AMR Corp. debt rose to the highest price in more than 16 months after pilots from its American Airlines unit and US Airways Group Inc. joined talks to evaluate a possible merger, boosting the likelihood that the carriers will combine.
Inclusion of the pilot unions in confidential talks overseen by bankrupt American’s creditors committee may lead AMR to accept a merger offer by Christmas, Vicki Bryan, senior bond analyst with Gimme Credit LLC, said in a note today. Ray Neidl, a Maxim Group LLC analyst, said the union involvement may give “additional momentum” for a possible combination.
US Airways has been pushing for a merger since January, arguing a tie-up as part of American’s restructuring is the only way for the carrier to compete with larger rivals United Continental Holdings Inc. and Delta Air Lines Inc. Tempe, Arizona-based US Airways already has secured labor agreements with American’s unions, contingent on a merger.
“AMR, frankly, is too small and too unprofitable to ever seriously complete as a standalone” against Delta and United, Bryan said. “Its labor relations record is appalling, and its strategy for reorganization essentially is the same plan pursued over the past decade, which landed it in bankruptcy.”
American, based in Fort Worth, Texas, is close to completing its reorganization plan and the merger option is being assessed along with its preference to emerge from court protection on a stand-alone basis, Chief Executive Officer Tom Horton said Dec. 10.
“The company is establishing a highly competitive cost structure, greater operational flexibility that will drive significant revenue improvements and a restructured balance sheet,” said Mike Trevino, an AMR spokesman. “Regardless of the outcome of our review of strategic alternatives, we have a great company with a tremendous foundation on which to build a new industry leader.”
AMR’s $460 million of 6.25 percent convertible notes due October 2014 rose 1.2 percent to 83 cents on the dollar at 12:40 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the highest price since August 2011, for the notes, which traded at 17.75 cents after AMR’s Nov. 29, 2011, bankruptcy filing.
US Airways fell 1.4 percent to $12.70 at the close in New York. The shares have more than doubled this year, outpacing a 23 percent gain by the Bloomberg U.S. Airlines Index.
The odds of a merger between the carriers before AMR leaves bankruptcy rose to 75 percent with the agreement to include pilots in talks and Delta’s plan to buy 49 percent of Virgin Atlantic, Neidl said yesterday. The Delta move will increase competitive pressure on AMR, he said.