AMR Corp. (AAMRQ)’s American Airlines “is in a corner” and has to look to a merger with US Airways Group Inc. (LCC) to turn around the bankrupt airline, an expert for one of the unions fighting planned labor cuts testified.
American’s business plan isn’t viable, and a merger would create a network allowing it to compete better with larger rivals, Daniel Akins, an expert for the flight attendants union, said in U.S. Bankruptcy Court in Manhattan.
“It’s not an option. It’s not an alternative. It’s inevitable,” Akins said when asked about a possible merger with US Airways.
Akins, an airline industry economist, was testifying for the flight attendants as the union fights AMR’s effort to cut labor costs as part of its bankruptcy restructuring. The Fort Worth, Texas-based airline is seeking court approval to void contracts with unions representing pilots, flight attendants and mechanics.
Tempe, Arizona-based US Airways has reached contract agreements with the unions as it pursues a combination of the carriers. AMR and the committee representing the airline’s unsecured creditors have agreed to “jointly explore strategic alternatives,” the committee said in court papers.
The flight attendants union argues American hasn’t met its burden for rejecting the union contract by showing the proposed labor cuts are necessary for its bankruptcy reorganization. Its business plan is “a placeholder” that would be replaced by a merger later, the union said.
American’s business plan will ensure “lasting profitability” by achieving a $3 billion annual improvement in performance by 2017, spokesman Bruce Hicks said in a statement in response to Akins’ testimony.
“With revenue improvements and cost savings called for in the business plan, American will be able to take advantage of growth opportunities matching demand in our strongest performing hubs, focused on international markets,” he said.
Akins in a court filing said consolidation has hurt the competitiveness of AMR’s network and its ability to attract high-value customers. Consolidation is “the obvious and preferred path” for the company, he said in the filing.
“I’ve never seen a business plan that is this bad in terms of addressing the deficits that American faces,” Akins testified.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan)
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