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AMR unions signal support for US Airways merger

by Lou Whiteman | Published April 20, 2012 at 4:10 PM

US Airways Group Inc. on Friday cleared a significant hurdle in its potential bid for the parent of American Airlines Inc. as union leaders at American signaled their support for the combination.

Tempe, Ariz.-based US Airways has made no secret of its interest in buying AMR Corp. out of bankruptcy, announcing in January that it retained Barclays Capital, Millstein & Co. LLC and Latham & Watkins LLP to help monitor the Fort Worth-based company's restructuring. The airline has been meeting with AMR creditors and union leaders to discuss a potential merger, pledging more than $1.5 billion in added revenue and cost savings as a result of a deal.

The union support is a coup for US Airways, which according to sources could formally announce a bid for AMR in the next few weeks. It is also a blow to AMR management's stated desire to emerge from bankruptcy as an independent and then consider consolidation options.

In a statement Friday the Transport Workers Union, the Association of Professional Flight Attendants and the Allied Pilots Association, who together represent more than 50,000 American employees, said they have reached agreements on term sheets that would govern American employees in the event of a merger, throwing significant weight behind the potential deal.

"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 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." The unions said US Airways believes it can save at least 6,200 of 13,000 jobs that AMR expects to cut as part of its stand-alone plan. The buyer would keep the American Airlines name, the unions said, and move its headquarters to Fort Worth.

Labor has traditionally been leery of consolidation, and indeed resistance from pilots helped scuttle a similar attempt by US Airways to buy Delta Air Lines Inc. out of bankruptcy.

US Airways offered no formal statement on the union announcement, but CEO Doug Parker in a letter to employees said that while there is no merger deal in place the labor agreement "is obviously an important first step along that path."

The executive confirmed US Airways intends to push forward towards a deal.

"After studying American Airlines' current state and their future plans, we have concluded that a merger with American, while they are undergoing their bankruptcy restructuring, represents a unique opportunity that we should not ignore," Parker wrote. "These beliefs are shared by the three American labor unions, and we are delighted to have their support. Like us, they recognize the potential of a merger to improve the current and future careers of both airlines' employees."

US Airways is still trying to resolve labor integration issues stemming from its 2005 merger with America West Holdings Corp., though labor sources said Friday that at least some factions of US Air unions are supportive of the company's consolidation efforts.

Still, a deal is far from certain. Many in the industry suspect the unions expressed public openness to a deal as a way to extract leverage from AMR. And US Airways would still have to convince other creditors who might be willing to take less recovery from American instead of risking a prolonged bankruptcy stay as US Airways and American try to win antitrust approval for a deal.

The unions addressed that potential delay in their statement, noting that because they have agreements with US Airways, a merger would allow the airlines to avoid "a lengthy and contentious" process of voiding labor agreements via the courts.

It remains possible that AMR management will reach out to a white knight. Delta has also been monitoring the reorganization, though analysts have questioned whether antitrust regulators would allow the combination of the nation's second and third largest carriers. A private equity firm such as veteran airline investor TPG could also become involved.

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AMR unions signal support for US Airways merger

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