Grading AMR's Bankruptcy: Unit Revenue - A; Merger - Incomplete

Tickers in this article: LCC DAL UAL

As for the merger, Derchin said bankruptcy put American ahead of where it might otherwise be. "Bankruptcy has forced them to take a serious look at a merger, and if a merger happens it will have the backing of labor, which is often against mergers, and of the creditors," Derchin said.

Imperial Capital analyst Bob McAdoo said it is too early to assess. Besides reducing labor costs, "American has taken some steps to get rid of routes that didn't make sense and it appears they are renegotiating rates on airplanes closer to market levels," he said. "But I don't know what the outcome is going to be. It's not clear what they are doing with Eagle, for instance I don't know if they are going to clean house or just do a halfway job."

McAdoo expects a merger. In a report on US Airways on Monday, he wrote: "We will soon learn the outcome of the deliberations regarding a possible US Airways takeover or merger with AMR Corp. We believe there will be a merger of these two airlines. In such a merger, we believe LCC holders will receive a premium for their shares, approximating high teens per share." US Airways shares currently trade around $12.90.

A year is not a long time in the airline bankruptcy world. In the history of major airline bankruptcies during the 2000s, United(LCC) was the least efficient, taking three years and two months. Delta's (LCC) 20-month bankruptcy was transformational: A relaxed regional carrier turned into an innovative international airline. The first US Airways bankruptcy took just eight months, but didn't lead to sufficient cost reductions. In the second US Airways bankruptcy, which took a year, two money losing regional carriers were combined to make a profitable national carrier.

What links them all is that each led to a merger. United, Continental, Delta, Northwest and US Airways all filed bankruptcy, reduced costs and then merged with other carriers to create stronger airlines. In the end, these comparisons will provide the basis for American's bankruptcy grade.

-- Written by Ted Reed in Charlotte, N.C.

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