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AMR opens door to merger option

by Lou Whiteman | Published May 14, 2012 at 9:24 AM

The parent of American Airlines Inc. said late Friday, May 11, it would consider merger options in addition to a standalone reorganization, bowing to pressure from creditors and labor groups that have been pushing the airline toward the altar.

Fort Worth-based AMR Corp. announced that it has an agreement with its unsecured creditors committee to collaborate on consolidation scenarios. The airline, which filed for Chapter 11 protection last November, said the agreement "is not an indication that the company intends to pursue a transaction of any kind."

Beverly K. Goulet, AMR's chief restructuring officer, in a statement said the agreement's purpose is "to reinforce and assure what we have stated before: what's best for our company, our people and our financial stakeholders will be determined by the facts in a disciplined manner and process."

But the agreement does represent a softened stance for AMR, which has remained committed to completing its reorganization as an independent company before considering dealmaking. That strategy was dented last month when unions representing more than 50,000 American employees reached agreements on term sheets that would govern a merger with US Airways Group Inc., which has been actively lobbying creditors and other constituents for a deal.

Labor groups hold three of nine seats on the AMR unsecured creditors' committee, and according to sources US Airways has made progress toward convincing other members of the committee that a deal would be beneficial.

Skadden, Arps, Slate, Meagher & Flom LLP's Jack Butler, lead counsel for the committee, in a statement said the group "believes that its consideration of all reasonable and viable strategic alternatives is a core responsibility under its statutory mandate," but added that it supports AMR's "business judgment in pursuing a robust, standalone business plan on a path that could lead to an early emergence and against which strategic alternatives can be vetted before any reorganization plan is formulated or prosecuted."

Tempe, Ariz.-based US Airways in a statement late Friday said "we are very pleased" that AMR's management and board will explore consolidation. "As previously stated, US Airways has concluded that a combination is in the best interests of employees, customers and the communities of both companies, as well as AMR's creditors and US Airways' investors," the airline said. "We look forward to engaging in the AMR process to demonstrate the significant advantages of our plan to maximize value for all constituents."

One industry watcher said that while it still appears AMR would prefer to engage in dealmaking post-restructuring, where management believes that due to its larger size it would have more negotiating leverage relative to US Airways, the agreement "buys necessary time." Some AMR creditors remain concerned that a deal in bankruptcy would be risky since it could lengthen the airline's layover in Chapter 11 while it awaits regulatory approval to merge, and this agreement "proves AMR is not unreasonable and gives them more credibility when arguing their case."

AMR's move could also invite other suitors into the process. Delta Air Lines Inc., like US Airways, has hired advisers to monitor the process, but the larger Delta would likely have a more difficult time securing antitrust approval for a deal. Private equity groups including TPG Capital are also reportedly watching the reorganization and could emerge as a white knight to assist AMR in emerging as an independent.

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