Bloomberg News

AMR Open to Funding Bankruptcy Exit With Private Equity

December 11, 2012

AMR Corp. Chief Executive Officer Tom Horton

AMR Corp. Chief Executive Officer Tom Horton said, “The company is going to have industry-leading margins, and that will be attractive to a lot of folks.” Photographer: Scott Eells/Bloomberg

American Airlines parent AMR Corp. is open to the possibility of helping pay for its bankruptcy exit with private equity or other outside funding, Chief Executive Officer Tom Horton said.

AMR is close to completing its reorganization plan and its evaluation of whether to stay independent or merge with US Airways (LCC:US) Corp., Horton said yesterday in an interview. He said he hasn’t concluded that a stand-alone strategy is the best for American, the third-largest U.S. airline.

Financing, leadership and choosing from options including a merger and a go-it-alone approach are among the unresolved questions facing Fort Worth, Texas-based AMR. An ad hoc bondholder group with more than $1.94 billion in AMR debt has told American’s pilots that its support for a stand-alone airline would be conditioned on the naming of a new board.

“The capital structure (AAMRQ:US) of the new American has yet to be determined,” along with whether it will need a private-equity partner, Horton said. “The company is going to have industry- leading margins, and that will be attractive to a lot of folks.”

Horton said he expects AMR to exit Chapter 11 soon, without providing a time frame. AMR has maintained the more than $4 billion in cash and short-term investments (AAMRQ:US) it had when it filed for bankruptcy on Nov. 29, 2011.

Bond Rally

Investor optimism about a merger has helped fuel a rally in AMR debt. The $460 million of 6.25 percent convertible notes due October 2014 rose 1.5 percent yesterday to 80.19 cents on the dollar, the highest price this year, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes traded at 17.75 cents after AMR’s filing.

A combination of American and Tempe, Arizona-based US Airways, the fifth-largest U.S. airline, would surpass United Continental Holdings Inc. to become the world’s biggest airline based on passenger traffic.

US Airways began pursuing a merger in January, and in November laid out its plan to AMR’s unsecured creditors committee in the bankruptcy. That group reached an accord with AMR in May in which the airline company agreed to study options that would include a merger as well as staying independent.

“We have been very carefully evaluating a potential combination,” said Horton, 51, who succeeded Gerard Arpey as CEO when AMR entered court protection. “We are very confident the new American is going to be strong. We’re looking carefully at whether a combination now or on the other side could create value for our owners.”

Board Mix

No decisions have been made yet on a new board (AAMRQ:US) for AMR, said Horton, who declined to comment on whether any steps had been taken to recruit directors.

“There will come a moment when the governance of the new company is discussed,” he said. The directors probably would be a mix of holdovers and new members, as is “customary in a restructuring.”

That topic was broached last month in a letter to American’s pilot union by the ad hoc bondholder group, which had among its members JPMorgan Chase & Co. and Pentwater Capital Management LP, according to a September court filing. AMR said in August that the group, later joined by Goldman Sachs Group Inc. and Barclays Plc, was interested in providing funding for a restructuring.

Pilot Talks

Ratification of a new contract by the Allied Pilots Association on Dec. 7 allows AMR to complete $1.06 billion in labor-cost reductions that are central to its restructuring plan. Creditors now can compare the stand-alone business plan with the proposed US Airways combination.

The union’s board voted yesterday to accept an invitation from the creditors committee to join talks on the restructuring and possible merger under an agreement not to discuss the negotiations publicly, according to the APA’s website.

“This is another important positive step toward realizing our end goal of building a stronger American Airlines network by merging with US Airways within bankruptcy, with the right management team leading it,” said Dennis Tajer, a union spokesman.

The US Airline Pilots Association, representing US Airways pilots, also “has entered into discussions about a potential merger” between the carriers, President Gary Hummel told members in an e-mail yesterday.

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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