US airlines 'cleared for merger'

The combined airline will fly under the US Airways flag

Plans to create one of America's biggest budget airlines have moved a step closer after a US federal judge backed a major restructuring deal.

The ruling clears the way for US Airways to emerge from bankruptcy and join with America West Airlines.

This will create the sixth-biggest US airline in terms of passenger miles.

The combined airline, which would be dominated by America West but called US Airways, hopes to compete with budget rivals Southwest Airlines and JetBlue.

Creditors for US Airways have already signalled their support for the deal.

Cash rich

US Airways and America West are currently the seventh and eighth-largest airlines in the US.

Both firms have had financial troubles, with US Airways seeking bankruptcy protection twice in two years.

US Airways said the merged company would have $2.5bn (£1.38bn) in cash at its fingertips.

"With the financial position of other carriers deteriorating, we are pleased we will have a very strong cash position, a robust business plan, a low-cost structure and a strong network," said Bruce Lakefield, chief executive at US Airways.

The good news contrasts with another turbulent week for the airline industry which has seen both Delta Air Lines and Northwest Airlines file for bankruptcy protection.