New American’s CEO Seeks to Top $1 Billion Goal in Merger
Doug Parker, poised to lead the new American Airlines Group Inc., wants to beat a $1 billion goal for added revenue and savings in the AMR Corp.-US Airways Group Inc. (LCC) merger and is about to start meshing frequent-flier plans.
“I’m hoping it’s a number we can exceed,” Parker, who is now chief executive officer at US Airways, said in an interview yesterday at American’s headquarters in Fort Worth, Texas. “It’s not easy. It’s not a given by any means.”
Parker, 52, will take the helm of a carrier that will sit atop the global industry by traffic after the $17.8 billion all-stock deal. He will have to knit together two networks to challenge United Continental Holdings Inc. and Delta Air Lines Inc. (DAL), which now rank first and second in the world. The merger is set to close Dec. 9.
Some rewards-program benefits will be offered beginning in early January, sooner than in other tie-ups, Parker said. Frequent fliers with elite benefits will be able to earn and use both airlines’ awards and loyalty lounges starting then. Other members will get equal status in both plans later.
Frequent-flier perks are an important tool to win repeat customers, especially among business travelers who typically pay the highest fares, and wooing more of those passengers will help Parker meet his goal of boosting revenue. A merged loyalty program would have more than 100 million members.
“Six to nine months from now, you as a customer should have all the benefits you have on both carriers, but now on a much bigger airline,” said Parker, who will succeed American CEO Tom Horton, 52. Horton will serve as chairman of the merged airline until its first annual meeting.
The closing will come the same day that American parent AMR Corp. (AAMRQ) exits bankruptcy. Within a month, American and US Airways will begin phasing in the sharing of booking codes so each can place travelers on the other’s flights. Their merger timeline projects that regulatory approval to operate as one airline will take 18 months, and until then flight crews will remain separate and the carriers will fly under their existing names.
US Airways slid 2.3 percent to $21.87 at the close yesterday in New York, paring its year-to-date gain to 62 percent. Its shareholders will get 28 percent of the stock in American Airlines Group, while AMR creditors, unions, certain employees and equity holders will get the rest.
The current American is now the third-biggest U.S. airline, and US Airways is the fifth-largest. United and Delta each orchestrated mergers since 2008, leaving American with a smaller network in an industry where broader route systems help attract corporate travel contracts.
Parker’s target for so-called synergies is a net figure, so American will have to generate “more like $1.5 billion” in annual sales gains and reduced expenses by 2015 to cover a $400 million-a-year jump in labor spending for pay raises, he said.
Revenue benefits will start relatively quickly, said Parker, whose temporary office at American is a space normally used by visiting executives and is devoid of the aircraft models and personal touches common for the suites of airline CEOs.
Savings from steps such as paring the number of managers and combining airport facilities will occur within months while others, like meshing information technology systems, will take longer, Parker said.
The “top job” over the next year will be to combine the airlines without major disruptions in their operations, he said. Integrating reservation systems snarled flights after the 2010 merger that created United Continental, and disabled some airport kiosks and caused delays following the 2005 tie-up between Parker’s America West Holdings Corp. and US Airways.
“It’s really difficult to combine two large airlines,” Parker said. “That doesn’t mean you don’t do it. The value is so large you need to go through the difficult work of integrating it. We’re going to try and do it with minimal disruptions.”
Still undecided, Parker said, are what planemaker will win a pending regional-jet order for American and whether an aircraft paint design will be created for the combined carrier. AMR adopted a new livery and logo in January, about a month before the merger agreement. US Airways also hasn’t settled on whether to extend its policy against hedging jet fuel purchases to American, Parker said.
There are “no immediate plans” for the merged American to divest its American Eagle regional partner, Parker said. AMR had decided to shed the commuter carrier before seeking bankruptcy protection on Nov. 29, 2011.
Parker began pursuing American within weeks of that filing. He secured the support of unions, bondholders and creditors before engineering a merger agreement with American in February.
The airlines were able to negotiate a settlement with U.S. antitrust regulators 13 weeks after the Justice Department sued in August to block the combination as bad for consumers. AMR won approval from a bankruptcy judge last week to exit Chapter 11 with the merger as its reorganization plan.
Parker said executives continued to work with the Federal Aviation Administration on merger-integration issues even after the antitrust suit was filed. That preparation may allow the new American to receive a single operating certificate to fly as a unified airline in less than 18 months after the deal closes, he said.
“We hope to get it faster than that,” Parker said. “Eighteen months is conservative. We hope to beat that.”
Most of Parker’s executive team will move to the senior positions at the new American, including President Scott Kirby, Chief Financial Officer Derek Kerr and Chief Operating Officer Robert Isom.
US Airways will move from the Star Alliance of global airlines into the Oneworld group led by American and British Airways in the first half of next year.
American is seeking to reduce the cost of a $1.9 billion term loan as it prepares to exit bankruptcy, a person with knowledge of the transaction said yesterday. The carrier is seeking to pay 3 percentage points to 3.25 percentage points more than the London interbank offered rate for the loan, according to the person, who asked not to be identified because terms aren’t set.
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