CHARLOTTE, N.C. -- Charlotte will be a major hub for the nation’s largest airline, executives of US Airways and American Airlines said Thursday while detailing their plans to merge and create an $11 billion company.
The new carrier will keep the American Airlines name, with headquarters in Fort Worth, Texas. Doug Parker, the US Airways CEO who pushed for the deal for more than a year, will lead the combined company. Tom Horton, head of American parent AMR Corp., will take the role of non-executive chairman through mid-2014.
The all-stock deal will create an airline with nine U.S. hubs, more than 1,500 airplanes, 100 million frequent fliers and a projected $40 billion in annual revenue. A deal still must be approved by American Airlines’ bankruptcy court judge and antitrust regulators. Parker said he hoped the companies will be able to close the deal by the third quarter of this year.
“Charlotte is a critical part of the US Airways system...Now that system is just going to be stronger by combining it with American Airlines,” Parker told the Observer. “One of the few holes in the American system is a Southeast hub, and Charlotte fills that void.” Parker said Charlotte could add more international flights following the merger.
The combined airline will operate 653 flights a day from Charlotte Douglas International Airport – more than 90 percent of Charlotte’s total. More than three-quarters of the passengers will be connecting from one flight to another, the same as now.
No other major airport is so concentrated in one carrier and so dependent on connecting traffic. That has prompted some analysts to speculate that Charlotte’s hub could be at risk if the merged airline trims flights.
The airport also has more than $820 million worth of bonds outstanding, part of an expansion that includes a new parking deck and a planned new runway. Debt service on those bonds is paid for largely with fees the airlines pay to use Charlotte Douglas. Fitch Ratings said this week that the merger could put hub airports at risk.
“As history has indicated, carriers have demonstrated a willingness to pare or eliminate large-scale hubbing services in airports such as in Pittsburgh, St. Louis, Cincinnati and Memphis,” Fitch analysts wrote in a note to clients.
Robert Poole, an aviation expert and director of transportation policy at the Reason Foundation, questioned the need for nine U.S. hubs in the merged airline.
“Nobody has that many hubs,” Poole told The Associated Press. “These are risks for cities, particularly when they do airport expansions based on having a large transfer hub. You get an airport configured for something that’s way more than the size of your community justifies in terms of origin and destination traffic, and then if the hub goes away – Whoops! You are really stuck.”
But local leaders said they believe the merger will be good for Charlotte.
“Their broad network will significantly expand Charlotte’s connection to the rest of the world. This will be good for our businesses and economy,” said Charlotte Chamber CEO Bob Morgan, in a statement.
Charlotte Mayor Anthony Foxx said Thursday that he has been in touch with Parker in recent weeks, but hadn’t received much information on details of the merger.
“All indications are this merger will be good for Charlotte,” Foxx said. He expects to see more flights and connections at Charlotte Douglas. “Charlotte’s going to be just fine.”
US Airways employs more than 7,100 people in Charlotte, many of them pilots and flight attendants. Parker and Horton also issued assurances Thursday that they don’t plan mass layoffs at the new company, though they did say some management redundancies will be eliminated. Parker said that since the company doesn’t plan to reduce flying, it will need most of its workers, and cuts will likely be handled through attrition.
He also said the combined company won’t close any reservation centers – more than 800 people work at a US Airways reservation center in Winston-Salem – and that the company will keep its Charlotte flight training center, a multi-million dollar facility with full-size flight simulators where thousands of pilots train.
Most analysts concur with Parker that Charlotte’s future as a hub airport is secure. “It makes money today. It will make more money with more feed. From that respect, I think it will be a major contributor to the network,” said aviation analyst Bob Mann.
Horton said even if the airline cuts back, it plans to keep its hubs in place. “We recognize as market conditions change here, there will be some changes,” he said. “It’s going to be built on the notion that we’re going to maintain and build on our previous hubs.”
Analysts have raised concerns about other hubs as well. Phoenix could lose connecting traffic to Dallas/Fort Worth, an American hub, analysts have said. And JFK International Airport in New York could lose flights to Philadelphia International Airport, analyst Jamie Baker with J.P. Morgan said in a note Thursday. However, Baker also stressed that the combined company doesn’t plan large capacity cuts.
Something for everyone
Parker won his merger in large part by giving something to everyone.
To the American unions, he offered the chance to avoid massive layoffs and pay cuts. To his own unions, he offered raises and unified contracts after years without them.
To American’s creditors, he offered a plan that gave them full repayment and 72 percent ownership of the new company. To his shareholders, Parker offered 28 percent of a new, $11 billion airline with an international route network US Airways couldn’t create on its own. And for hub cities and travelers, he said the merged airline won’t significantly cut service.
The only people who didn’t get what they had wanted were AMR chief executive Horton and his management team. Horton had initially fought the merger, saying American Airlines would emerge from bankruptcy alone and reclaim its top spot by ordering hundreds of new airplanes and growing capacity. He said American would consider a merger only after bankruptcy, and joked there must be “something in the water” at US Airways’ headquarters that made them so keen to merge.
But Parker secured the support of unions and creditors early, avoiding the mistakes of his 2006 attempt to take over Delta Air Lines, which was rebuffed without creditors or workers on his side.
“We got in too late, and we didn’t have both of those,” Parker said of the Delta attempt. This time around, “Our view was that if we could create enough value for the creditors, that would win the day.”
The merger will leave US Airways and American’s creditors in the captain’s chair at the new company. The combined carrier’s board of directors will include Parker, Horton, two directors appointed by AMR and three by US Airways, and five directors appointed by AMR’s creditors, with the directors to be named later.
Parker and Horton started their careers together at American Airlines. On Thursday, Parker reminisced about looking over his cubicle at his first job and seeing Horton. Parker will assume the role of chairman in addition to the CEO job when Horton bows out. Horton will receive $19.8 million in severance, split between stock and cash, the Fort Worth Star-Telegram reported.
“Tom was nice enough to hang around and help with the transition,” Parker said Thursday, “but also kind enough to know once the transition was complete, the company needs to see one leader.”
Horton quipped, “Don’t mess it up.”
“I’ll try not to,” said Parker.