US Airways Considers Bid for Bankrupt AMR Corp.

US Airways (NYSE:LCC) is considering a merger with bankrupt AMR Corp., which has been forced to pare its American Airlines flight network to the point that the carrier is unable to support most of its hub airports.

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Combining American, the nation’s third-largest airline, with No. 5 US Airways could solve its deficiency, but any bid may still be close to a year away, as AMR now holds the exclusive right to file a reorganization plan, two people familiar with the matter said. US Airways has not yet discussed its interest with AMR executives.

Still, US Airways President Scott Kirby is leading an analysis of how to combine the two airlines, and a merger attempt is likely, the people said. The plan could take shape as American resolves issues such as pensions and new labor contracts in court, one person said.

US Airways could funnel travelers through American’s hubs — Dallas-Fort Worth, Miami, New York, and Chicago — while a stronger domestic system would feed into American’s routes across the Atlantic and to Latin America.

TPG Capital and Delta Air Lines (NYSE:DAL) are also evaluating possible bids for American, according to people familiar with the matter, but have not admitted to discussing any interest in AMR, which filed for Chapter 11 bankruptcy protection on November 29. US Airways, on the other hand, has hired Millstein & Co. and Barclays Plc (NYSE:BCS) as advisers.

Combining US Airways with American would consolidate the industry to three major full-service carriers, giving them more power to raise fares.

American’s passenger revenue for each seat flown, an industry benchmark, trailed that of US Airways and the two largest U.S. airlines, United Continental (NYSE:UAL) and Delta, through the first three quarters of 2011.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

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