AMR Likely to Consider Merger in Bankruptcy, Adviser Says

American Airlines, as part of its bankruptcy reorganization, will probably consider a merger as it seeks to get the best deal for stakeholders, an investment banker for the airline said in court.

David Resnick, chairman of global financing advisory at Rothschild Inc., was asked yesterday at a court hearing whether a merger would be considered before exiting bankruptcy. He said it’s likely because American is obliged to get the highest value for stakeholders.

“Stakeholders would want to ensure they are getting the highest possible value so they would want the debtor to look at alternatives to a stand-alone plan,” he said during testimony in U.S. Bankruptcy Court in Manhattan.

Resnick’s comments come as US Airways Group Inc. seeks to build support for a possible takeover of American parent AMR Corp. Tempe, Arizona-based US Airways is targeting AMR’s unsecured creditors committee after winning the backing of the carrier’s biggest unions.

US Airways Chief Executive Officer Doug Parker said yesterday on a conference call with analysts and investors that agreements with the labor groups were a “big step” as the company progresses from the unions to the creditor panel and eventually to AMR’s board.

Labor Contracts

Resnick was testifying as part of American’s effort to win court approval to void labor contracts with unions. The Fort Worth, Texas-based airline is seeking to cut $1.25 billion in annual labor costs in its restructuring. Jeffrey Brundage, senior vice president of human resources at the company, is scheduled to testify today.

When the hearing on the union contracts began April 23, AMR Chief Executive Officer Tom Horton said in a letter to employees that any decision to pursue a merger is “the charge” of the board of directors and the company’s leadership “in close collaboration with the creditors committee.”

“Everyone should understand 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,” Horton wrote. “And this includes whether American will choose to pursue any combination down the road.”

Resnick testified yesterday about a presentation to the creditor’s committee that discussed consolidation opportunities.

‘Our Focus’

During his testimony, when asked when AMR should consider strategic alternatives, Resnick said the airline should develop a stand-alone plan and use it as a basis for comparing alternatives such as a merger. A stand-alone reorganization would pay unsecured creditors with equity in the reorganized company, he said.

“Our focus to date has been on the stand-alone plan,” he said.

Alexander Dichter, an AMR adviser who works at consulting firm McKinsey & Co., also argued in favor of first developing a business plan during his testimony today. The power a company brings to merger negotiations is linked to its business plan, he said.

“We believe strongly it is very important to have a viable stand-alone plan before you consider such alternatives, not just on paper but in actuality,” Dichter said.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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