the new company jumped, providing only good news for holders of the former American Airlines’ unsecured debts, including its municipal revenue bonds. The company formed by American’s parent AMR Corp. and US Airways began trading under the ticker symbol AAL on the NASDAQ.

American’s unsecured municipal bond holders are receiving forms of stock in the new company valued at the full amount of their principal and interest. That stands in contrast to past airline bankruptcies that resulted in steep haircuts for unsecured bondholders and no payout for common stock holders.

Former AMR holders of common stock will receive an initial distribution of approximately 0.0665 shares of AAL stock, or a little more than 3 % of the company, and they may receive additional distributions based on the trading price of AAL stock in the coming months and total allowed claims.

Shares were ranging from $23.45 to $25.44 in trading Monday. US Airways holders receive one share for every share they owned. That stock halted trading on Friday at $22.55.

Under the merger agreement, AMR creditors will hold about 68.5% of the new airlines’ equity and US Airways shareholders will hold 28% under an all stock-swap in the company valued at about $17 billion. US Airways former chief executive officer Doug Parker will serve as CEO of the new airline that is now the largest in the world with 6,700 daily flights to more than 330 destinations across the globe and 100,000 employees. It’s expected to take up to two years to merge operations.

Trading on the new company ends a two-year reorganization process for American which initially sought to emerge from Chapter 11 as a stand-alone company. US Airways pursued a tie-up and American’s creditors pushed for it because it offered the prospects of a better payout.

American’s exit from bankruptcy and completion of the merger cleared its final hurdle late last week when an appeals court rejected a request by a group pursuing a private antitrust lawsuit against the merger for a stay. U.S. Bankruptcy Court Judge Sean Lane a week earlier had refused to block the merger at the group’s request.

Lane also approved the former airlines’ settlement with the U.S. Department of Justice over its antitrust lawsuit, finding it did not conflict with American’s previously approved confirmation plan.

The confirmation plan was strongly endorsed by holders of American’s $3.3 billion of municipal bonds of which about $1.5 billion were unsecured. American continued to repay its secured bonds during bankruptcy but halted, as required under Chapter 11 rules, to pay on the unsecured ones.

The unsecured revenue bonds had been trading at full value after the merger plans were announced early this year but then took a hit when the antitrust challenge was filed over the summer. They had rallied at news of the settlement and many were trading at a premium.

The settlement of the antitrust charge requires the two airlines to divest slots, gates, and ground facilities at seven airports across the country.

Smaller airports may suffer from the mandated gate divestitures, Moody’s Investors Service said in a report last month. “This is credit negative for US airports, particularly for small and non-hub airports,” said Moody’s vice president Earl Heffintrayer, chief analyst on the report. Many analysts are taking a wait-and-see approach to determine the ultimate impact of the merger on the public airport sector as the two airlines combine their operations.

For reprint and licensing requests for this article, click here.
Bankruptcy Transportation industry Buy side
MORE FROM BOND BUYER