Bloomberg News

AMR Insider Horton Brings AT&T Deal-Making History to CEO Role

December 06, 2011

(For more on the AMR bankruptcy, see EXT2 <GO>.)

Dec. 1 (Bloomberg) -- Tom Horton knows how to help dress up a broken company and make it a powerhouse again.

That’s what he did at the former Ma Bell, leading to the merger that created AT&T Inc. Now he will face a similar challenge at AMR Corp., the parent of the once industry-leading American Airlines.

Horton, 50, became chief executive officer at AMR on Nov. 29 with the retirement of Gerard Arpey, who led the company’s eight-year fight against a Chapter 11 filing. Horton now must juggle new labor talks and reworking $29.6 billion in debt while keeping the third-largest U.S. airline flying.

“He’s probably the right guy, with the right tools to do this job,” said Ray Neidl, a Maxim Group LLC analyst in New York, who predicted Nov. 18 that AMR might go bankrupt within the next year. “He had the experience of taking AT&T through a restructuring and a sale.”

In taking the CEO’s post at Fort Worth, Texas-based AMR, Horton capped a career at the company that began in 1985 and bracketed almost four years at the old AT&T Corp., the long- distance company descended from the one-time parent of the Bell system. As AT&T’s chief financial officer, he led the review of options culminating with a 2005 takeover by SBC Communications Corp.

Jets, Borrowing

Since coming back to AMR in 2006, Horton helped negotiate a jet order with a $38.5 billion list value and borrow $2.9 billion to update airport hubs for the third-largest U.S. airline. He returned as CFO and executive vice president and was named president in July 2010.

His involvement with the old AT&T selling itself may help if American ends up merging with US Airways Group Inc. in bankruptcy, said Jeff Straebler, an independent aviation analyst in Stamford, Connecticut.

“One has to wonder if Horton’s selection was driven by the board’s expectation that an inevitable and likely successful bid by US Airways warranted an insider to act as caretaker in the interim,” Straebler said yesterday.

US Airways tried to buy Delta Air Lines Inc. after that carrier filed for bankruptcy in September 2005, and held merger talks with the former United Airlines in 2008 and 2010. CEO Doug Parker said in April that he saw “one big deal left” in the U.S. industry, with US Airways possibly tying up with one of its three largest competitors.

Andrew Christie, a spokesman for Tempe, Arizona-based US Airways, declined to comment. American’s Andrea Huguely said in an e-mail that the company doesn’t “comment on rumors.”

‘Forward Looking’

“I like very much the fact that he was gone for four years,” James M. Higgins, a Ticonderoga Securities LLC analyst, said in an interview. “Horton, in part because he did spend time away from the company, is likely to be forward looking and say, ‘These are the cards we were dealt, let’s play them as best we can.’”

AMR’s board voted unanimously the evening of Nov. 28 to file for Chapter 11 after weighing options for months, Horton said yesterday. AMR had been determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even while peers used bankruptcy to shed pension and retiree benefit plans and restructure debt.

Directors selected Horton after Arpey, 53, said he rejected their request that he stay.

‘Unique Perspective’

“Although Tom has spent over 20 years with American, the time he has spent outside the company has given him a unique perspective to draw upon as he leads the company through this phase and beyond,” Arpey wrote in a letter to employees.

Horton’s education and career have been largely spent in Texas. He earned an MBA from Southern Methodist University’s Cox School of Business in Dallas and a bachelor’s of business administration from Baylor University in Waco. He is an avid runner, according to American, and serves on the Cox School’s executive board.

Horton held a variety of positions at AMR before his first CFO stint there, from 2000 to 2002, when he left to become CFO at then-AT&T Corp. He was named vice chairman in January 2005, and the company credited him with helping trim gross debt by 75 percent. That year he led an evaluation of strategic options that led to the takeover by SBC Communications Inc.

After departing from the newly renamed AT&T in January 2006, Horton was fishing in the Bahamas the next month when he was contacted by Arpey, whom he described yesterday as a “very close friend,” about coming back to what was then the biggest U.S. airline.

Drop in Rank

By the time Horton was promoted to president last year, American had slipped to No. 3 in the U.S. air-traffic rankings and AMR was mired in annual losses that began in 2008.

“There’s an argument that he knows the company well,” said Charles Elson, director of the University of Delaware’s Center for Corporate Governance. “The problem is having been there so long his creativity is not going to be as high as someone from the outside.”

Horton was instrumental in the July 2011 plan to order 260 Airbus SAS A320s and 200 Boeing Co. 737s, renewing the fleet with more fuel-efficient models. The average ages of American’s mainline jets will fall 33 percent to 9.5 years in 2017 from 2010 levels, Horton said at the time. The deal included $13 billion in financing from Airbus and Boeing.

“Horton is a very bright guy and I have confidence in his ability to lead American,” former Continental CEO Larry Kellner said in an interview. “The company will benefit by having somebody who has been there and understands the issues to lead them through bankruptcy.”

‘Long and Ugly’

Horton’s challenges include negotiations with unions to boost productivity and cut what American says is an $800 million annual cost disadvantage to its peers. After contract talks with unions for all major work groups as far back as 2006, the bankruptcy “resets” the bargaining, Horton said yesterday.

“This is likely to be a long and ugly process,” said Jim Little, international president of the Transport Workers Union, whose members include American mechanics and baggage handlers. “Our union will fight like hell to make sure that front-line workers don’t pay an unfair price for management’s failings.”

AMR has the highest operating costs among the four surviving major U.S. network airlines, CFO Bella Goren said in court papers. The company is set to post its fourth-straight annual loss this year and analysts surveyed by Bloomberg project a loss for 2012 as well.

“It’s time to turn the page and move forward,” Horton told reporters at a press conference yesterday at the Dallas- Fort Worth International Airport, the carrier’s largest hub. He described bankruptcy as a “well worn path” for U.S. airlines.

AMR Rivals

United Airlines parent UAL Corp., Delta, Northwest Airlines Corp. and US Airways all reorganized in Chapter 11 protection since 2000. Horton was still at AT&T when AMR had its own brush with bankruptcy, in 2003, before union concessions helped the airline avert default.

Hiring an outsider isn’t automatic in airline bankruptcies, said Maxim Group’s Neidl, who cut his AMR rating to sell from hold yesterday after the filing. Delta and Northwest, which later merged, both went through Chapter 11 without changing management, Neidl said.

“Usually I’d say that it doesn’t make sense that whoever brought the company down should stay there,” said Israel Shaked, a professor at Boston University School of Management. “In this case, he’s a legitimate guy who knows the industry and has done the job.”

--With assistance from Thomas Black in Dallas. Editors: Ed Dufner, Elizabeth Wollman

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; 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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