* US Airways president: Deal could yield tremendous value
* Bankrupt AMR has shunned merger talk
* AMR unions support a merger deal
* AMR, unions locked in court battle over labor contracts
By Kyle Peterson and Nick Brown
CHICAGO/NEW YORK, April 25 A merger of bankrupt
American Airlines and US Airways would generate at least
$1.2 billion a year in new value beyond the benefit that could
be passed to employees of the combined carrier, the president of
US Airways said on Wednesday.
Speaking on a conference call with reporters and analysts
about US Airways' first-quarter earnings, Scott Kirby said a
merger of his carrier and American parent AMR Corp
would generate more savings and revenue improvements than AMR's
plan could produce on its own.
"There is a tremendous amount of value created by merging US
Airways and AMR, and we can and should use a portion of that to
give employees more than AMR can on a stand-alone basis," Kirby
US Airways has not made a bid for AMR but said it hopes to
start merger talks with its reluctant rival, which is
restructuring in Chapter 11.
AMR so far has shunned interest from US Airways, which has
already won the support of AMR labor unions. The unions say that
more jobs can be saved by casting their lot with US Airways than
with AMR alone.
An AMR spokesman declined to comment on Kirby's estimates.
The company's CEO, Tom Horton, has said US Airways' interest
would not alter AMR's efforts to formulate its own, stand-alone
restructuring plan in bankruptcy.
At a hearing on Wednesday in U.S. bankruptcy court in
Manhattan, AMR's financial adviser, Rothschild Inc managing
director David Resnick, said the company needs its own plan
against which to measure alternatives like merger offers.
"In my view, it makes no sense to put all your eggs in one
basket, to pursue one alternative without looking at an array of
options," Resnick said during testimony. "The base case against
which to compare alternatives is a stand-alone plan. Then, from
there, you can compare other options."
But Resnick acknowledged that AMR might ultimately consider
a merger because the company has a fiduciary duty to seek
maximum recovery for its creditors.
THE FATE OF LABOR CONTRACTS
The merger debate has taken center stage as AMR and its
unions fight over a company business plan that contemplates
cutting 13,000 union jobs. The plan seeks $1.25 billion in
annual savings from AMR's labor force, including $990 million a
year from its unions.
AMR has asked the bankruptcy court for permission to abandon
its current labor agreements altogether and unilaterally impose
interim terms as negotiations for long-term deals continue. That
request is the subject of a court-hearing this week in which a
handful of witnesses, including Resnick and AMR restructuring
chief Bev Goulet have testified.
For its request to be approved, AMR must show that it
explored alternatives to avoid abandoning union deals. Unions
argue the company has not sufficiently explored the alternative
of a merger.
US Airways said it could avert 6,200 of AMR's proposed job
cuts and still derive $1.2 billion in improvements.
Kirby said the US Airways plan would "generate significant
cost savings even though we wouldn't shrink the combined
Savings would come from reducing or eliminating facility
space and management headcount. He said other savings could be
achieved by combining computer systems and through the improved
purchasing power of a larger airline.
US Airways on Wednesday reported net profit of $48 million,
or 28 cents a share, in the quarter, compared with a net loss of
$114 million, or 71 cents a share, a year earlier.
LONG WAY TO GO
AMR's bankruptcy hearing is expected to last at least
through Friday, but resolution could be weeks away.
When the hearing ends, the company and its unions will have
two weeks to negotiate consensual deals. If the period lapses
without new deals, the unions will have a chance to present
their case in court in May. Judge Lane would then be expected to
issue a ruling in June.
AMR witnesses have generally said the company's business
plan, focused on beefing up its international presence and
updating its aircraft fleet, will not make it profitable unless
augmented by major labor concessions.
Resnick testified that without a cost-effective labor
structure, AMR may not gain the high credit ratings and access
to capital markets that it needs to finance its business plan.
Resnick has said the proposed labor cuts are the "absolute
minimum" necessary to make AMR viable after bankruptcy, an
opinion that garnered ample attention from union lawyers during
The case is In re AMR Corp et al, U.S. Bankruptcy Court,
Southern District of New York, No. 11-15463.