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Citigroup Presses AMR to Decide on Credit-Card Tie

May 24 (Bloomberg) -- Citigroup Inc. asked the judge overseeing American Airlines’ bankruptcy to force the carrier to decide by July 2 whether to retain the bank’s partnership in its loyalty credit-card and mileage program or risk a multibillion-dollar claim.

American and its parent, AMR Corp., have had enough time to decide on maintaining the agreement, which can be rejected as part of the bankruptcy, Citigroup said in a filing today in U.S. Bankruptcy Court in Manhattan. AMR filed for bankruptcy on Nov. 29, 2011, and expects to exit court protection in this year’s third quarter.

American’s AAdvantage loyalty program has about 69 million members and will regain its ranking as the industry’s largest when the Fort Worth, Texas-based airline merges with US Airways Group Inc. The two carriers have been negotiating with banks including New York-based Citigroup and Barclays Plc to provide a branded credit card once they combine.

“Today’s filings are simply a necessary step required by the current status of the bankruptcy case,” said Emily Collins, a Citigroup spokeswoman. “We continue to negotiate the terms of our relationship and we expect to continue working with American to service our shared customers.”

The court filing has no effect on Citigroup AAdvantage cardholders, she said. American’s loyalty credit card has been issued by Citigroup for 26 years.

‘Another Step’

Citigroup’s court filing “is nothing more than another step in the restructuring process,” Stacey Frantz, a spokeswoman for American, said in an e-mailed statement. She reiterated that current program members are not affected.

Under the contract, Citigroup loaned American $1 billion in 2009 to pre-purchase miles in its AAdvantage plan, a transaction secured by the program’s assets, airport flight slots and gates and route authorities, the bank said.

Rejecting the agreement will create a “multibillion-dollar secured damages claim” against AMR, endangering the airline’s ability to repay creditors and shareholders at the levels set in its reorganization plan and costing it “material amounts of annual revenue in the coming years that could not be fully replaced,” Citigroup said in the filing.

Creditor support for AMR’s restructuring and merger plan “might well evaporate” in such a case, Citigroup said.

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

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Rick Green at rgreen18@bloomberg.net; John Pickering at jpickering@bloomberg.net

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