American Airlines unions throw support to US Airways takeover bid

By Andrea Ahles McClatchy Newspapers

FORT WORTH, Texas — American Airlines’ three largest unions announced Friday that they will support a potential takeover bid by US Airways Group Inc., posing another challenge for the Fort Worth-based airline as it tries to restructure in bankruptcy court.

The Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union said they have also reached agreements on term sheets for collective bargaining agreements that would govern American employees in the event of a merger with the Arizona-based carrier.

The merged carrier would be called American Airlines and headquartered in Fort Worth at the Centreport complex where AMR Corp., American’s parent company, currently has its main offices, the Allied Pilots Association said.

“As envisioned, a merger of US Airways and American Airlines provides the best path for all constituencies, including employees of both American Airlines and US Airways,” the three unions said in a joint statement. “The contemplated merger would be based on growth, preserve at least 6,200 American Airlines jobs that would be furloughed under the company’s standalone strategy, and provide employees of both American and US Airways with competitive, industry-standard compensation and benefits.

“Over the long term, the combined new airline would support greater job security and advancement opportunities for both American Airlines’ and US Airways’ employees that are far superior to those available to employees at either airline on a stand-alone basis.”

In a letter sent to employees Friday, Doug Parker, chief executive at US Airways, called the agreement with the American unions “an important first step” towards a merger.

“Combining American Airlines and US Airways would create a pre-eminent airline with the enhanced scale and breadth required to compete more effectively and profitably,” he said.

“Our intention would be to put our two complementary networks together, maintaining both airlines’ existing hubs and aircraft, and create an airline that could compete successfully with United, Delta and other carriers within our industry.”

The news comes before the start of a Section 1113 hearing Monday in U.S. Bankruptcy Court in New York, where the company’s attorneys will try to persuade a judge to terminate the union contracts.

The unions have been in talks since February with American executives about $1.25 billion in proposed employee-related cuts, which include more than 14,000 layoffs, mostly of union members.

The airline maintains that the cost-cutting is necessary to fix its finances and allow it to compete with lower-cost competitors.

American spokesman Bruce Hicks said the agreement between the union and US Airways is “no coincidence given the timing of the 1113 process.”

“These statements do not in any way alter the company’s commitment to pursue our business plan or our focus on moving steadily through the court supervised restructuring process to create a profitable, growing industry leader,” Hicks said.

On Thursday, Fort Worth-based American reported a $1.7 billion first-quarter loss, mainly from restructuring costs related to bankruptcy. Excluding the one-time write-offs, the airline said it had a net loss of less than $300 million, smaller than the $436 million loss in the first quarter of 2011.

In a letter to employees discussing the first-quarter report, CEO Tom Horton addressed takeover rumors that have swirled around Wall Street and in the news media in recent weeks.

Without specifically naming US Airways, Delta Air Lines or private-equity firm TPG — all of which have been named as possible bidders for AMR — Horton said he believes that the best outcome for American is to restructure quickly and on its own.

“As you know, there continues to be much takeover speculation in the press fueled by those who seek to serve their own agendas, including the circulation of misleading information. I expect this to continue and to escalate,” Horton said. “Naturally, there are many who do not want American to succeed. Surprisingly, our competitors have even been encouraged by a few within our own ranks.”

The transport workers and flight attendants unions plan to protest Monday on the steps of the New York courthouse where American will be making its arguments.

From the day AMR filed for bankruptcy in November, Wall Street analysts have speculated that US Airways would be interested in merging with a restructured American.

“Although we put a high probability that an eventual merger will happen, we believe that this could be aggressive timing since AMR management has the exclusive right to reorganize through the summer,” Maxim Group analyst Ray Neidl wrote in a research note published Thursday.

“However, US Airways’ stock price is up in a mixed airline market, and we attribute this to the possibility of a bid.”

A US Airways bid cannot be presented in court until September at the earliest. Until the end of September, American management has the exclusive right to submit a reorganization plan to the Bankruptcy Court.

And the judge could extend that exclusivity period for eight more months.

US Airways is the fifth-largest domestic airline and is scheduled to report its first-quarter earnings Tuesday.

The airline, which merged with America West in 2005, has attempted other mergers and made a bid for Delta Air Lines when it was in bankruptcy in 2006.

The airline said its first-quarter results included $1.4 billion in reorganization items, including $1 billion related to aircraft-financing renegotiations and rejections. Also included in the reorganization items were $340 million attributed to American’s motion to reject its facility agreements for special revenue bonds at Dallas/Fort Worth Airport and Fort Worth’s Alliance Airport and $45 million for professional consultant fees.

Revenue grew 9.1 percent to $6 billion amid “significant demand and a positive pricing environment,” American said.

American said it paid about $3.24 per gallon of jet fuel, up 17 percent from $2.76 per gallon in the same quarter last year. It said it paid $325 million more for fuel in the first quarter of 2012.

The airline ended the quarter with $5.6 billion in cash and short-term investments. AMR has improved its cash position since it filed for bankruptcy, when it reported $4.8 billion in cash and short-term investments on its balance sheet.

As reports of the unions’ support for a takeover emerged on Capitol Hill, lawmakers from Texas called on all parties to stand down and let the bankruptcy process go forward.

“The American Airlines family has my complete support in its quest to remain an independent Texas-based company,” said U.S. Rep. Joe Barton, R-Texas. “I am strongly opposed to any hostile takeover, and rumors to that effect only hurt AMR and its employees as they try to maneuver through the legal process. Any talks of mergers or acquisitions should wait until court proceedings are complete.”

Fort Worth Mayor Betsy Price said, “American Airlines is in the midst of a very delicate bankruptcy, and it’s crucial that this process is allowed to continue in a timely manner without unnecessary distractions from those who want to talk of mergers or takeovers.”

Last weekend, the three union presidents issued a joint statement telling politicians to keep an open mind to possible industry consolidation after U.S. Sen. Kay Bailey Hutchison, R-Texas, said she was concerned about takeover rumors disrupting American’s bankruptcy.

“We respectfully request that all stakeholders of American Airlines — including lawmakers and everyone else with a vested interest in the outcome of the restructuring — withhold judgment about any industry consolidation that could involve our airline until all of the facts become known,” the union presidents said.

Separately, the National Mediation Board ruled that a union representation election should be held for American’s agents and representatives to decide whether they want to become members of the Communications Workers of America. American’s airport agents and customer service representatives were informed Wednesday that American plans 1,200 layoffs in their work group and changes to their pay and work rules.

“The NMB did not give a specific date for the election,” American spokeswoman Missy Cousino said. “The company maintains its original position that the union did not demonstrate sufficient interest from the employees to qualify for an election.

“American is reviewing the NMB’s ruling and will continue to review its options as we await additional information from the NMB.”


(McClatchy Newspapers correspondent Maria Recio contributed to this report from Washington.)


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