American Airlines parent company AMR Corp and US Airways have announced that their boards have approved a merger agreement to create the largest US airline.
The combined company, which will have an implied equity value of approximately $11bn, will become a fully operating entity following American's pending bankruptcy proceeding, according to a news release.
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.
The merger would reduce the number of major US airlines to four: the new American, United, Delta and Southwest.
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 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.
American Airlines and US Airways said they expect $1bn in combined savings.
However, aviation consultant George Hamlin said a merger may not necessarily improve profits.
"It's not entirely clear that mere size is a guarantee of success," he told Al Jazeera. "The most profitable carrier in the world and also in the US is Southwest. It's not the largest in the field."
A merger would assemble a powerful fleet of about 1,530 mainline and regional aircraft flying some 6,428 daily flights. Combined revenues of $38.7bn in 2012 would put them slightly ahead of United and Delta Airlines.