Bloomberg News

US Airways Said to Approach AMR Bondholders on Merger

April 25, 2012

US Airways Group Inc. (LCC:US) is targeting AMR Corp. (AAMRQ:US)’s unsecured creditors committee to build support for a possible takeover bid for bankrupt American Airlines after winning the backing of the carrier’s biggest unions.

Agreements with the labor groups were a “big step” as US Airways progresses from the unions to the creditor panel and eventually to AMR’s board, Chief Executive Officer Doug Parker said today on a conference call with analysts and investors.

“We are eager to demonstrate to the creditors of AMR that our plan would result in higher returns than the AMR stand-alone strategy,” Parker said. “We’re highly confident the value created by our two companies is very large relative to the value of a stand-alone AMR.”

While formal meetings haven’t been held, talks began last week with bondholders of Fort Worth, Texas-based AMR, two people familiar with the matter said. US Airways rose 3.1 percent to $9.60 at the close in New York, as a rally after Parker spoke sent the shares to a sixth gain in eight trading days.

Parker didn’t say when Tempe, Arizona-based US Airways might make an approach to AMR, which has said it prefers to remain an independent airline while in court protection. CEO Tom Horton has said the third-biggest (UAL:US) U.S. carrier would prefer to exit Chapter 11 and then consider possible combinations.

Creditors Committee

US Airways’ merger efforts were backed last week by three unions at American, representing pilots, flight attendants, and mechanics and bag handlers. Each group is on AMR’s nine-seat creditors committee, so support from two more members would give US Airways a majority.

“If they can line up support from unions, bondholders and unsecured creditors, I think they can get themselves awfully close to what would amount to a hostile takeover,” Max Newman, a bankruptcy attorney at Butzel Long in Bloomfield Hills, Michigan, said in an interview. “They’re certainly being very strategic and creative about how they’re going about it.”

The panel has a voice in any major decisions made while a company restructures in bankruptcy. Bondholders are represented on the committee by Manufacturers & Traders Trust, M&T Bank Corp. (MTB:US)’s Wilmington Trust and Bank of New York Mellon Corp. (BK:US) Spokesmen for the banks declined yesterday to discuss US Airways’ initial overtures or didn’t return calls seeking comment.

Boeing’s View

Boeing Co. (BA:US), which also sits on the panel, supports American “emerging from this thing as a stronger airline,” CEO Jim McNerney said on a conference call today. If the carrier and a merger partner eventually decide on a tie-up, “we’ll support that as well.”

AMR’s 9.75 percent notes due August 2021 jumped 21.5 cents to 45 cents on the dollar at 9:51 a.m. in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority. US Airways’ 7.1 percent notes due April 2021 rose 0.5 cent to 103.75 cents on the dollar. The yield fell to 6.54 percent.

AMR probably will consider a merger as part of its bankruptcy case because stakeholders will want to ensure they are getting the highest possible value, according to a financial adviser for the airline, Rothschild Inc.’s David Resnick.

“They would want the debtor to look at alternatives to a stand-alone plan,” Resnick, Rothschild’s chairman of global financing advisory, said today in U.S. Bankruptcy Court in Manhattan, where AMR was urging Judge Sean Lane to grant permission to void union contracts in its restructuring.

Reorganization Rights

AMR holds the sole right to file a reorganization plan through Sept. 28, although the creditors committee can ask the court to end that privilege if the panel concludes there is a viable alternative. The company filed for bankruptcy on Nov. 29.

A combined airline would produce savings and new revenue of $1.2 billion a year, excluding the increased labor costs, US Airways President Scott Kirby said on the conference call, calling that a conservative estimate.

“There’s a tremendous amount of value created by merging US Airways and AMR,” he said. “We can and should use a portion of that to give employees more than AMR can on stand-alone basis.”

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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