US Airways Climbs as AMR Labor Woes Raise Odds of Merger

US Airways Group Inc. rose to the highest price since 2008 after pilots at bankrupt American Airlines rejected a final contract offer, a move that may boost odds of the two companies merging.

The rejection coupled with parent AMR Corp.’s failure to secure contracts with flight attendants and mechanics may delay its exit from bankruptcy by as much as a year, Dan McKenzie, a Rodman & Renshaw analyst, said in a report today. Creditors may then push the U.S. Bankruptcy Court to end the period in which AMR has the sole right to propose a restructuring plan, he said.

“Time matters and bondholders may not want to wait around,” wrote McKenzie, who rates US Airways as market outperform. “Chapter 11 is expensive and a deal with US Airways could accelerate claims recovery and, separately, result in a more stable business model.”

US Airways, based in Tempe, Arizona, climbed 3.4 percent to $13.47 at the close of trading in New York, the highest since Feb. 27, 2008.

AMR’s convertible 6.25 percent notes due in October 2014 rose 0.875 cent to 60.75 cents on the dollar, the highest this year, at 4:02 p.m. in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.

Labor Spending

The decision by the Allied Pilots Association board not to let members vote on the airline’s final offer thwarted efforts to agree on cost cuts before an expected ruling tomorrow by U.S. Bankruptcy Judge Sean Lane that may allow American to throw out existing contracts.

If Lane allows AMR to void the labor agreements, the carrier could begin to impose new terms to help shave $1.25 billion from annual labor spending. It still would seek longer-term contracts with each union. Most carriers in bankruptcy protection have completed such negotiations before exiting.

American hasn’t said whether it will ask Lane for more time to negotiate with the APA. One major issue, involving pilot scheduling, separated the two sides, said Tom Hoban, a union spokesman.

Some proposals in American’s final contract offer to its pilots were too vague to put to members for a vote, the Allied Pilots Association said yesterday, after its board voted 11-5 against the broader ballot.

Merger Delay

American was “very disappointed” in the decision, said Bruce Hicks, a spokesman. The Fort Worth, Texas-based airline’s last offer would have given pilots pay increases, a chance to move up to industry pay rates, furlough protection, profit sharing and equity in the restructured American, he said.

If American is allowed to void the existing contracts, a potential merger with US Airways probably would be delayed until next year, when AMR expects to exit bankruptcy, Ray Neidl, a Maxim Group LLC analyst, said in a report. That decision also would allow US Airways to begin pressing to review AMR’s financial records to prepare a bid, he said.

If the judge rules against the bankrupt airline on the contracts, “the game is over for AMR and a merger happens,” Neidl said. US Airways, which hasn’t made a formal offer, earlier reached agreements with American’s unions contingent upon a merger.

A request from creditors to allow other restructuring plans to be considered would raise the chance that US Airways succeeds with a merger to 80 percent from 70 percent, McKenzie said.

American has said it wants to emerge from bankruptcy as an independent company.

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

Before it's here, it's on the Bloomberg Terminal. LEARN MORE