AMR as ‘Last Plum’ Stirs Interest After Airline Ranks Cut

AMR Corp. (AAMRQ)’s reorganization in bankruptcy has made the American Airlines parent a possible acquisition target for US Airways Group Inc. (LCC) and buyout firm TPG Capital in what may be a final round of industry consolidation.

US Airways hired Millstein & Co. and Barclays Plc as advisers, a person familiar with the matter said today. TPG, led by David Bonderman, is in the early stages of an evaluation, and Delta Air Lines Inc. (DAL) is using Blackstone Group LP (BX) to study options for AMR, two other people said yesterday.

Mergers have thinned the ranks of major U.S. full-service airlines to four, counting AMR, from seven in 2005. American is now restructuring in Chapter 11 after sitting out those deals, posting annual losses since 2008 and falling to third place in the U.S. by traffic while rivals bulked up.

“It’s the last plum out there,” said Ray Neidl, a Maxim Group LLC analyst in New York. Neidl said he expected interest from TPG in tandem with US Airways, because “TPG knows airlines, and you’d really want an equity partner coming in there with you.”

TPG has reached no decision about whether to take a stake in AMR or buy the company outright, said one of the people, who like the others asked not to be identified because the discussions are private.

No Decisions

US Airways, the fifth-largest U.S. airline, and Delta, No. 2 in the world, also haven’t made any decisions, people familiar with the matter said. Barclays is US Airways’ affinity credit card provider, and Millstein & Co. is a turnaround firm founded by former U.S. Treasury Department Chief Restructuring Officer Jim Millstein.

Spokesmen for American, US Airways, Delta and Blackstone all declined to comment. AMR has exclusive rights for a minimum of 120 days to as long as 18 months to submit a plan of reorganization, keeping any unwelcome suitor at bay.

“It will be the middle of the year before we see anything definitive come out on these things,” said Robert Mann, a former American executive who is now president of aviation consultant R.W. Mann & Co. in Port Washington, New York.

Delta fell 0.2 percent to $8.85 at the close in New York trading, while Tempe, Arizona-based US Airways dropped 1.3 percent to $5.97.

Early Intervention?

Delta may be moving early in AMR’s bankruptcy to keep the carrier from developing broad support among the creditors committee for its own plan, Hunter Keay, a Wolfe Trahan & Co analyst, said in a report today. Delta was a year into its own bankruptcy when it fought off a hostile bid from US Airways, largely on opposition from Delta’s own creditors.

“We remain skeptical of the viability of AMR as a post- bankruptcy airline,” said Keay, setting the odds of AMR remaining independent at 20 percent, at most.

US Airways, created in a 2005 combination between its predecessor of the same name and America West Holdings Corp. (AWA), is the airline cited most often by analysts as a potential American partner. Chief Executive Officer Doug Parker said in April that he sees “one big deal left” in the domestic industry, and that US Airways would be involved.

Delta bought Northwest Airlines Corp. in 2008, a year after thwarting US Airways’ bid, and in 2010 former United Airlines (UAL) parent UAL Corp. merged with Continental Airlines Inc. to form United Continental Holdings Inc., the world’s largest carrier.

American’s Assets

American held the top spot by traffic before the Delta and United deals. Its assets include flight slots at London’s Heathrow Airport, Europe’s busiest, and the biggest operations in Latin America among U.S.-based airlines.

Delta may be interested only in pieces of AMR shed while in Chapter 11 protection, Mann said in an interview.

The larger airline also may be trying to disrupt AMR’s trek through bankruptcy and a possible combination with US Airways, said Jeff Straebler, an independent airline analyst based in Stamford, Connecticut.

“It’s a cynical ploy to disrupt others, to confuse the process and make it more difficult,” Straebler said in an interview. Delta butted heads with AMR in 2009 over an alliance with Japan Airlines Co. (9205) A combination of the two U.S. airlines probably couldn’t win regulatory approval because it would have too much control in the domestic market, Straebler said.

‘Usual Suspects’

TPG is “among the usual suspects” for possible airline investments, and may be assessing whether to get involved with AMR alone or with a partner, said Mann, the consultant.

The Fort Worth-based private-equity firm has had a close relationship in the past with US Airways, and Bonderman, 69, is now chairman of Ryanair Holdings Plc (RYA) after holding that post at Continental in the 1990s.

Formerly known as Texas Pacific Group, TPG bought Continental out of bankruptcy in 1993 and invested in Midwest Air Group Inc., America West, Tiger Airways Pte and Ryanair. The firm backed a failed takeover bid for Australia’s Qantas Airways Ltd. in 2007 and lost an attempt to acquire US Airways in 2002.

TPG worked with American in 2009 on an offer to pump $1.1 billion into Japan Airlines (9205) to help avert bankruptcy and keep Delta from luring the carrier out of the Oneworld alliance. While Japan Airlines eventually restructured in bankruptcy, it stayed in American-led Oneworld. The investment never occurred.

Lighthouse Holdings Inc., which is owned by investment funds affiliated with TPG and Pharos Capital Group LLC, bought 90 percent of AMR’s American Beacon Advisors Inc. in 2008. AMR sold Beacon, which manages $57 billion in assets, for $480 million.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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