US Airways Group Inc. (LCC:US) is reaching out to AMR Corp. (AAMRQ:US)’s unsecured bondholders to widen support for a possible takeover bid for bankrupt American Airlines, two people familiar with the matter said.
While formal meetings haven’t been held, US Airways has begun talks with the bondholders to convince them that their financial recovery would be greater under a merged company than if AMR exits bankruptcy independently, said the people, who declined to be identified because details aren’t public.
US Airways won backing for a merger last week from American’s three major unions, which serve on AMR’s unsecured creditors committee. Support from two more members would give US Airways a majority of the nine-seat panel. Tempe, Arizona-based US Airways hasn’t made a bid for AMR.
“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 today in an interview. “They’re certainly being very strategic and creative about how they’re going about it.”
Conversations between US Airways and bondholders began as early as April 19, a day before the Tempe, Arizona-based airline announced accords with American’s unions, one of the people said. The bondholders are represented on the creditor group by Wilmington Trust, Manufacturers & Traders Trust Co. and Bank of New York Mellon Corp. (BK:US) AMR filed for bankruptcy on Nov. 29.
Bigger Recovery Promised
US Airways told the bondholders they would recoup more under its merger plan for Fort Worth, Texas-based AMR through cost savings and increased revenue, one of the people said. The investors’ holdings include corporate and municipal bonds, the person said.
A merger would blend American, the third-largest U.S. airline, with No. 5 US Airways. The combined carrier would retain the American name and the bigger airline’s headquarters, some unions told members last week, citing terms from US Airways.
US Airways fell 0.8 percent to $9.24 at 12:30 p.m. in New York as most U.S. airline stocks declined. The shares gained 84 percent this year through yesterday, the biggest advance among 11 carriers in the Bloomberg U.S. Airlines Index. (BUSAIRL)
Jack Butler, a lawyer for AMR’s creditors committee, said yesterday in U.S. Bankruptcy Court in Manhattan that the group backs the company’s bid to cancel union contracts. He also said the panel supports AMR’s goal of crafting a stand-alone business plan, against which “strategic alternatives” can be vetted.
A spokesman for US Airways, Todd Lehmacher, said the company had no comment about any contacts with bondholders.
Kent Wissinger, a Manufacturers & Traders Trust spokesman, said he couldn’t comment because of “the nature of our representation” as trustee. Spokesmen for Bank of New York Mellon and M&T Bank Corp. (MTB:US)’s Wilmington Trust didn’t immediately return calls seeking comment.
Andy Backover, an American spokesman, declined to comment beyond referring to remarks by Chief Executive Officer Tom Horton in an April 23 letter to employees in which he said the pursuit of any future combination would involve AMR’s board and executives in collaboration with the creditors committee.
AMR is asking U.S. Bankruptcy Judge Sean Lane this week for permission to void union contracts and impose new terms to cut labor costs by $1.25 billion a year. The company has said it needs the concessions as part of steps to pare $2 billion in annual spending and reorganize successfully.
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.
US Airways’ offers to American’s unions were based on the need to make labor costs competitive with others in the industry, one person familiar with the matter said. That would be an $800 million reduction from current spending, based on American’s initial estimates of its labor costs versus rivals’.
The proposed labor terms, conditioned on a merger occurring, provided no-furlough guarantees to pilots and flight attendants, wage increases and 6,200 fewer job cuts than the 13,000 in American’s plan, according to documents the unions provided their members.
Most pensions would be frozen and replaced with 401(k) retirement plans, and some work rules would change.
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