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Thousands of Jobs, Homes, Dreams at Risk in American Airlines Merger Snafu

Aug 16, 2013 6:22 am

Skift Take

There are thousands of winners and losers among employees, from the bottom of the ranks to the boardrooms, now that the government is calling into question the creation of the new American Airlines. Rightly or wrongly, the whole thing is a mess.

— Dennis Schaal

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Robert and Pat Rogers  / flickr.com

Sky Harbor Airport in Phoenix and US Airways headquarters could take a hit in the US Airways-American Airlines merger. But, now all bets are off as the merger is under challenge. Robert and Pat Rogers / flickr.com


About 1,000 white-collar employees with jobs on the block at US Airways Group Inc. and American Airlines got a temporary reprieve when the U.S. government sued to block the carriers’ planned $14 billion merger.

Consolidating headquarters staffs is just one of the many tasks put on hold by the U.S. lawsuit. A new stock ticker, reconstituted board and US Airways Chief Executive Officer Doug Parker’s move to run American are all in limbo after the Justice Department said the deal would boost fares and harm consumers.

“There’s a whole series of dimensions to how this screws things up,” said Robert Mann, president of aviation consultant R.W. Mann & Co. “You have people who were announced out the door who you still need to run operations — except now some might be gone. There’s a whole group identified as their replacements, who now will be sitting on their hands for months.”

A number of managers, including American Chief Commercial Officer Virasb Vahidi, have been told they won’t join a merged carrier. Some workers from Tempe, Arizona-based US Airways face deadlines to accept a transfer or already have bought houses in Texas, where the company will keep American’s Fort Worth home.

No one has been laid off or moved yet as part of the management shuffle, the airlines said. With no third-quarter closing for a tie-up creating the world’s largest carrier, the 1,000 white-collar jobs targeted by Parker for elimination remain up in the air.

Contingent Appointments

“Nothing can be implemented without the merger being executed,” Mike Trevino, an American spokesman, said yesterday. “It was made abundantly clear that appointments were contingent upon the merger.”

That includes Parker, President Scott Kirby and others from US Airways’ executive group assuming control. American CEO Tom Horton stays on the job instead of ceding that title and taking on the chairmanship until the first shareholder meeting of the new company.

Also unsettled is the bankruptcy case of American parent AMR Corp. The U.S. acted just two days before a U.S. Bankruptcy Court hearing yesterday intended to confirm an AMR restructuring plan built around the U.S. Airways tie-up.

“This was Plan A,” said Rob Pickels, an analyst at Fairport, New York-based Manning & Napier Inc., whose holdings include US Airways. “We really don’t know what Plan B is.

29 Teams

While changes such as installing the 12 announced directors for a combined board and unveiling a ticker for the rechristened American Airlines Group Inc. are being put off, the airlines say their 29 merger-integration teams will keep working.

Those groups were toiling on the details from human resources to operations needed to support the combination of American, the third-largest U.S. carrier, and No. 5 US Airways. Also still in the works: The continuing deliveries of 460 Boeing Co. and Airbus SAS jets whose 2011 orders were affirmed in the bankruptcy process, Trevino said.

What’s been lost is the “cadence” of the preparations under way when the airlines thought the deal’s consummation was just weeks away, said consultant Mann, a former American executive who is based in Port Washington, New York.

“Trying to run a business with the uncertainty of whether you can merge with somebody can really cause gridlock in an organization,” said Greg Charleston, senior managing director at Conway MacKenzie Inc., an Atlanta-based restructuring-advisory firm. “You don’t want to hire, you don’t want to upgrade a system, you don’t want to do anything until you know.”

Shares Swoon

Investors are among those unsettled by the merger doubts. US Airways has tumbled 16 percent since Aug. 12, the day before the Justice Department acted, to $15.72 yesterday. AMR’s over- the-counter shares plunged 56 percent to $2.57.

U.S. Bankruptcy Judge Sean Lane asked for briefs yesterday on the impact of the U.S. case on the standards for approving the restructuring plan and the appropriateness of ruling on it before the federal suit is resolved. He said in court in Manhattan that he proceeded with the hearing because scrapping it might have led to “unhelpful confusion or uncertainty.”

AMR and US Airways “may be right,” said Roger King, a CreditSights Inc. debt analyst. “But they’re losing money every day that this doesn’t go through.”

AMR filed Chapter 11 in November 2011, with $24.7 billion in assets and $29.6 billion in debt. Under the merger plan, unsecured creditors holding $2.6 billion in claims and those with $6.8 billion in claims backed by aircraft will receive a full recovery. Shareholders will get a 3.5 percent stake in the combined company with the potential for additional stock.

‘Potential Alternative?’

“The question is, is there a better potential alternative out there?” said Pablo Wangermann, a Dallas-based consultant at restructuring-advisory firm AlixPartners LLP.

American, which gave up its plan to exit bankruptcy independently when it agreed to the merger, faces the prospect of having to restructure on its own if the government prevails. For US Airways, a failure would follow the 2007 collapse of Parker’s bid for Delta Air Lines Inc. in bankruptcy and fruitless merger talks with United Airlines in 2008 and 2010.

A blocked combination would dash the hopes of 100,000 employees — about 70,000 of them at American — counting on working at a bigger, competitive airline for better compensation.

“We have had a positive outlook on this whole merger for the last year,” said Roger Holmin, president of the Association of Flight Attendants at US Airways. “It’s the first time since 9-11 we’ve been able to have that. Now they are taking that dream away.

–With assistance from Julie Johnsson in Chicago, Tom Black in Dallas and David McLaughlin in New York. Editors: Ed Dufner, James Callan

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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