* Board meets beginning Wednesday
* To review tie-up with US Airways vs independence -sources
* No formal choice expected at next week's meeting -sources
By Soyoung Kim and Nick Brown and Karen Jacobs
Jan 4 As American Airlines' board meets next
week, expectations are high that it will give more concrete
shape to the airline's plans to either merge with US Airways
or stay independent.
The directors of parent AMR Corp plan to review a
tie-up with its smaller rival against an alternative plan to
exit bankruptcy as a standalone company, several people familiar
with the matter said.
But the people close to the talks told Reuters they do not
expect the AMR board to formally choose one option over the
other next week, as detailed terms of a deal, such as price and
the new management team, have yet to be hammered out. There are
currently no plans for an announcement after the meeting.
The meeting that starts Wednesday could still provide clues
about whether American is finding merit in the idea of merging
with US Airways while it is still restructuring in bankruptcy.
AMR Chief Executive Tom Horton rebuffed an aggressive
takeover push from US Airways early in the bankruptcy process,
saying American preferred to exit court protection on its own
and consider a deal later.
Now, after several months of talks with US Airways and AMR's
creditors, Horton has softened his approach at the insistence of
the creditors' committee and agreed to consider all options.
In a message to employees on Thursday, Horton said there's
no specific deadline for the evaluation to end, but the company
expects to "bring this to a conclusion within a matter of
"I can assure you we are conducting a collaborative,
fact-based analysis to determine the best path forward for
American," he said.
US Airways, which has pursued the merger for more than a
year, is hoping that AMR's board recognizes the benefits of a
combination and will choose to move quickly to negotiate final
terms of a deal as soon as this month, the people said.
US Airways declined to comment for this story.
A deal in bankruptcy remains uncertain and could still
founder on price or other issues. The pilots union for US
Airways must vote on how the integration of labor contracts
would work, a process that would take several weeks. Other
unions also are reviewing the details.
The equity split also remains at issue. US Airways' formal
merger proposal in November suggested that AMR's creditors would
own 70 percent of the merged entity, and the US Airways
shareholders the remainder. AMR has said its creditors deserve
closer to 80 percent.
Still, Horton's new tone and other recent events suggest the
combination long championed by US Airways and by pilot unions at
both airlines will get a serious review by AMR's board.
With one major obstacle - labor integration - appearing
closer to resolution, AMR board members will be faced with a
merger scenario that is becoming more specific.
The board of the Airline Pilots Association, the union
representing AMR pilots, last week approved a memorandum of
understanding laying the groundwork for how it would integrate
its workforce with that of US Airways. If US Airways pilots also
agree, that would mark a major step toward ensuring relative
labor peace between the unions, something many tie-ups in the
airline sector have historically lacked.
AMR leaders had previously warned that labor integration
challenges could render any benefits of a merger smaller than
what US Airways has said.
American is the last of the three major U.S. airlines to
restructure through bankruptcy. AMR declared bankruptcy in
November 2011 citing high labor costs, and eventually reached
new, cost-saving contracts with its three primary unions,
including its pilots, after bitter negotiations.
A BIGGER AMERICAN?
A lot is riding on AMR's choice. A tie-up with US Airways
would give American Airlines the scale to match bigger rivals
that are upgrading service and expanding international routes.
Yet going it alone could spare the company the operational
headaches associated with mergers, preserve existing management
and give it more control over its destiny.
A combined American-US Airways would have revenue of $37.03
billion based on 2011 figures, on par with the $37.11 billion
delivered by United Continental Holdings, which became
the world's biggest carrier when it was formed in 2010. The new
American would have 118,000 employees, compared with some 88,000
The new carrier would have a solid presence on the important
U.S. East and West coasts and on North Atlantic routes, given
American's revenue-sharing joint venture with British Airways
and Iberia. American currently has East Coast hubs in
Miami and New York, while US Airways has key operations in
Philadelphia and Charlotte, North Carolina.
The East Coast operations could be structured in a way to
make a combined American-US Airways more competitive against
Delta Air Lines, which operates out of Atlanta and New
York, and United Continental, which has a major hub in Newark,
New Jersey. Delta and United are both the products of mergers.
A merged American "could potentially become the dominant
player on the East Coast," said John Wensveen, head of airline
advisory services at Radixx International, which provides
distribution systems and management consulting.
He said American already faces the prospect of greater
competition for corporate clients on the lucrative New
York-to-London Heathrow route now that Delta is buying a stake
in Virgin Atlantic and plans to apply for a joint
venture that would allow revenue-sharing.
Still, analysts say a combined carrier would have
challenges such as integrating its workforce.
George Hamlin, an aviation consultant in Fairfax, Virginia,
said US Airways staff working under bankruptcy-era contracts
could expect to be brought up to the same pay level as American
Airlines employees, likely raising costs of the combined entity.
"You need to sit down and carefully look at how all the
pieces go together," Hamlin said. "This would have an impact on
the cost structure of American."
American Airlines doesn't have to take the merger path.
Reported results since the carrier filed for Chapter 11
bankruptcy protection last year suggest the leaner company would
be profitable when it emerges.
In the third quarter, American produced a profit of 33 cents
a share, excluding one-time items. Earnings before interest,
tax, depreciation, amortization and restructuring costs
(EBITDAR) came to $1.61 billion.
With cost and revenue benefits from the bankruptcy filing
included, AMR projects that EBITDAR figure could nearly double
to $2.95 billion by the third quarter of 2013, according to data
from the carrier.
But Helane Becker, an airline analyst with Dahlman Rose,
said an independent American and US Airways would both face
challenges of how to grow to compete effectively longer term.
"United and Delta would start to leapfrog them," Becker
said. "From American's point of view as they are emerging from
Chapter 11, they have to ask the question how do they go from
$25 billion in revenue to $35 billion in revenue to compete with
United and Delta."
The case is In re AMR Corp et al, U.S. Bankruptcy Court,
Southern District of New York, No. 11-15463.