American Airlines and US Airways agreed Thursday to merge in an $11 billion deal that would create the world's biggest airline.

UPS said that it lost $1.75 billion in the quarter because of a $3 billion charge for pension liabilities, compared with a profit of $725 million a year earlier.

Last week's renewal of a labor and pension contract by pilots was the last major hurdle the airline and its parent company needed to clear before emerging from bankruptcy protection.

Flight cancelations have spiked at American Airlines, which is fighting with unhappy pilots over retirement and work benefits.

When negotiations broke down, American Airlines made pension and retirement changes on a pilots' union's behalf; they say an agreement is less likely now.

Pilots overwhelmingly rejected the bankrupt company's offer of pay raises; American still hopes to cut its labor and pension costs, plus 7,800 jobs.

American Airlines and its parent company are suing to stop providing health care and life insurance benefits to current retirees.

Union leaders at American Airlines agreed to let pilots vote on a company proposal for deep cuts in labor spending, just two days before a bankruptcy judge could have imposed even tougher terms.