US merger would create world's biggest airline

A merger of American Airlines and US Airways to create the world's largest carrier is in prospect as the two sides work on the final details.

Speculation has been mounting about an agreement which could be announced in coming weeks, with reports yesterday indicating that the boards of the two airlines would meet tomorrow to consider the plan. Although talks could yet break down, a deal, which could be worth as much as $11bn (£7bn), would see the creation of the world's largest airline by passenger traffic.

On Friday, US Airways pilots signed an agreement over pay and working terms if there is a merger. The three staff unions at American Airlines also support a deal.

US Airways is said to have initiated merger talks after American's parent, AMR, sought bankruptcy protection last year, partly as a result of expensive labour agreements which hampered its ability to compete.

The deal would push a combined American-US Airways ahead of United Airlines and Delta Air Lines. The latter two are themselves the result of consolidation within the industry. United and Continental merged in 2010, while Delta joined with Northwest in 2008.

Any deal involving AMR would require the approval of anti-trust authorities and the bankruptcy judge, as it remains under court protection.

According to reports, the deal would involve US Airways leaving the StarAlliance marketing group. Instead, the combination would be a member of the OneWorld Alliance, which currently counts American Airlines as a member, as well as British Airways.

BA's parent, IAG, was said last year said to be weighing a stake in American but this is now considered unlikely as American emerges from bankruptcy protection.

The US Airways chief executive, Doug Parker, is likely to head the merged entity.