The boards of American Airlines and US Airways approved a merger to create the largest US airline once American exits bankruptcy court, sources close to the negotiations said.
The merger will be formally announced Thursday morning, these people told AFP. The newly-formed company, keeping the name American Airlines, will be headquartered in American's Dallas-Fort Worth base in Texas.
The deal comes on the heels of a series of other recent airline mergers that have remade the US airline industry and better positioned the sector for profit.
One of the sources close to the talks said the bigger scale of the company would enhance American's value after bankruptcy better than a free-standing American Airlines.
"Adding onto the strength of American, you have a robust network with nine hubs and opportunities for 100,000 employees," the source said.
Antitrust regulators and a US bankruptcy court must first give their approval before the merger can go forward, as American has been under bankruptcy protection since November (Xetra: A0Z24E - news) 2011.
Under the all-stock deal's terms, American's creditors would own 72 percent of the combined airlines and US Airways the remainder, people familiar with the matter said.
The idea of an American-US Airways tie-up has been floated since American went into bankruptcy protection in November 2011.
Under the transaction, US Airways chief executive Doug Parker will become chief executive of the newly formed company while American chief executive Tom Horton will serve as chairman of the board through the middle of 2014 before stepping down, sources familiar with the matter said.
The deal follows a series of other US airline mergers that analysts say have left the US airline industry better positioned for long-term profitability.
Projections for 2013 show that the US airline industry in terms of absolute profit would be the healthiest worldwide, said John Thomas, airlines specialist at LEK Consulting.
A merger would assemble a powerful fleet of about 1,530 mainline and regional aircraft flying some 6,428 daily flights. Combined revenues of $38.7 billion in 2012 would put them slightly ahead of United and Delta Airlines.
It would also cap a round of major airline deals that has remade the US airline business into a handful of giant carriers such as Delta and United, which acquired Northwest Airlines and Continental (TLO: CONG-U.TI - news) respectively.
The carrier has continued to operate under court supervision even as it sought to slash costs by renegotiating wage and benefit deals with its unions.
Prospects of a merger strengthened when union leaders publicly endorsed it in April, and talks moved ahead when the two firms signed a non-disclosure agreement to exchange confidential information in August.