After months of negotiations, American Airlines and US Airways appeared likely to announce a merger this week that would create the nation's biggest airline and concentrate even further a once-fragmented industry.
A merger would expand American's domestic network, particularly in the Northeast and the Southwest, and create a more formidable competitor internationally. The combined airline would jump ahead of United Airlines and Delta Air Lines, both of which have grown through mergers of their own in recent years.
The combination would probably bring to an end the wave of consolidation that has swept the industry in recent years. Since 2001 there have been five large mergers, reducing the number of airlines to three main carriers, a handful of low-cost carriers like Southwest Airlines and JetBlue, and regional carriers.
These mergers have led to cuts in service to many smaller cities around the country, including Pittsburgh, which was a onetime hub for US Airways. But they have also created healthier and more profitable airlines that are able to invest in new planes and products. Faced with rising fuel costs, and losing tens of billions of dollars in the last decade, airline executives argued that the only way to survive was to consolidate capacity.
American, which has been in bankruptcy protection since November 2011, is currently the nation's third-largest airline with domestic and international flights; US Airways is the fourth.
The boards of both carriers are expected to meet sometime this week to approve the combination, which then needs to be approved by a bankruptcy judge in New York City. A deal could be struck this week or possibly next week as talks are still ongoing.
A tie-up also requires the approval of federal regulators and antitrust authorities. But analysts expect regulators to approve the deal since there is little overlap between the two networks and no hubs in the same cities.
Even if the deal clears all these hurdles, the merged airline still faces a host of challenges. Airline mergers are often rocky -- involving complex technological systems, big reservation networks as well as large labor groups with different corporate cultures that all need to be combined seamlessly. United angered passengers last year after a series of merger-related computer and reservation mistakes, and late and delayed flights.
A deal would be a major victory for Doug Parker, the chairman of US Airways, who began pursuing a merger with the bigger carrier soon after American filed for bankruptcy. His argument -- that American could succeed against bigger airlines only if it combined networks with US Airways -- swayed American's creditors who have a critical say in the company's future.
US Airways had its start in 1939 delivering airmail to Western Pennsylvania and the Ohio Valley before growing to become Pittsburgh's dominant airline, first as Allegheny Airlines and then USAir.
At one time, Pittsburgh was the airline's largest hub, generating more than 500 daily nonstop flights. But after the Sept. 11, 2001, terrorist attacks and two bankruptcies, US Airways dropped Pittsburgh as a hub, slashing hundreds of flights and eliminating thousands of jobs.
US Airways and American have been discussing a deal for months.
Tom Horton, American's chairman, who was opposed to a merger for much of the last year, was offered a position as nonexecutive chairman, said a person familiar with the matter but who asked not to be identified because the talks were still under way.
US Airways shareholders could end up with about 28 percent of the new airline, and American's creditors would have 72 percent, this person said.
A merger could be structured to take effect as American exits bankruptcy. The airlines are pushing for a deal before Friday, when some nondisclosure agreements with American bondholders are set to expire.
The new airline, with a combined 94,000 employees, would be called American Airlines and based in Dallas.