US Airways Group Inc. (LCC), seeking support for a possible American Airlines (AAMRQ) merger, is discussing a takeover plan with some creditors of the bankrupt carrier and their advisers, people with knowledge of the talks said.
Executives have laid out details of US Airways’ proposal for a combined airline to some members of the unsecured creditors committee and gotten a positive reception, said the people, who declined to be identified because the terms aren’t public. The goal would be to complete a merger before American parent AMR Corp. (AMR) exits Chapter 11, the people said yesterday.
US Airways has been making the overtures as American works toward its stated target of leaving court protection as an independent airline. Tempe, Arizona-based US Airways has said it learned the value of labor and creditor backing after its hostile bid for Delta Air Lines Inc. (DAL) collapsed in 2007.
“This is all part of the bigger plan to win the hearts and minds of the major stakeholders of AMR,” Hunter Keay, a Wolfe Trahan & Co. analyst in New York, said today in an interview. “There’s probably a lot of fear and uncertainty among the unsecured creditors committee right now and they are exploring their options.”
AMR remains focused on its own plan “to achieve revenue growth and a highly competitive cost and debt structure,” a spokesman, Andy Backover, said in a statement. A US Airways spokesman, Todd Lehmacher, said the airline had no comment.
US Airways rose 3 percent to $7.55 at the close in New York. AMR’s 9 percent notes due September 2016 jumped 11.75 cents to 42.75 cents on the dollar at 9:54 a.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
US Airways Chief Executive Officer Doug Parker has acknowledged hiring advisers to weigh a bid for Fort Worth, Texas-based AMR, and he told reporters in Phoenix on March 21 that the review probably will continue “for quite some time.”
AMR, which filed for Chapter 11 on Nov. 29, won U.S. Bankruptcy Court approval yesterday to extend its sole right to file a reorganization plan until Sept. 28, from the end of March. Nothing bars potential suitors from talking with the nine-member creditors panel or other parties in the bankruptcy.
Bankruptcy Judge Sean Lane’s order allows the creditors committee to seek to shorten that period and requires the airline to show why it should remain in place.
“The leverage pendulum has swung fairly decisively toward US Airways if the company should choose to come to AMR’s labor groups with alternatives to what’s probably going to be fairly draconian cuts,” said Wolfe Trahan’s Keay. “Creditors suddenly have a lot of leverage because of that conditional provision for exclusivity.”
Tom Hoban, a spokesman for the Allied Pilots Association, said that if the union couldn’t reach a consensual labor agreement with AMR as the carrier seeks to rework contracts, the group might be willing to work with new management brought in as the result of a merger.
“We’ll consider all options on the table,” Hoban said in a March 21 interview. “Whether that means another suitor that’s capable of bargaining effectively, I don’t know. That scenario hasn’t presented itself yet.”
The APA has a seat on the creditors committee, as do American’s two largest unions, the Association of Professional Flight Attendants and the Transport Workers Union, whose members include baggage handlers and mechanics.
Labor relations at the third-biggest U.S. airline have been a flash point after more than five years of talks failed to produce new contracts before AMR’s bankruptcy. The largest part of American’s Feb. 1 plan for $2 billion in cost reductions will come from labor: $1.25 billion, including 13,000 job cuts.
The airline told Judge Lane in Manhattan yesterday it would seek authority next week to void existing union contracts and impose new terms if talks don’t produce money-saving agreements by then to help end annual losses that began in 2008.
US Airways is the fifth-biggest U.S. airline, and made its bid for Delta, then No. 3, while the larger carrier was in bankruptcy in 2006. The effort crumbled in less than three months when Delta’s creditors endorsed its plan to stay independent.
Delta, now the second-largest U.S. airline, and private- equity group TPG also are assessing potential bids for AMR, people familiar with the matter said in January.
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