US Airways Sets Terms With AMR Unions for Possible Merger

April 20 (Bloomberg) -- Bloomberg's Betty Liu and Dominic Chu report that US Airways Group Inc. said it reached agreements for collective bargaining pacts that would govern the American Airlines employees represented by the Transport Workers Union, Association of Professional Flight Attendants and Allied Pilots Association. They speak on Bloomberg Television's "In The Loop." (Source: Bloomberg)

US Airways Group Inc. (LCC) moved closer to making a takeover offer for AMR Corp. (AAMRQ)’s American Airlines in bankruptcy by reaching agreements on contract terms with the carrier’s major unions.

No bid has been made, US Airways said today in a regulatory filing that didn’t detail how it would proceed on a tie-up with the third-largest U.S. airline. Tempe, Arizona-based US Airways said the labor accords are contingent on a deal with AMR.

The agreements widen the rift between American and the unions fighting its proposal for 13,000 job cuts. The labor groups, which hold seats on AMR’s unsecured creditors committee, are endorsing a suitor that hasn’t publicly outlined how a merger would work even as American seeks to stay independent.

“It’s completely poisoned any type of attempt to move forward,” said Jay Sorensen, president of consultant IdeaWorks in Shorewood, Wisconsin. “I don’t know what American does now. As a union, they are supposed to be negotiating in good faith with the airline, and while they’re doing that, they’ve already struck a deal with a third party.”

While AMR holds the sole right to file a reorganization plan through Sept. 28, the creditors committee can ask the U.S. Bankruptcy Court to end that privilege if the panel concludes there is viable alternative. The panel should study AMR’s plan, and then any US Airways offer, said Jeff Kauffman, a Sterne Agee & Leach Inc. analyst in New York, said in an interview.

Photographer: Andrew Harrer/Bloomberg

US Airways Group Inc. planes at Ronald Reagan National Airport. Close

US Airways Group Inc. planes at Ronald Reagan National Airport.

Close
Open
Photographer: Andrew Harrer/Bloomberg

US Airways Group Inc. planes at Ronald Reagan National Airport.

‘Defensive Move’

“It’s a defensive move by the unions, and it’s an offensive move by US Airways to force their way to the table,” said Kauffman, who has a neutral rating on US Airways. He said the labor deals raise conflict-of-interest questions because the unions sit on the nine-member creditor committee.

AMR Chief Executive Officer Tom Horton is seeking $1.25 billion in annual labor savings as he works to end four straight years of losses. The company will argue before Bankruptcy Judge Sean Lane in New York on April 23 for approval to void contracts with the Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union.

Union support for US Airways doesn’t “in any way alter” AMR’s goal of restructuring in bankruptcy, Bruce Hicks, a spokesman, said in an e-mailed statement. The company is making “substantial progress,” Hicks said.

Elise Eberwein, a US Airways spokeswoman, said the company wouldn’t comment beyond its regulatory filing.

Shares Retreat

US Airways fell 1.8 percent to $9.34 at 4:01 p.m. in New York. The shares surged 16 percent yesterday after people familiar with the matter said that American’s major unions agreed to support a takeover offer, fueling speculation that a bid might come today after months of buildup.

US Airways may be “no more than” six weeks away from filing its own reorganization plan for AMR, Hunter Keay, a New York-based analyst for Wolfe Trahan & Co., said in a report. The union deals show some support on the creditors committee to end AMR’s exclusivity “in the very near term,” he said.

CEO Doug Parker said US Airways’ merger plan would preserve 6,200 jobs that American plans to cut.

“Combining American Airlines and US Airways would create a pre-eminent airline with the enhanced scale and breadth required to compete more effectively and profitably,” Parker said in a letter to employees.

A merged airline would be the largest in the world by passenger traffic, surpassing United Continental Holdings Inc. (UAL) American is the third-biggest in the U.S., while US Airways is No. 5. The company would keep the American name and Dallas-Fort Worth headquarters, according to terms from US Airways in documents provided to the unions.

‘Far Brighter’

“Our airline’s future is far brighter with this transaction and the US Airways team,” the Association of Professional Flight Attendants said today in a statement e- mailed to members.

US Airways’ filing didn’t spell out terms reached with the three unions, which represent about 48,000 active employees at American and have been at odds with management since before AMR’s Nov. 29 bankruptcy filing.

According to union documents sent to flight attendants, members wouldn’t face furloughs under a US Airways takeover, while their pension plan would be frozen and replaced with 401(k) retirement accounts. The Allied Pilots Association said the combined company would stay in the Oneworld airline alliance and complete pending jet orders with Boeing Co. (BA) and Airbus SAS.

Pilots’ View

Pilot leaders achieved more in a week of bargaining with US Airways than in negotiations with American dating to 2006, and proposed contract language will be completed and sent to union members for a vote, APA President David Bates said.

The union “does not believe that AMR’s business plan will produce an airline that is viable long term,” Bates told members in a letter. “Based on management’s actions to date, their vision -- quite simply -- consists of rejecting our contract entirely.”

Officers from the APA and the US Airline Pilots Association will meet next week to discuss a potential combination, the union for US Airways pilots said.

Support of a possible US Airways merger is one part of the TWU’s strategy to gain the best outcome for members, International President Jim Little said in a letter to the union. The TWU, American’s largest union, has continued talks to reach a consensual agreement on a new contract even as it lends support to a possible US Airways bid.

‘Nothing Is Certain’

“How this plays out remains to be seen,” Little said. “Nothing is certain in bankruptcy.”

An American-US Airways combination would face labor challenges of its own.

US Airways’ pilots have yet to move onto a single contract because of a legal dispute over meshing the seniority lists of the old US Airways and America West Holdings Corp. (1407), more than six years after they combined. Flight attendants rejected a proposed five-year contract last month that would have put those work groups under one agreement.

Parker disclosed in January that US Airways had hired advisers to study a combination with AMR, and executives later began meeting with American’s unions, people familiar with the talks have said. The CEO said last month that US Airways learned the value of courting constituencies at a merger target after its hostile bid for Delta Air Lines Inc. (DAL) failed in 2007.

American, dethroned as the world’s largest airline last decade after it sat out a round of industry consolidation, immediately drew interest as AMR sought court protection.

Delta and private-equity group TPG Capital also have evaluated possible bids for American, people familiar with the matter have said. According to the documents sent to flight attendants, Atlanta-based Delta never reached out to the union to explore a bid for American.

The current US Airways was created in 2005 when Parker, then CEO of America West, orchestrated a merger to bring the old US Airways out of bankruptcy. He later failed in the Delta bid and in two attempts to merge with United Airlines parent UAL Corp. Delta acquired Northwest Airlines Corp. in 2008, and UAL combined with Continental Airlines Inc. in 2010.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.