- May 25, 2003
- Total Time
American Airlines parent AMR Corp. plans to sound out potential partners about a merger or other investment deals in coming weeks, said people familiar with the matter, setting the stage for a contentious showdown over the airline's path out of bankruptcy.
AMR plans to send nondisclosure agreements to other airlines as soon as this month, the people said. That move would kick off a formal process in which the parties would exchange nonpublic information to consider possible deals. The airline also could invite private-equity firms and other investors to study the company's books, the people said.
Any merger proposals would be weighed against an independent restructuring plan being developed by AMR, with the carrier's bondholders, unions and other stakeholders jockeying over which deal would give them the best results, the people said. The company, which is based in Fort Worth, Texas, plans to share the nondisclosure agreements with its unsecured creditors committee in the next week or two before sending them out, they said.
The creditors committee earlier this month supported the airline's request for a bankruptcy judge to extend until Dec. 28 the exclusive period the company has to dictate its path out of Chapter 11 proceedings. The upshot is that AMR has control, in consultation with creditors, over what plans it entertains.
US Airways Group Inc. LCC +2.60% has aggressively courted its rival for the past several months, even negotiating deals with American's unionized pilots, flight attendants and mechanics on how they would be treated in a marriage. A combination would create the largest airline in the U.S. by traffic, surpassing current king United Continental Holdings Inc., UAL -0.71% itself the result of a 2010 merger.
But AMR has rebuffed US Airways' advances and, until recently, said it would only explore merger scenarios after emerging from Chapter 11 protection as an independent airline. In May, AMR softened that stance, negotiating a "protocol" with its unsecured creditors committee in which it pledged to explore "potential consolidation scenarios" alongside work on a stand-alone reorganization plan.
Amid improved financial results and some progress in negotiating new contracts with its unions, AMR feels it has more clarity on revenues and costs so it can better evaluate and negotiate potential mergers, the people said. AMR filed for Chapter 11 protection in November, citing high labor costs that kept it from competing with rivals that had restructured in bankruptcy and later merged.
AMR Chief Executive Tom Horton and other executives planned to tell a monthly gathering of the airline's creditors committee Tuesday afternoon about the plans to step up merger explorations. They were expected to review five parties the airline plans to contact and the merits or downsides of merging with them, the people said. AMR plans to look at possible revenue and cost-saving synergies, tax consequences and balance-sheet implications related to any deal.
In addition to US Airways, AMR could sound out other rivals including discount airline JetBlue Airways Corp., JBLU -0.18% the people said, though the latter hasn't been publicly vocal about wanting to explore a deal. Delta Air Lines Inc., DAL -2.29% the U.S.'s second-largest airline by traffic, has for some time monitored American's bankruptcy case and weighed pursuing a deal, though any merger could face significant regulatory hurdles because of the airlines' overlapping routes and sheer size.
Still, a merger deal would be complex during AMR's bankruptcy process and could keep the company stuck in court during prolonged negotiations and antitrust reviews by federal regulators. Those considerations, along with the inherent value of any deal compared with the airline's stand-alone restructuring plan, are likely to be at the forefront of creditors' minds.
AMR now is open to a merger inside or outside of bankruptcy court if it deems a deal best for the company and creditors, the people said. American wants to finalize a stand-alone restructuring plan in coming weeks so creditors can compare it with any other proposals to determine what gives them the best value, the people said.
AMR has been racing to finalize the stand-alone restructuring plan, which aims to cut annual labor costs by more than $1 billion, mostly through reduced benefits and freezing pension plans. The company recently reached a tentative deal on a new contract with its pilots, which is now being presented to union members for a vote.
AMR is continuing to negotiate with flight attendants and mechanics. Other ground workers already have agreed to terms and ratified them. If other parties don't reach a deal with AMR, a bankruptcy judge will decide in mid-August whether the airline can void the current contracts and impose terms on its union workers.
At Tuesday's creditors committee meeting, Mr. Horton also was expected to outline improved results at the airline, the people said. AMR's cash coffers had grown to $5 billion as of May from $4 billion when the company sought bankruptcy protection in November, according to court records and regulatory filings. In addition, AMR posted $55 million in operating income in May, compared with a $15 million loss the previous month.
On Monday, AMR reported an 8.6% rise in revenue collected for each passenger who was flown a mile, compared with a year earlier, a key barometer of performance in which it beat out all rivals. That metric also rose in the prior two months, showing AMR is putting customers in seats and commanding healthy fares.
AMR feels that initiating a formal mergers and acquisitions process remains consistent with its intentions since seeking bankruptcy protection in November, the people said. American has all along wanted to first make progress developing an independent restructuring plan against which merger proposals and other "strategic alternatives" could be vetted, they said.