August 31, 2012 / 2:32 PM / in 5 years

AMR, U.S. Airways say evaluating potential merger

(Reuters) - American Airlines parent AMR Corp AAMRQ.PK and US Airways Group Inc LCC.N have signed a non-disclosure agreement as they evaluate a potential merger that would create an airline that rivals leader United Continental Holdings Inc (UAL.N) in scope.

The two carriers said on Friday they agreed to share confidential information, work with bankrupt AMR’s creditors committee, and not talk to third parties about any terms of their possible combination.

American has also signed non-disclosure agreements with other parties, according to a memo the company sent to managers on Friday. It did not identify the other parties, and a spokesman for AMR declined to elaborate.

Many analysts consider US Airways to be the leading contender for AMR, which filed for Chapter 11 bankruptcy protection in November. Combined, US Airways and AMR had $37 billion in revenue in 2011, about equal with United Continental, the world’s biggest carrier.

American Airlines initially said it would prefer to emerge from bankruptcy on a standalone basis, but has grudgingly responded to pressure from creditors to consider a merger as its best option for competing with United Continental and Delta Air Lines Inc (DAL.N), which are themselves the products of mergers.

A source familiar with the situation said the non-disclosure agreement is fairly restrictive as it prevents US Airways from discussing specific terms of a combination with third parties including labor unions and private equity firms that might be interested in a stake, or other airlines.

US Airways, which declined to comment beyond the news release, has been aggressively campaigning for a merger with AMR. Earlier this year, US Airways won the backing of three unions that represent American ramp workers, pilots and flight attendants by promising to preserve thousands of jobs post-merger.

US Airways, based in Tempe, Arizona, has also reached out to Fort Worth, Texas-based American’s creditors and has spoken with U.S. lawmakers about the possibility of a tie-up with American.

    In a staff memo on Friday, US Airways Chief Executive Doug Parker said the non-disclosure agreement with American would likely stay in place until a deal has been reached, or talks fail.

    “We are pleased to be working directly with American to study a potential merger and we consider this very good news,” Parker wrote. He added that the carrier “will not be able to be as open and candid about the discussions with American as we usually are about issues that are important to us.”

    Shares of US Airways were up 1.7 percent to $10.58 in afternoon trading, while shares of AMR were up 3 percent to 46.6 cents.

    Morningstar analyst Basili Alukos said it would be in the best interests of American and US Airways to combine.

    “You would have the international operations of AMR and the lower cost structure of US Airways,” Alukos said.

    Reporting by Karen Jacobs in Atlanta, with additional reporting by Soyoung Kim in New York and Megha Mandavia in Bangalore; Editing by Saumyadeb Chakrabarty, Gerald E. McCormick and Tim Dobbyn

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