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Delta and US Airways are showing interest in merging with American Airlines.

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Tom Horton's role in the merger of American AIrlines with U.S. Airways. Tom Horton was the chairman of American Airlines, and helped execute the merger, which was very favorable to shareholders.

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With a unanimous vote of the company's board on Nov. 28, 2011, American Airlines filed for bankruptcy. Gerard Arpey, CEO since 2003, is known to have resisted the move. Arpey decided to retire and will be replaced as CEO and chairman by Thomas Horton, the president of American Airlines. Analysts and management say the move is a proactive effort to take action before AMR's financial posiiton deteriorates further. AMR has about $4.1 billion in cash and short term investments. One airline analyst described it as an offensive bankruptcy to reduce labor costs and leasing costs in a proactive manner. American Airlines management has said in the past that its costs are $800 million higher than other airlines, because its pilots fly shorter hours and have more liberal work rules. Cost per available seat mile, an industry metric including labor and operating costs, is about 10% higher for American compared to Delta Airlines. American is also hit by higher fuel costs especially because about a third of its fleet uses older McDonnell Douglas MD-80's, and its regional carrier American Eagle flies 50 seat jets that are less efficient. American has total losses of $11.4 billion for the period 2001-2010. Additional loss was incurred for $982 million in the three quarters of 2011. Efforts to increase fuel effiicency of its fleet which is on average 15 years old, are underway. A $38 billion order for 460 new single aisle planes from Airbus and Boeing, with $13 billion in financing from the aircraft companies, was placed in July 2011. AMR says it will keep the order as planned. The end result is likely to be a smaller airline with fewer employees, fewer planes, fewer routes, and cuts at AMR's smaller hubs in Los Angeles and Chicago, says one aviation specialist....

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American Airlines share price ended at $1.98, down 33%, on Oct. 3, 2011. AMR averted bankruptcy protection in 2003. This is the lowest level for the share price since 2003. AMR suffers from higher labor costs than other large airlines that went through bankruptcy and realigned costs. AMR says its labor costs are $800 millon higher than its competitors. AMR says it has $4.2 billion in unrestricted cash as of Sept 30, 2011, a decline from the $5.1 billion on June 30, 2011. Debt obligations due for AMR are $2.5 billion for 2011, $1.8 for 2012 and $1 billion in 2013. AMR raised $726 million in aircraft- backed bonds to refinance part of $1.3 billion in debt obligations due in second half of 2011. AMR has ordered 460 new fuel efficient aircraft in a lease financing deal offered by Boeing that does not stress AMR's balance sheet. Fears that AMR is burning cash with its expected operating loss caused Moddy's to change its outlook for AMR to negative from stable. AMR had $17.1 billion in total debt on June 30, 2011....

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The U.S. Justice Department files suit to block the merger of American Airlines and U.S. Airways, saying the deal would hurt competition.

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Whe American entered bankruptcy in Nov. 2011 shares dropped so low they reached 20 cents a share, putting the company's value at an incredibly low $90 million, less than one of its planes! Most shares bought in 2013 have multipled in value 13 times, as the stock surged 46% since opening to $35.98. AMR shares dropped to $2.06 when the Justice Dept. blocked the merger with US Airways in August and were at $7 for 2 months before the airlines made a settlement in November 2013.

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Extraordinary returns of 8-15 times the original investment for investors in AMR (American Airlines) shares following the merger with U.S. Airways.

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Safety violations at American Airlines. The FAA imposes fines for failure to follow proper drug testing procedures, failure to perform necessary maintenance. The FAA says even after being alerted American flew planes for 10 more flights with defective autopilots, in all 58 flights were made without proper maintenance.

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Risks in AMR's financial situation include net debt of $12 billion and a market capitalization of $1.1 billion. The stock is down 60% so far in 2011 and is now at $3.13 on Sept 30, 2011. Analysts at J.P. Morgan Chase say AMR should have $3.5 billion in liquidity by the end of 2011, or 15% of annual revenue. About $1.8 billion of debt matures in 2012. The demand for airline debt is still healthy. The airline industry is also better able to handle another recession because of cuts in capacity, and the effect of the merger between United and Delta, keeping flights full and prices up. A recession would also cut fuel costs, with fuel taking up 35% of revenue dollars, according to analysts. The problem is low margins and high labor costs, as a result of not filing for bankruptcy and cutting legacy costs. Credit Sights estimates AMR's margin as 6% before interest, tax, depreciation, amortization, and aircraft leasing costs, with the estimate for Delta at 12% and United at 18%.

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Pearlstein says American Airlines (AMR) management had hoped to reduce employees count by 13,000, reduce benefits for employees and retirees and reform work rules by going through bankruptcy in the manner of other airlines such as Delta and Northwest. As it turns out AMR's unions and US Airways have made their own deal and come up with labor agreements that are likely to result in a merger deal with AMR with 1.2 billion in savings from synergies, instead of relying on labor savings for $800 million as AMR management had planned. This is because US Airways CEO, Doug Parker, sees increased savings and revenue from a new combined airline and a better hands on management team. Part of the reason is also the the way the combined airline provides additional feeder traffic from smaller cities to hubs in the east coast and midwest markets and in the Miami routes to South America. The Pension Benefit Guarantee Corporation also tacitly sees the benefit of a stronger airline so that its funds are not depleted further by having to support AMR's underfunded pension plan. The creditors have also realized what all this means by increasing the value of AMR bonds to 50 cents on the dollar from 30 cents on the dollar....

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Moves by American Airlines to improve its result. One move is to sell its American Eagle regional airline.

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For passengers air travel nowadays is travelling on planes that are often totally booked. This is because airlines are cutting flights. And with fewer passengers after the economic crisis hit, airlines are having a difficult time cutting flights enough to meet the continuing drop in the number of passengers. Before the crisis business and international travel was a good source of revenue, now this is fading as there is more competition on transatlantic routes with about 50 airlines offering flights between US cities and European cities. The liberalization of air travel between the two continents with the 2007 "open skies" agreement is keeping downward pressure on prices. The International Air Transport Association says the number of passengers travelling on business and first class tickets between N. America and Europe was down 18.4% in April 2009, compared with same month in 2008. Traffic between N. America and Asia was down 26%, for the same period. This is hitting Lufthansa ansd KLM-Air France hard, but is helping Easyjet, Ryanair, and Air Berlin. As demand drops airlines will continue to cut capacity, and this will be done by cutting the number of flights on a route and using smaller planes. After all this capacity cutting takes place by September, OAG Aviation estimates that the seats on domestic flights will drop to 66.5 million from a peak of 84 million in 2001, a drop of 21%. Some airlines which rely less on corporate travellers will not see as steep a drop. These airlines are Southwest, JetBlue and AirTran. Airlines that may not survive the effects of the economic crisis, with tight credit and drop in air travel, and volatile oil prices, are United Airlines and US Airways. United relied heavily on corporate and trans-Pacific fliers before the economic crisis. Fitrch Ratings cites this in reducing the credit rating for United to junk status, as well as the heavy debt maturities in 2009 and 2010. In June 2009 United raised $175 million by issuing new debt, but at an interest rate of 17%. At US Airways the combined airline with America West after a$1.5 billion merger is struggling. It has the thinnest cash position of any airline according to a Morningstar research analyst, and may need further borrowing to meet debt payments. With all assets already mortgaged US Airways may have little borrowing capability left....

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United with subsidiaries United Airlines and Continental Airlines had $6.8 billion in liquidity as of June 30, 2014. American Airlines after the merger with US Airways has $9.4 billion unrestricted cash by July 2014. Mr. Parker, the CEO of American, plans to prepay $2.8 billion in debt and aircraft lease payments, place $600 million more than required into pension contributions, and start a dividend and share buyback. Airline consolidation into 4 major carriers, cutting unpofitable hubs and routes, filling planes to capacity, and charging for better seating, snacks and other amenities, are leading to record profits for the U.S. airline industry.

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A look at Department of Transportation data shows a downward trend in airline ticket prices. Average domestic fares in the U.S. declined 16%, adjusted for inflation, compared to 1995. A comparison shows a round trip ticket price of $410 in 2010 dollars in 1995, the same ticket is priced $338 in 2011, including $22 for bags and reservation charges that were added in recent years. Not including the $22 would give a 21% decline in prices in 2010 compared to 1995. Higher labor costs for American which could not shed legacy costs because it did not go into bankruptcy like some of its competitors, combined with higher fuel prices have posed a serious threat to American Airlines. American Airlines (AMR) experienced a 33% drop in share price on Sept. 3, 2011, with a recovery gaining 21% the following day to close at $2.39. UnitedContinental had a 2nd quarter 2011 average fare- revenue divided by number of passengers- excluding taxes, of $273. Southwest had an average one way fare of $143 for the 2nd quarter 2011. According to DOT figures, passenger tickets provide only 71% of total passenger revenues to airlines, compared to 88% in 1990. The remaining 29% comes from reservations charges, standby service, checked luggage, in-flight food service, transporting pets and other charges. ...

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US Airways fuel bill went up by $800 million in 2007 over 2006, and in the third quarter fuel costs were up 26.9% to $730 million. After 4 profitable quarters the airline had a loss of $79 million in the 4th quarter 2007. Delta and United Airlines and American also posted 4th quarter losses. US Airways traffic dropped 3% after trimming capacity 4%.

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The U.S. Justice Department opens an investigation of the largest airlines, Delta, American, United Continental, and Southwest for collusion in limiting expansion. The major 4 airlines control 80% of the domestic airline seats in the U.S. The 3 major airlines have grown slowly compared to Southwest in recent years. JetBlue and Spirit are also growing faster. Southwest plans to expand by 7% in the 4th quarter. U.S. airline domestic seats show slow growth since 2010, with growth picking up in 2015 over the prior year to 3.5% in 2015, according to Innovata. For 2013 and 2014 <0.5% growth in seats, in 2012 decline of <1%, 2011 growth of less than 1%, and slight decline in 2010. During the crisis 2008-2009 airlines cut seat capacity. Price increases have averaged 5% increase from 2007 to 2014 to $391, adjusted for inflation for domestic seats. The U.S. Justice Department investigation will look at "possible unlawful coordination."