Directors of American Airlines' parent company likely won't make a decision when they meet Wednesday to consider a possible merger with US Airways, even as momentum for a deal is building.
Investors have been bidding up US Airways' stock price, and leaders of the two pilot unions agree on how to combine contracts, two developments that analysts say strengthen the case for a tie-up.
Still there could be a way to go. American parent AMR Corp., which filed for bankruptcy protection in November 2011, and US Airways Group Inc. have been talking about a potential merger since late summer but have not agreed on price, each side's ownership share, and who would run the company, according to people familiar with the situation. They spoke on condition of anonymity because the talks are confidential.
AMR CEO Thomas Horton raised expectations of a speedy outcome when he told employees last week that the company would decide "within a matter of weeks" whether it would be better to merge with smaller US Airways or remain independent.
That fueled speculation that AMR's board would make a decision this week. Bruce Hicks, an AMR spokesman, tamped down the rumors Monday, saying, "I am not expecting any news regarding the review of strategic alternatives this week."
There is no guarantee that American and US Airways will ever reach a friendly deal to create a single airline roughly the same size as United Airlines, currently the biggest, and larger than No. 2 Delta.
Robert W. Mann, an aviation consultant who once worked at American, believes that AMR will try to "run the clock" - avoid announcing a merger decision for as long as possible because rejecting US Airways' overtures could trigger an immediate hostile takeover bid. If the economy and the airline industry grow stronger, a delay gives AMR more time to post better financial results and boost Horton's argument that he's already fixing the company, Mann says.
AMR could use more time to figure out what to do with its American Eagle regional-airline subsidiary, which it has tried unsuccessfully to sell. It could even consider alternatives to a merger such as deeper partnerships with airlines other than US Airways.
"There won't be a rush to judgment because Horton doesn't want one," Mann says. "I think it'll be midyear before anything happens."
Horton's airline could be out of bankruptcy protection by then. A federal bankruptcy judge in New York has given AMR exclusive rights to present a reorganization plan until March 11. American won new, cost-saving labor contracts with all three of its unions.
In a letter disclosed Tuesday, AMR's chief bankruptcy lawyer even raised the chance that shareholders might get something back because of AMR's "remarkable progress" in stabilizing the business. In most Chapter 11 cases, shareholders' value is wiped out and the company issues new stock.
An AMR spokesman cautioned that buying AMR stock is speculative and that the shares could still turn out to be worthless. The shares, which were taken off the New York Stock Exchange but can still be traded over the counter, have gone from 36 cents to 90 cents since mid-November.
For its part, US Airways is hoping to complete a merger deal as early as this month, according to people familiar with the situation. US Airways, the fifth-biggest U.S. airline, declined to comment.
While the prospects and timing of a deal remain uncertain, recent events have increased momentum for a merger, in the view of Hunter Keay, an analyst for Wolfe Trahan & Co. He said a rally in airline stocks gives US Airways more power to pull off a merger by increasing its market value. US Airways shares are up 41 percent since Oct. 1, following a 2.2 percent gain Tuesday.
Leaders of the pilot unions at both American and US Airways have approved a plan for combining their contracts and seniority lists in case of a merger. They won't disclose details, and the plan must still be ratified by US Airways pilots, but analyst Daniel McKenzie of Buckingham Research Group says it boosts chances of a merger.
"At this point, it's very difficult for AMR management to say no, lest they suffer the wrath of their creditors," who expect to get a better return than AMR can offer on its own, McKenzie wrote in a note to clients Monday.
Combining with US Airways would strengthen American along the East Coast and slightly expand its international routes, but airline mergers are notoriously difficult.
US Airways is still dealing with two largely separate workforces nearly seven years after it was formed by a combination with America West. It has taken United longer than expected to combine workforces and reservations systems with Continental. AMR has an unhappy history with mergers; acquisitions of Reno Air and TWA created more problems than prosperity.
Size matters in the airline industry. Business travelers in particular are attracted to airlines that fly more often and to more of the places that they want to go.
American was the world's biggest airline by passenger traffic as recently as 2008. But Delta Air Lines Inc. leap-frogged it by buying Northwest Airlines, and United became No. 1 in 2010 when it combined with Continental to form United Continental Holdings Inc.
AMR and US Airways had combined revenue of $37.03 billion in 2011, just behind United's $37.11 billion and ahead of Delta's $35.12 billion.