AMR Corp. (AAMRQ) Chief Executive Officer Tom Horton asked an ad hoc bondholder group to study his plan for a stand-alone American Airlines before reviewing a possible merger for the bankrupt carrier, two people familiar with the matter said.
The group, which holds about $700 million in AMR debt, supports that sequence for its review, said the people, who asked not to be identified because the meeting was private. Horton expressed frustration with attention being given to a pending US Airways Group Inc. (LCC) merger bid, the people said.
The process discussed at the June 13 session in New York is the one being followed in AMR’s bankruptcy, with the company agreeing to consider options after detailing its own strategy to stay independent. The ad hoc group organized outside of U.S. Bankruptcy Court and isn’t obliged to follow the same steps.
Horton’s meeting was his first with the bondholders, who formed two such groups in an effort to gain leverage and reap the largest return. Chief Restructuring Officer Beverly Goulet told bondholders about two weeks ago that AMR will win more union concessions than US Airways, and that it should be allowed to negotiate a merger after leaving Chapter 11, the people said.
As part of his presentation, Horton cited evidence that he said showed Fort Worth, Texas-based American’s stand-alone plan is working, including an industry-leading improvement in a benchmark revenue measure last month, according to the people.
Shares of US Airways led declines in the Bloomberg U.S. Airlines Index today after Horton’s comments were reported. The Tempe, Arizona-based company dropped 3.6 percent to $12.03 at the close in New York. AMR fell 1.1 percent to 46 cents.
US Airways CEO Doug Parker told shareholders at the carrier’s annual meeting yesterday in New York that the Tempe, Arizona-based airline was making “great progress” toward a merger. Restructuring in bankruptcy won’t be enough to fix American’s weaknesses, he said.
“We are completely confident in the strength of our plan for success,” American said in a statement in response.
The bondholder group holding $700 million of debt includes hedge fund Appaloosa Management LP, and has hired law firm White & Case LLP and financial adviser Houlihan Lokey, people familiar with the matter have said. An e-mailed request for comment to White & Case wasn’t returned yesterday.
The other includes Oppenheimer Funds Inc., the largest holder of AMR’s municipal debt, and has retained law firm Kramer Levin Naftalis & Frankel LLP and financial adviser Seabury Group LLC, the people said.
The bondholder groups won’t meet with US Airways until after a judge decides whether American can reject existing union contracts and negotiate new terms that will help cut annual labor costs by $1.25 billion, people familiar with their strategy have said. AMR filed for bankruptcy on Nov. 29.
US Airways has told bondholders it would provide greater returns from its labor accords with American’s unions, flexibility with plane leases, and a projected $1.2 billion in annual savings and new revenue in a merger.