Key bondholder group says AMR board should be replaced

Wed Nov 28, 2012 9:12pm EST

* Group to only fund bankruptcy exit plan if board replaced

* AMR wants to exit bankruptcy as independent firm

* US Airways making aggressive takeover push

* US Airways has support from AMR unions

By Nick Brown

NEW YORK, Nov 28 (Reuters) - A group of some of bankrupt American Airlines' most significant bondholders said it will not support a standalone restructuring unless a new board is brought in, suggesting there is even less support for current management than first thought.

The 12-member bondholder group, which includes JPMorgan Chase & Co, Pentwater Capital Management and York Capital Management, is the primary well-organised group to have expressed an interest in funding an independent exit for the airline's parent company AMR Corp.

AMR filed for bankruptcy in November 2011, seeking to reduce labor costs. Its current management team, led by Chief Executive Tom Horton, has lost the confidence of the company's unions, which support a takeover bid by smaller competitor US Airways Group.

The bondholder group, which holds more than $700 million in AMR debt, said in a letter to Keith Wilson, president of American's pilots' union, that its support for an independent exit is "conditioned, among other things, on that plan providing for the naming of a new board of directors."

The letter, sent on Nov. 15, was not public, but the Allied Pilots' Association made it available to its 8,000 members on Wednesday and a copy was obtained by Reuters.

"The board will ... be responsible for selecting a management team," the bondholders said in the letter. "We expect the board to share our view that an important criteria for selecting the leader of that team will be a demonstrated ability to maximize shareholder value."

A spokesman for AMR declined to comment on Wednesday.

EQUITY STAKE

The circulation of the letter may also signal an attempt by the union to nudge its members toward ratifying a new labor contract proposed by AMR.

Resolving the bitter, years-long labor dispute between AMR and its pilots is a top priority for the company and its creditors, as AMR tries to convince investors of its long-term stability.

The contract would give the pilots a 13.5 percent equity stake in the company. The bondholders said in their letter that they would work cooperatively with AMR's shareholders in selecting a new board.

"This commitment by the (bondholders)... shows that APA's 13.5 percent equity claim is of critical importance in shaping what the new American Airlines will look like and who will lead it," the union said in a statement circulated to its members along with the letter.

A vote on the proposed contract is set for Dec. 7.

The case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

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