AMR Executive Says Pilots Doubt Idea of US Airways Merger

Pilots at AMR Corp.’s American Airlines (AAMRQ) are questioning the ability of potential suitor US Airways Group Inc. (AMR) to orchestrate a successful merger, a senior executive said.

They “have very serious concerns” about the hostile bid they expect from US Airways, Vice President for Flight John Hale wrote in a memo yesterday to Chief Executive Officer Tom Horton and other leaders at the third-largest U.S. airline.

“I’m confident pilots will continue to be very skeptical about US Airways’ ability to integrate separate workforces or grow the combined company,” he wrote. “The phrase ‘all hat and no cattle’ comes to mind. There’s little indication from anyone I’ve spoken to that a takeover by US would produce greater opportunity for our pilots than American’s business plan.”

Hale’s comments are a departure for American, which has focused on its plan to exit bankruptcy as a stand-alone carrier and generally declined to discuss any interest from outside parties. Hale also carries the title of chief pilot, a management job at the Fort Worth, Texas-based airline.

The Allied Pilots Association, which represents about 8,400 active American pilots, called the memo “a bit of a publicity stunt.”

‘Very Solid’

“US Airways has run a very solid operation whose performance exceeds American Airlines’ no matter which metric you use -- on-time, customer complaints, canceled flights and lost bags,” Tom Hoban, a union spokesman, said today in an interview. “They’ve been consistently profitable in the last few years.”

Support among pilots for a takeover bid varies, largely because of concerns about how seniority would be affected when two pilot groups are mixed, Hoban said.

Bruce Hicks, an American spokesman, declined to elaborate on the memo.

While a US Airways spokesman, John McDonald, also declined to discuss the memo, the smaller airline’s interest in American is an open secret. It has confirmed hiring attorneys and investment bankers to study a merger, and has held talks on a takeover plan with some American creditors and their advisers, people with knowledge of the matter said on March 22.

US Airways may be handicapped in making or building support for a bid because pilot and flight attendant unions from its 2005 merger with America West Holdings Corp. (1407) continue working under separate contracts, said Aaron Gellman, professor of management and strategy at Northwestern University’s Kellogg School of Management in Evanston, Illinois.

“A lot of pilots at American would be somewhat less than enthusiastic about a US Airways takeover given their foibles with their own pilot unions,” he said in an interview today.

Lessons Learned

US Airways CEO Doug Parker said last month that he learned the value of courting stakeholders such as unions after his hostile bid for Delta Air Lines Inc. (DAL) collapsed in 2007 amid opposition from Delta’s pilots, the airline’s only major unionized work group.

Hale said American should expect continued comments from pilots “supportive of exploring a merger. There has been chatter among pilots that they will use US Air’s overtures in an attempt to exert bargaining leverage” during the legal process to reject union contracts.

American has asked the bankruptcy court for permission to void the agreements in favor of terms that would cut labor spending by $1.25 billion a year. The APA has a seat on the nine-member unsecured creditors committee, as do the unions representing flight attendants, mechanics and baggage handlers.

Exclusive Right

The airline now has the exclusive right to propose a bankruptcy-reorganization plan. Potential suitors can hold discussions with members of the creditors panel, who have a voice in major decisions made while American is in Chapter 11.

The current US Airways is the product of the 2005 merger of a predecessor company of the same name, which was then in bankruptcy, with America West Holdings. (AWA)

Pilots at Tempe, Arizona-based US Airways have been embroiled in a legal battle over merging their seniority lists, while flight attendants last month rejected a proposed single contract.

US Airways is the fifth-largest U.S. airline by passenger traffic. Horton said in a Feb. 3 interview that it was a “subscale” carrier and said American sees itself as a potential acquirer after leaving court protection.

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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