US Airways Seeks American Takeover

US Airways PlaneIt’s been reported that US Airways is targeting American Airlines parent company AMR Corp for a possible takeover of the major airline. This comes after the carrier’s biggest union backed such a bid. This was a big step for US Airways as it progresses from the unions to the unsecured creditors committee and eventually to the AMR Corp board.

US Airways president Scot Kirby says a merger would produce new revenue and savings worth $1.2 billion a year. This excludes the increased labour costs, but there’s a lot of value created by the two companies combining. They could and should use part of that to give employees more than AMR Corp could if it was to stand alone.

US Airways chief executive Doug Parker recently said in a conference call with investors and analysts that they are eager to demonstrate to AMR’s creditors that their plan would mean higher returns than the stand-alone strategy laid out by by the bankrupt company. They are very confident the value created by the two companies is very big compared to the value of AMR Corp on its own. He didn’t say when they may formally approach AMR, however.

Although there haven’t been any formal meetings, two people familiar with the situation say negotiations with AMR Corp bondholders started last week. The bankrupt company says it prefers to be an independent carrier while in court protection. Chief executive Tom Horton says American Airlines would prefer to leave Chapter 11 before considering possible combinations.

The merger efforts of US Airways were backed by three American Airline’s unions last week who represent the carrier’s pilots, flight attendants, bag handlers and mechanics. Every group has one of the nine seats on AMR’s creditors committee, so US Airways only needs two more members to back a merger to have the majority. The panel has a voice in any key decisions made while the company is under bankruptcy protection and restructuring.

The bondholders are represented by Bank of New York Mellon Corp., M&T Bank Corp., and Manufacturers & Traders Trust. Boeing also has representation on the panel. Chief executive Jim McNerney says that they support American Airlines leaving bankruptcy as a stronger carrier. They will also support the airline merging with a partner later if a tie-up is decided, he added.

Butxel Long bankruptcy attorney Max Newman says that he thinks US Airways can get really close to a hostile takeover if they can get enough support from unions, unsecured creditors and bondholders. They are definitely being very creative and strategic about how they go about it.

According to Rothchild chairman of global financing advisory David Resnick, it’s possible AMR Corp will consider a merger as part of the bankruptcy case, as stakeholders will want to ensure they get the highest value possible. He added that the group will want the debtor to review all alternatives to a stand-alone strategy. The group holds the right to file a reorganisation plan through September 28, but the creditors panel can ask the court to end the privilege if it finds a viable alternative.




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