Bloomberg News

US Airways Said to Detail Merger Plan to AMR Creditors

November 14, 2012

AMERICAN US AIR

A US Airways Group Inc. plane, background, passes American Airlines Inc. planes at Ronald Reagan National Airport in Washington, D.C. Photograph: Andrew Harrer/Bloomberg

US Airways Group Inc. (LCC:US), pressing to take over AMR Corp.’s American Airlines in bankruptcy, made its case for a merger to the company’s unsecured creditors committee, three people familiar with the matter said.

The panel’s session yesterday with US Airways will be followed by a meeting today with representatives of American, which seeks to exit court protection as a stand-alone carrier, said the people, who asked not to be identified because the talks are private. The meetings are in New York.

American Chief Executive Officer Tom Horton has advocated waiting to evaluate merger options after leaving Chapter 11, while US Airways CEO Doug Parker has championed a merger since shortly after AMR’s Nov. 29 bankruptcy filing. The creditors committee has a say in important decisions as AMR restructures.

“From the creditors committee perspective, whatever the two parties are proposing has to be finalized at some point, and the sooner the better,” said Bob Mann, president of aviation consultant R.W. Mann & Co. in Port Washington, New York.

American reached an accord with the nine-member panel in May to study strategic alternatives against which the carrier’s stand-alone plan would be vetted. The committee represents some of those owed money by AMR and is charged with maximizing the amount of debt recovered. The members include American’s three largest unions as well as bondholder representatives.

Regular Meeting

“American is participating this week at the committee’s regularly scheduled in-person monthly meeting, at which various business matters, including the strategic alternatives process, will be discussed,” Jack Butler, an attorney for the creditors committee, said in a statement. He declined to comment on yesterday’s meeting.

Todd Lehmacher, a spokesman for Tempe, Arizona-based US Airways, declined to comment about the talks, as did Andy Backover, an American spokesman.

U.S. Bankruptcy Judge Sean Lane in New York gave his approval on Nov. 8 to American’s request for an extension until Jan. 28 of the airline’s exclusive right to file a reorganization plan. That has kept US Airways from making a formal merger offer in court.

“Maybe we are not going to have to wait until the end of the first quarter to find out what the plan is here,” said Fred Lowrance, an Avondale Partners LLC analyst in Nashville, Tennessee. He said the discussions suggest that creditors “want to feel comfortable that they have all the information to make a comparison.”

Bonds Rally

AMR’s $460 million of 6.25 percent convertible notes due October 2014 rose 6 percent to 71 cents on the dollar, the highest this year, at 12:27 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes traded at 17.75 cents after AMR’s bankruptcy filing.

US Airways fell 4.6 percent to $12.01, joining a slump in airline shares as oil prices jumped following Israeli airstrikes that killed a Hamas military leader. The stock has more than doubled this year on speculation that a merger would succeed.

A combination of US Airways, the fifth-biggest U.S. airline, and No. 3 American would create the world’s largest carrier by passenger traffic, surpassing United Continental Holdings Inc. (UAL:US) and Delta Air Lines Inc. (DAL:US)

American has been working to reach a new contract with its pilots union, the last holdout among the carrier’s major work groups, to ensure predictable costs at a restructured airline. It secured an agreement in principle with the Allied Pilots Association on Nov. 9. The union’s board will decide on Nov. 16 whether to send that deal to members for a vote.

Labor Agreements

The airline won money-saving agreements with other major work groups in recent months, after US Airways reached conditional accords in April with unions for American pilots, flight attendants, mechanics and baggage handlers.

“They’ve been inviting themselves to that party for a long time,” Mann said of US Airways. “To get the doorman to part the velvet ropes and let them in is a bit of a victory. Ultimately it will come down to economics, but you have to get an audience before you can talk economics.”

The case is In re AMR Corp. (AAMRQ:US), 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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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