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American Airlines attracts bid interest

by Lou Whiteman | Published January 13, 2012 at 8:56 AM

When Delta Air Lines Inc. was reorganizing under Chapter 11 protection in 2006, management came out strongly against an $8 billion bid by US Airways Group Inc. to buy the airline out of bankruptcy, calling a court-assisted merger overcomplicated and fraught with risk.

But the airline, now healthy, has seemingly softened its stance toward deals involving bankrupt assets. The company, according to reports, is one of a number of parties considering a potential bid for the parent of American Airlines Inc., which filed for court protection late last year.

A source familiar with Atlanta-based Delta's thinking described the deal talk as preliminary, and said the company would likely be more interested in acquiring assets from AMR Corp., like American's strong operations in Miami and Los Angeles or landing rights in Latin America, than taking on the antitrust risk of a full-fledged merger.

Fort Worth, Texas-based AMR is early in its reorganization, but has warned employees to expect takeover talk. CEO Tom Horton in a letter to employees last month said "there may be opportunists who wish to acquire our company" while it is in bankruptcy. The companies involved all declined comment.

Wall Street is also skeptical about a full-acquisition, with S&P Capital IQ equity analyst Jim Corridore in a note saying the combination would likely be too big, even with divestitures, to be approved -- and calling taking on AMR "a big management distraction" for Delta.

Labor approval of a deal would also be difficult. Three American Airlines unions have seats on the airline's unsecured creditors committee and would seemingly be unlikely to sign off on a merger that could lead to job losses.

But Delta's interest appears to be more than just a passing thought: The airline, according to the Wall Street Journal, has retained Blackstone Group LP to help it a assess a potential AMR bid. And one aviation source who asked not to be named argued that Delta could win regulatory backing for an AMR deal by pledging to divest all of American's assets at airports in New York and Washington, which government officials are eager to open up to discounters.

US Airways, the smallest of the remaining pre-deregulation carriers and led by a management team that has been outspoken advocates of consolidation, could also be interested in AMR. The company not only tried to buy Delta out of bankruptcy but also held talks with United Airlines Inc. parent UAL Corp. before that company merged with Continental Airlines Inc.

Though Tempe, Ariz.-based US Airways has made no indication it intends to bid on American, many expect the airline to at least attempt to partner with the company if not offer a buyout. US Airways is small enough that such a combination would have an easier time passing regulatory muster than a Delta/American tie-up.

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