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AMR to Consider Mergers After Studying Financial Outlook

American Airlines is ready to consider mergers and other restructuring options after evaluating potential revenue and costs if it stays independent following bankruptcy, Chief Executive Officer Tom Horton said.

American, a unit of AMR Corp. (AAMRQ), will begin contacting “interested parties” soon to lay out its plans, Horton told employees in a letter yesterday, without being specific.

While US Airways Group Inc. (LCC) has said it wants to merge with American, Horton said the carrier outlined its preliminary view of “multiple” options at a meeting yesterday with its unsecured creditors committee. US Airways, JetBlue Airways Corp., Alaska Airlines, Frontier Airlines and Virgin America Inc. were discussed, said a person familiar with the situation who asked not to be named because the talks are private.

“It now makes sense to carefully evaluate a range of strategic options, including potential mergers, which could make the new American even stronger,” Horton said in the letter. The CEO disclosed that he approached executives of other airlines last year about the benefits of possible consolidation before opting to restructure independently.

“American management has one charge, and that is to keep its creditors happy,” said Hunter Keay, a Wolfe Trahan & Co. analyst in New York. “As long as they do that, they’re not going to have a problem as they try to work toward a stand-alone exit.”

Creditors Committee

US Airways climbed 1.5 percent to $14.12 at the close of trading in New York, the highest since February 2008. The shares have more than doubled this year amid speculation about a merger.

American in May reached an agreement with the nine-member creditors committee, which has a voice in major decisions during bankruptcy, to explore strategic options including a possible sale. Since then, the Fort Worth, Texas-based company had pushed for its full plan for remaining independent to be evaluated before alternatives are considered.

US Airways, which hasn’t made a formal bid, reached tentative contract agreements with American’s unions in April that are contingent upon a merger of the two carriers. The Tempe, Arizona-based airline has been courting support for a combination among American bondholders and other creditors.

The Wall Street Journal reported yesterday that American would begin sending nondisclosure agreements to potential partners as soon as this month.

US Airways

“We are pleased that AMR’s process to explore merger options is moving forward,” said John McDonald, a spokesman for US Airways. “All we have asked for is a fair and balanced opportunity to present our plan versus others, and we are hopeful this is the beginning of such a process.”

American last week asked U.S. Bankruptcy Judge Sean Lane to extend until the end of 2012 its exclusive right to propose a reorganization plan. American didn’t set a time frame yesterday for finishing the review of options or opening its books to potential partners.

AMR’s 6.25 percent bonds due October 2014 slipped 0.125 cents to 62.25 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

‘Important Milestone’

Agreeing to begin assessing alternatives now may have been an “act of good faith” in return for the creditors committee’s backing on the extension request, Keay said. The Wolfe Trahan analyst rates US Airways shares outperform.

“We’ve been consistent in public statements and internal comments that our path forward is organic growth,” Jenny Dervin, a JetBlue spokeswoman, said today in an interview. “There is no change to that path forward.”

Dervin declined to comment on speculation about American. Abby Lunardini, a Virgin America spokeswoman, also declined to comment.

Frontier parent Republic Airways Holdings Inc. (RJET) announced last November its intent to separate the Frontier and Republic businesses and “is working with Barclays Capital to identify potential transaction opportunities,” said Peter Kowalchuk, a Republic spokesman. He declined to comment specifically on a possible combination with AMR.

Alaska Airlines has said for years that its “preference is to remain a strong, vibrant, independent company,” said Bobbie Egan, an Alaska Air Group Inc. (ALK) spokeswoman. “Our current plan provides the best outcome for all of our stakeholders.”

JetBlue gained 2.3 percent to $5.74 at in New York, while Seattle-based Alaska climbed 2.5 percent to $36.60.

AMR’s improved operating and financial performance and progress toward cost-cutting agreements with its unions opened the door to considering other options, Horton said.

Pilots Union

The CEO’s letter to workers is “an important milestone,” the Allied Pilots Association said in a statement yesterday. “It’s an affirmation that consolidation represents the most promising path for our airline’s future.”

The biggest remaining questions center around who would manage “the new entity” and whether a merger occurs while AMR is still in restructuring, the APA said

If pilots approve a proposed offer that pares concessions sought by the carrier, the 13.5 percent equity stake the APA will get in the airline will give it “significant influence over strategic decisions that will be made in the weeks and months to come,” the APA said.

The result of the pilots’ vote will be announced on Aug. 8, according to the APA’s statement.

Five of seven groups represented by the Transport Workers Union have new contracts. Talks with two other TWU units resulted in a tentative accord yesterday, leaving the flight attendants as the only group not to have reached an agreement.

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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