US Airways proposes potential merger with AMR Corp. - Cincinnati News, FOX19-WXIX TV

(RNN) - After months of speculation, executives from US Airways made an official merger offer to AMR Corp., the parent company of American Airlines and American Eagle.

Tempe, AZ-based US Airways made its bid to take over the two bankrupt airlines in a confidential proposal, according to Reuters and The Wall Street Journal. It could create an airline valued at around $8.5 billion.

Under the all-stock agreement, 70 percent of the new company would belong to AMR creditors, with the remaining 30 percent going to US Airways shareholders.

Additional details about the merger are unclear because of a nondisclosure agreement.

Wall Street Journal reported Friday that AMR creditors are asking for 80 percent ownership.

AMR CEO Tom Horton addressed the possibility of a merger in a note to employees. He said the company is evaluating if an agreement might "create value for our owners and a positive outcome for our people and our customers."

Horton said the company hopes to "have a conclusion" soon and noted he was "confident the new American will be very strong."

Fort Worth, TX-based AMR filed for Chapter 11 bankruptcy in November 2011. The company has struggled to emerge as a profitable airline after a year of tense pilot contract negotiations, poor on-time performance and aircraft maintenance issues.

Company officials said high labor costs made bankruptcy necessary and informed employees AMR had to reduce annual labor spending by $1 billion. They planned to cut about 10,000 jobs, with most of the reductions coming from attrition and early retirements programs.

About 3,000 employees are expected to be laid off. The company hopes to emerge from bankruptcy by spring 2013.

AMR stock hit a record low of $0.20 shortly after filing for bankruptcy. It closed Friday at $0.57, marking a rise of $0.06 after news of the merger broke.

US Airways stock increased by $0.16 Friday and closed at $12.77.

The US Airways offer comes after pilots for American Airlines and American Eagle voted to ratify a new contract aimed at stabilizing the company. The new contract makes AMR more attractive to creditors and potential investors, like US Airways.

More than 74 percent of AMR pilots voted in favor of the new contract, which reportedly gives the Allied Pilots' Association 13.5 percent ownership of AMR. Pilots rejected a previous offer from AMR in August.

The Allied Pilots Association has been a strong supporter of a merger between AMR and US Airways, and it hopes the new contract will help pave the road to a finalized agreement.

The Professional Flight Attendant and Transport Workers unions have also publicly supported a US Airways-American Airlines merger.

American Airlines operates hubs at Dallas/Fort Worth, Chicago O'Hare and Los Angeles international airports. US Airways has major operations at Philadelphia, Charlotte and Phoenix Sky Harbor international airports.  

The merger would be the fifth between two major U.S. airlines in 15 years. TWA, America West, Northwest and Continental have all merged with other carriers.

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