Skift Take

The unions are rooting for a pairing with US Airways, but who knows what the months of high-priced consultants and lawyers have whispered into American's executive's ears.

Tom Horton, AMR chairman, president and chief executive officer, answers questions at a Fort Worth Star-Telegram editorial board meeting on Thursday, February 2, 2012, in Fort Worth, Texas. (Rodger Mallison/Fort Worth Star-Telegram/MCT)

Source: Fort Worth Star-Telegram
Author: Andrea Ahles

After more than seven months pushing a stand-alone restructuring plan, AMR Corp. said Tuesday that it’s ready to check out merger partners.

Executives with the parent company of Fort Worth-based American Airlines discussed several options, including mergers, with the airline’s unsecured creditors committee Tuesday, the day the carrier reached tentative contract agreements with its mechanics and store clerks unions.

“It now makes sense to carefully evaluate a range of strategic options, including potential mergers, which could make the new American even stronger,” AMR Chief Executive Tom Horton told employees in a letter sent Tuesday.

AMR, which filed for Chapter 11 bankruptcy in November, previously said it intended to emerge from bankruptcy as an independent carrier and was rebuffing overtures from other airlines, particularly US Airways, which has publicly campaigned for a takeover bid. The carrier has improved its financial performance and increased its cash balance to $5 billion from the $4 billion it had when it entered bankruptcy court.

In the meeting with creditors, AMR outlined five merger options with various carriers, people close to the matter said. They did not include financial options that are also being considered, such as a private equity firm taking a stake in American or an investment from its Oneworld alliance partner, British Airways.

American plans to send nondisclosure agreements to merger candidates within weeks, the sources said, so that the airlines and American can open their financial books to each other.

Although US Airways is most often mentioned as a merger partner for American, JetBlue Airways and Alaska Airlines could also be potential targets. Delta Air Lines has been rumored to be monitoring the AMR bankruptcy but declined to comment on any merger speculation.

Horton said he will not comment on the process, adding that he has been a proponent of consolidation and that the carrier has assessed many combinations in the past, including buying US Airways.

“In fact, last year, I approached my counterparts at other airlines about the merits of possible combinations. Since that time, as we embarked on the restructuring journey, I have held the view that it is best that we first put our own house in order before considering a complex and challenging airline acquisition,” Horton said in the letter.

Also Tuesday, the Transport Workers Union said it had reached tentative agreements with American for its mechanics and store clerks. That leaves only the flight attendants union still negotiating for a consensual deal.

The deals

The new deals include 3 percent pay raises on signing for mechanics and 3.5 percent for store clerks. The union said health insurance was also improved over American’s previous offer. It was not known whether the company scaled back its demand for 2,900 job cuts among mechanics.

“These two new agreements represent an improvement from the company’s previous offers and its motion to void our contracts pending before U.S. bankruptcy court,” said union international President Jim Little.

American had reached agreements with the two work groups in May, but members voted the proposals down. American wants concessions from its major unions in new labor deals before a bankruptcy judge rules on its request to terminate existing contracts under Section 1113 of the U.S. Bankruptcy Code.

The union said it expects to conduct ratification votes to conclude around Aug. 8, the day that the Allied Pilots Association is expected to announce the results of its ratification vote. The judge is scheduled to rule on the Section 1113 motion Aug. 15.

The agreements also include equity claims in the new American Airlines, once AMR emerges from bankruptcy, that will be “negotiated between TWU and AMR based on the offer proposed to the APA pilots, subject to court approval.”

American has offered the APA a 13.5 percent equity stake in the new company as part of the tentative agreement.

Company spokesman Bruck Hicks said American was pleased to reach agreements with the TWU that include cost savings for the company. American reduced its savings target for the union by about $35 million a year from its initial February proposals.

“Through this reduction, and a reallocation of profit sharing, we were able to provide additional pay raises, an adjustment to industry pay rates after three years, and changes in active medical benefits,” Hicks said. “The TWU tentative agreements, along with our tentative agreement with the APA, demonstrate that we can work creatively to reach a resolution that puts our company in a position to move forward quickly and successfully.”

Merger exploration

The Allied Pilots Association also applauded AMR’s announcement that it was considering mergers as part of its bankruptcy restructuring.

“Mr. Horton’s letter represents an important milestone by acknowledging what we have believed for some time — that consolidation involving American Airlines is essential for all of the airline’s stakeholders,” union President Dave Bates said. “It’s an affirmation that consolidation represents the most promising path for our airline’s future. The biggest remaining questions center on who manages the new entity and whether a merger occurs during AMR’s Chapter 11 restructuring or thereafter.”

The pilots are considering American’s latest offer, which includes pay raises and allows the airline to use more regional jets.

The flight attendants union, which continues to negotiate with the company, also said it welcomed the merger exploration news.

“This is something we have been pushing for,” said Laura Glading, president of the Association of Professional Flight Attendants. “There is still a great deal of work to do, but between Mr. Horton’s announcement today and our negotiating efforts, I am hopeful that the US Airways team will soon have all the information it needs to explore the possibility of a merger.”

US Airways, which has signed deals with American’s unions to support a takeover bid, said it is pleased that American is considering merger options as it moves through bankruptcy.

“All we have asked for is a fair and balanced opportunity to present our plan versus others, and we are hopeful this is the beginning of such a process,” the Tempe, Ariz.-based carrier said in a statement. “We remain confident that our plan will maximize value for all stakeholders.”

Andrea Ahles, 817-390-7631. Twitter: @Sky_Talk 


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Tags: american airlines, us airways

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