American bankruptcy filing spurs speculation of merger with US Airways

American Airlines and its parent company filed for bankruptcy protection Tuesday to cut costs and restructure in a time of economic uncertainty and volatile fuel prices.

The move prompted speculation that American might tie the knot with another big airline. The most likely suitor: US Airways Group Inc., Philadelphia's dominant airline.

"We believe today's filing by American potentially works to the advantage of US Airways," analyst Kevin Crissey, of UBS Securities L.L.C., wrote in a client note. "American potentially needs a partner to achieve more scale, and US Airways may provide that avenue."

But a merger will happen only if new American CEO Thomas Horton, named Tuesday to replace retiring chief executive Gerard Arpey, is interested. His predecessor was not, said veteran airline analyst Bob McAdoo, of Avondale Partners L.L.C.

"There are substantial business reasons why a merger with US Airways would give American Airlines a far more widespread presence in the eastern one-third of the country," McAdoo said.

A US Airways-American combination would help American compete better across the Atlantic in Europe.

By the numbers, US Airways' Philadelphia hub effectively collects passenger traffic out of the Northern and Eastern United States to Europe, and generates more revenue to and from Europe each day than American does at either New York's JFK or Chicago's O'Hare airport, McAdoo said.

A merger with US Airways also would give American, which is strong in the Midwest and West, as many as 60 new cities to serve.

As the only major U.S. airline that did not seek bankruptcy protection after the Sept. 11 attacks, American has continued to lose money as other U.S. carriers have returned to profitability in recent years.

Two weeks ago, Standard & Poor's lowered its ratings on American, citing the company's failure to get a new contract with its pilots' union before reporting a $162 million third-quarter loss.

American said Tuesday that it would operate flights, honor tickets, and take reservations while it reorganizes.

The Fort Worth, Texas-based company has three gates at Philadelphia International Airport and 16 daily departures - 11 on American and five on American Eagle. American flies to Dallas, Chicago, and Miami and has 3.5 percent of the market here.

The bankruptcy filing was not a surprise, but the timing was, said Seth Kaplan, managing partner of Airline Weekly, an industry publication.