American Airlines and US Airways have reached a deal with the US government that lets the two form the world's biggest airline and opens up more room at key US airports for low-cost carriers.
If approved by a federal judge, the settlement would end a fight with the US Justice Department and head off a courtroom showdown later this month.
It preserves hub airports in Phoenix, Philadelphia, Charlotte and four other cities for at least three years, and it caps a series of mergers that have already eliminated four big US airlines and stoked fear about higher travel prices.
For American, the nation's third-biggest airline, the deal lets parent company AMR exit bankruptcy protection, repay creditors and reward shareholders.
At US Airways, the number five US carrier, shareholders will own 28% of the new company, employees stand to get more pay, and senior executives will realise their dreams of running an airline even bigger than United or Delta.
The Justice Department said it extracted the largest divestitures ever in an airline merger. Attorney general Eric Holder said the agreement would ensure more competition on non-stop and connecting routes throughout the country.
William Baer, assistant attorney general for the Justice Department's anti-trust division, said that even a few more gates and flights for low-fare carriers would help consumers. He said that when Southwest picked up slots at Newark, New Jersey, as part of the 2010 merger of United and Continental, it had a ripple effect that reduced fares on many routes.
The airlines were close to finishing the merger in August until the Justice Department and several states filed an anti-trust lawsuit to block the deal, saying it would reduce competition on hundreds of routes around the country and lead to higher consumer prices. A trial was scheduled to begin on November 25.
The settlement still needs the approval of a federal judge in Washington, but that is expected to be a formality, and the companies expect to close their deal in the first half of December.
When the deal closes, American and US Airways will begin co-ordinating prices and schedules as if they were one. Combining the fleets will take months or years.
The new company will be called American Airlines Group, replacing AMR, which will emerge from bankruptcy simultaneously with the merger closing. It will be slightly larger than United and Delta by passenger traffic and have about 100,000 employees and 6,700 daily flights to more than 300 destinations. It will be based at AMR's home in Fort Worth, Texas.