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Would Miami benefit from American Airlines merger?

As the future of American Airlines hangs in the balance, employees, passengers and the communities the airline serves are waiting to see how bankruptcy will change one of Miami-Dade County’s largest private employers.

Amid that uncertainty, aggressive attempts at a merger from the smaller but profitable competitor US Airways have added a new wrinkle to the what-if scenarios.

The parent company of American, AMR Corp., is seeking to cut labor costs by tossing employee contracts where no agreement has been reached. Closing arguments in U.S. bankruptcy court wrapped up Friday; a judge said he expects to rule by June 22.

American Airlines, which filed for bankruptcy in November along with AMR, has repeatedly said it wants to exit bankruptcy protection as a stand-alone company, but US Airways has forged agreements with labor unions representing American’s pilots, flight attendants and mechanics and fleet service workers in an effort to pursue a merger.

While American has agreed to look at potential consolidation scenarios, the airline says that agreement doesn’t mean the company intends to merge. And analysts say other suitors could still potentially come forward.

Experts say that if Fort Worth, Texas-based American Airlines joins forces with any other airline, some outcomes would be certain: Employees would still lose their jobs, airfares would rise, frequent flier programs would continue to exist — and Miami would remain a crucial hub.

Beyond that, it’s still unclear how American, which carries nearly 70 percent of the traffic at Miami International Airport, would change or how any changes would affect the region.

American has proposed laying off about 13,000 employees, but hasn’t said how specific communities would be affected; the airline employs nearly 88,000 full- and part-time workers worldwide and about 9,000 in South Florida.

A lawyer for the Transport Workers Union estimated that of the more than 4,000 fleet service workers expected to lose their jobs, about 1,000 in South Florida could be affected by layoffs and shifts of more senior workers to Miami.

An agreement between American and some TWU groups would save about 1,300 fleet service jobs nationally; US Airways’ proposal calls for saving another 1,000. Mark Richard, the attorney representing TWU, said Miami would benefit from the preservation of those jobs.

Local airports and the Beacon Council, Miami-Dade’s economic development partnership, say it’s too early to guess what could be in store.

“There’s a lot of speculation,” said Frank Nero, the Beacon Council’s president and CEO. “Miami would shrink, Miami would grow, Miami would do this. There’s 100 different scenarios, and so it’s pretty hard to do any studies without knowing what to base the study on.”

US Airways, based in Tempe, Ariz., has a relatively light flight schedule from South Florida. At MIA, the airline carries about 2 percent of the traffic, with seven daily flights to and from Charlotte and three a day between Miami and Philadelphia.

“We don’t expect any substantial changes if the merger occurs because our traffic is driven largely by the Miami market and not by the airlines serving it,” said Greg Chin, an airport spokesman.

In Broward, US Airways has a slightly larger presence, carrying about 8 percent of traffic at Fort Lauderdale-Hollywood International Airport in April, or 17 daily flights, compared to American’s nearly 5 percent.

“We expect no impact in the short term,” said airport spokesman Gregory Meyer. “There is zero overlap of service. However, a merger, combined with an emergence from Chapter 11, could result in AA re-evaluating their route and competitive strategies.”

MIA growth plans

American, one of the largest private employers in Miami-Dade and by far the largest airline at Miami International Airport, says its long-term plan calls for 20 percent growth at its largest hubs, including MIA, over the next five years.

The airline wouldn’t address questions about the impact of any possible merger.

“We do not comment on speculation,” a spokeswoman said in an email. “Talking about any particular merger scenario is too speculative, and it is even more speculative to discuss what impact a merger might have on our business.”

But American did say that operations are growing even now at MIA, with new service coming online between Miami and Barcelona, Seattle and Manaus, Brazil. The airline is also seeking to add more flights between Miami and Brazil later this year.

“I’m very optimistic because I still see American petitioning for increased flights,” Nero said. “Those are all good signs. I think Miami is so important to the future of whatever happens that I think Miami’s going to do very well irrespective of how this comes out.”

John McDonald, a spokesman for US Airways, says that airline would look for growth in a different way: by adding its current routes to American’s. The airline has hubs in Charlotte, Philadelphia and Phoenix. “We’re saying let us bring our existing route structure that we have proven,” he said.

Some observers see a merger as an inevitability if American, which hasn’t turned an annual profit since 2007, wants to remain competitive with the larger Delta and United — which have both merged with other carriers in recent years.

American’s existing route structure is attractive to US Airways, McDonald said. And analysts say US Airways would give American a needed boost in the Northeast, where Delta and United are strong.

“The merger with American has huge implications for competing with the big boys,” said Joshua Schank, president and CEO of the Eno Center for Transportation, a nonpartisan transportation policy think tank.

Consumer effect

Robert Herbst, independent airline analyst and consultant, said the very survival of the airlines could be at stake.

“Longer term, the size of Delta and United now are so strong that they are just going to tear apart American Airlines and US Airways separately,” said Herbst, founder of AirlineFinancials.com. “For the consumers, it would be better to have three strong airlines competing against each other rather than two and a lot of little weak ones.”

George Hobica, founder of Airfarewatchdog.com, said consumers would likely see higher fares and consolidated flights in a merger scenario, though there could also be more opportunities to rebook a flight in case of delays or cancellations.

He said frequent fliers could benefit if their accounts were merged. But Robert Mann, president of airline industry analysis firm R.W. Mann & Co. in New York, cautioned that there would be more contention for rewards redemptions. “Carriers will have the opportunity to raise the bar and raise the costs of rewards by imposing new terms and higher mileage,” he said.

Still unknown: how the bankruptcy or a possible merger could affect future charitable contributions.

After American filed for bankruptcy in November, the company said it would in the near term “have to make difficult choices about our philanthropic investments and activities.”

A spokeswoman said in a statement recently that American is committed to continuing its “rich history of corporate social responsibility,” but provided no details.

McDonald, of US Airways, said the airline supports education and arts groups in its hub cities and would continue to do so, but couldn’t say how such community activity might be affected by a merger.

If American finds a way to profitability — either solo or with another company — Mann said that would be good news for the causes the airline has supported.

“As a real dominant force in the Miami market, one would presume American would continue to be a strong corporate citizen,” he said. “If they’re more profitable, they tend to have more capacity to do good works. It’s really tough to be a good corporate citizen when you’re on the ropes.”

This report was supplemented with information from Bloomberg News.

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