American Airlines Merger to Aid Citigroup Credit Card Risk

NEW YORK (TheStreet) - The planned $11 billion merger between US Airways (LCC) and American (AAMRQ.PK) won't just impact investors in the shares and bonds of both airlines.

The deal, which would create the world's largest airline, surpassing United Continental (UAL) , may also benefit Citigroup(C) and the billions it holds in credit card receivables from the still-bankrupt American's AAdvantage card.

The connection hinges on Citibank Credit Card Issuance Trust (CCCIT), which holds about $54 billion in receivables, of which roughly $13 billion are tied to the American Airlines AAdvantage card.

Citigroup and the credit card trust have noted in recent Securities and Exchange Commission filings that the pending resolution of American Airlines bankruptcy process leaves material risks to the operations and financial condition of the AAdvantage card piece of the trust, which represents about 24% of its $53.8 billion in receivables outstanding.

The merger with US Airways could eliminate much of the AAdvantage risk tied to the trust, according to ratings agency Moody's, potentially benefiting the credit quality of the CCCIT asset-backed security and its overall risk for Citigroup.

"What earlier looked like a negative credit factor has become positive," writes Moody's analyst Gregory Gemson, in a Thursday note to clients.

"The recent announcement of a merger between American Airlines' parent, AMR Corporation and US Airways Group is credit positive for CCCIT's asset-backed note issuance because the merger removes uncertainty about AA's ability to continue operating, thus maintaining the value and utility of the AAdvantage credit cards linked to CCCIT."

Were the merger to go through, however, some question marks remain.

Notably, the Citigroup-run AAdvantage plan may be merged with US Airways own credit card program, run by Barclays (BCS) , changing the mix of securities contained in the trust. "A merger between the two air mile programs is likely at some point after the merger between the two airlines has been finalized later this year," writes Gemson.