American Airlines parent AMR Corp. will explore strategic options that include a possible sale under an agreement with the unsecured creditors committee in its bankruptcy case, people familiar with the matter said.
The panel pressed for such an accord so AMR’s review of its options would include studying a merger with US Airways Group Inc., which is considering whether to mount a takeover bid, said one of the people, who asked not to be identified because the discussions are private.
The process would begin this summer, before the September expiration of AMR’s exclusive right to propose a reorganization plan, the people said. Fort Worth, Texas-based AMR said the accord calls for assessing “potential consolidation scenarios” without committing to pursuing a deal.
Exploring options now marks a shift from Chief Executive Officer Tom Horton’s stated goal of having AMR exit Chapter 11 before considering a merger. That approach has been under pressure after US Airways hired advisers, won backing for a tie-up from American’s unions and began courting creditors.
The “joint exploration protocol agreement” between AMR and the nine-member creditors group will assess “strategic alternatives against which the company’s stand-alone business plan will be vetted,” Jack Butler, the panel’s attorney, said in a statement.
AMR Chief Restructuring Officer Beverly Goulet said in a statement that the committee accord reinforced Horton’s previous assurances that “what’s best for our company, our people and our financial stakeholders will be determined by the facts in a disciplined manner and process. This includes whether American will choose to pursue any combination down the road.”
US Airways rose 3.6 percent to $11.32 yesterday in New York, the highest closing price since January 2011. Shares of the Tempe, Arizona-based carrier have more than doubled this year to lead gains in the U.S. industry.
“A deal with US Airways is what makes the most sense for creditors, which is their fiduciary responsibility,” Hunter Keay, a Wolfe Trahan & Co. analyst in New York, said in a telephone interview. “It’s always struck me as odd that AMR was completely unwilling to listen to US Airways because the offer is probably compelling and US Airways is a motivated buyer.”
Neither the creditors’ statement nor the announcement from American referred to US Airways.
US Airways Statement
“We look forward to engaging in the AMR process to demonstrate the significant advantages of our plan to maximize value for all constituents,” US Airways said in an e-mailed statement.
US Airways has held preliminary talks regarding AMR with International Consolidated Airlines Group SA (IAG), the parent of American alliance partner British Airways, according to a person familiar with those discussions.
American and British Airways belong to the Oneworld group, while US Airways is part of the Star Alliance, whose dominant U.S. carrier is United Airlines. (UAL) John McDonald, a US Airways spokesman, declined to comment.
“AA is a strong partner to IAG,” Michele Kropf, a British Airways spokeswoman, said by e-mail, using the industry shorthand for American and its London-based counterpart. “We continue to work with AA as they complete their restructuring process.”
A combination of American, the third-biggest U.S. carrier, and No. 5 US Airways would surpass United parent United Continental Holdings Inc. as the world’s largest airline based on passenger traffic.
AMR filed for bankruptcy protection on Nov. 29 as it headed toward a fourth consecutive annual loss. US Airways has proposed cutting $800 million a year from labor costs to bring spending in line with industry standards, compared with a $1.25 billion annual reduction planned by American.
After signing contracts with American’s unions that would be contingent on a merger, US Airways has been working to build support among AMR bondholders, saying a combined carrier would produce a greater return.
AMR’s $460 million of 6.25 percent notes due October 2014 have almost tripled in price since the company’s bankruptcy filing, trading at 52 cents on the dollar on May 10, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
US Airways CEO Doug Parker has cited lessons learned from his failed bid for Delta Air Lines Inc. (DAL), which was rebuffed by that carrier’s bankruptcy creditors committee in 2007. US Airways also failed in attempts to combine with UAL Corp., the former parent of United Airlines, in 2008 and 2010.
Strained Labor Ties
In reaching out to American’s labor groups, Parker is taking advantage of years of strained relations at the larger carrier, exacerbated most recently by CEO Horton’s Feb. 1 cost-saving plan to cut 13,000 jobs.
The three biggest unions will begin arguments May 14 in U.S. Bankruptcy Court in New York against American’s attempt to void contracts and impose new terms. Voting will end the same day among employees represented by the Transport Workers Union on an agreement that would cut fewer jobs while still achieving a 20 percent reduction in labor spending among TWU work groups.
Pilots and flight attendants rallied yesterday in New York and at American’s headquarters to present no-confidence petitions. The airline said it trimmed flying by 1.5 percent in June, the start of the peak U.S. travel season, because pilot sick days and late-2011 retirements ran ahead of company forecasts.
“We have no confidence in the current management that got us in this mess to lead us out,” said Sam Mayer, a pilot union spokesman who attended the New York rally outside the bankruptcy court. “We believe the US Airways business plan represents our best chance to succeed both as a company and a pilot group.”