Using about $1.5 billion in new capital, the deal would save No. 7 US Airways, based in Arlington, Va., from possible collapse and expand the routes of No. 8 America West into lucrative eastern markets. The combined carrier will also fly internationally, according to Reuters.
The airline would become the sixth largest domestic carrier based on passenger revenue, displacing current No. 6 Southwest Airlines, and would use the US Airways name but be based in Tempe, Ariz., America West's home turf.
The deal would start with a marketing alliance and unfold over the course of about three years. The combination may occur as early as September, after US Airways exits bankruptcy, the airlines said, reported Bloomberg news.
"A combined US Airways/America West places the new airline in a position of strength and future growth that neither of us could have achieved on our own," said Doug Parker, America West's chief executive.
The companies currently employ 43,000 people and operate roughly 400 aircraft combined.
The merger would result in some staff reductions and a fleet reduction of about 60 planes, but Parker said he did not foresee big layoffs during the transition, reported Reuters.
"It's not about losing 4,000 or 5,000 jobs, it's about saving 35,000," Parker told reporters.
The two airlines said the deal would create a carrier with $10 billion in annual revenues and about $2 billion in total cash.
The deal is the largest involving airlines since American Airlines merged with TWA in 2001.
U.S. antitrust and transportation officials must still approve the deal, in addition to the federal board overseeing $1 billion in combined loan guarantees to both airlines and the federal judge overseeing US Airways' bankruptcy case.
If the merger goes through, as industry experts expect, America West would own 45 percent of the new airline, new equity partners would own 41 percent and 14 percent would go to US airways, assuming a total private equity value of $850 million, the carriers said, according to Reuters.
Key investors include Air Canada parent ACE Aviation Holdings Inc. and Boston's PAR Capital Management.