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American Airlines

Would playing instant catch-up be wise for American Airlines?

ANDREA AHLES  May 10, 2010

In 2008, American Airlines was the largest airline in the U.S.

Then the Delta Air Lines-Northwest Airlines merger bumped it to No. 2. And if the United Airlines-Continental Airlines merger, announced last week, is approved, American will drop to third.

Is that important?

Wall Street is already speculating that American's parent company, Fort Worth-based AMR Corp., may be looking to team up with another airline to regain its No. 1 status.

But some industry analysts feel that a merger won't help American, because the airlines generally identified as potential partners -- US Airways, JetBlue Airways and Alaska Airlines -- don't have much to offer in terms of financial benefits or new routes.

And given the headaches that American suffered after its last merger, with bankrupt TWA in 2001, those analysts suggest American would be wise to avoid a hastily conceived union.

Possible dance partners

As soon as the United-Continental merger, which would create the largest domestic airline, was officially announced Monday, speculation over American began.

"You have an airline that was the biggest forever, and in the last two years, they've gone from first to third," said Rick Seaney, founder of "It's not the right directional attitude for investors."

Unfortunately, there aren't that many potential merger partners for American. Analysts say it's unlikely that a legacy carrier like American would merge with a low-cost one like AirTran Airways or Southwest Airlines because their business models are too different.

Instead, JetBlue, Alaska and US Airways have been suggested. Of the three, US Airways is the largest and JetBlue the smallest.

With its routes along the West Coast, some analysts have suggested that Alaska Airlines is complementary with American. And when American announced last month that it would offer tickets for connecting flights on JetBlue routes where the two don't compete head-to-head, analysts suggested a merger could strengthen American's presence in the Northeast.

But it's US Airways, which will become the fourth-largest airline assuming United and Continental merge, that analysts feel is the most likely partner for American. Before Continental cut in, US Airways was attempting to merge with United, a reasonable match since US Airways is already part of United's Star Alliance.

"US Airways is certainly available and willing, and [American-US Airways] would initially jump to the top of the heap with roughly $36 billion in revenue," wrote analyst Vicki Bryan in a research note for GimmeCredit, an investment research firm.

The last deal

The last time American acquired another airline was in 2001, when it bought TWA for $4.2 billion in cash and debt.

At the time, Donald Carty, then AMR's CEO, said it made "tremendous sense" and would allow American to serve a larger share of the valuable business travel market. American gained a domestic hub in St. Louis and a third maintenance facility in Kansas City, Mo., along with 20,000 employees.

Would playing instant catch-up be wise for American Airlines?
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