News Column

American Airlines CEO: No Merger Needed to Survive

July 26, 2012

Andrea Ahles

American Airlines

Tom Horton is on the offensive.

American Airlines' chief executive wants creditors and bondholders to know that the Fort Worth-based carrier doesn't need a merger to survive after bankruptcy. And if it does combine with another airline, it will do so only if American believes that it is the best strategy for the company.

That's the message Horton has been taking to the media on the East Coast this week, pressing the case that American controls its own destiny, not US Airways, which has been publicly campaigning to merge with American's parent, AMR Corp.

Horton gave interviews to The Associated Press and The Wall Street Journal after a business travel conference in Boston over the weekend. In his comments to the AP, he said he was the one who suggested a combination to US Airways Chief Executive Doug Parker in September, a couple of months before AMR Corp. filed for bankruptcy.

"I said to Doug, standing by the river, 'I think there could be the potential for value creation in a combination,'" Horton recalled about an airline executive meeting in Wyoming. "I made that pitch. We nodded heads to one another."

Horton, who met with Parker last week to discuss the process by which AMR will evaluate potential partners, also suggested that US Airways is desperate for a merger.

Parker declined to comment on Horton's assertions while discussing US Airways' record second-quarter profits Wednesday.

Instead, he said he hopes that AMR will conduct a "fair and transparent" evaluation of merger possibilities. He said he expects to receive a nondisclosure agreement from AMR soon but remains concerned that American may not seriously consider a merger.

"But after reviewing the NDA, [if] it turns out that this is not the start of the full and fair process we hope for, we'll have to evaluate our options to ensure that the real parties and interests -- AMR employees and creditors -- get the chance to evaluate the merits of an AMR-US Airways merger," Parker said.

In the AP interview, Horton asserted that US Airways needs a merger more than American because Parker is in a "race against the clock" to increase revenue before the carrier has to sign new labor contracts that would raise worker pay.

But Parker has consistently said US Airways has improved its operations as a stand-alone carrier and wants to merge with American because it makes sense strategically.

"As evidenced by our record second-quarter results and how well they compare to the other airlines, it's quite clear that US Airways has a great business model that works and we certainly don't need to merge with another airline," Parker told analysts in an earnings conference call Wednesday.

The carrier, based in Tempe, Ariz., tripled its profit in the second quarter as passenger demand was strong through the summer travel season.

Profits grew to $306 million, up from $92 million in the second quarter of 2011. Revenue increased 7.2 percent to $3.8 billion.

US Airways reported $15 million in one-time charges, including $3 million associated with its new fleet and passenger services contract at its regional carrier, Piedmont. Excluding the charges, US Airways said its profits were $321 million, or $1.61 per share, beating Wall Street analysts' estimates of $1.56, according to FactSet Research.

The carrier ended the quarter with $2.5 billion in cash and short-term investments, not including its restricted cash balance.

Separately, American's flight attendants union told members that it's confident the federal bankruptcy judge will delay his ruling on rejecting American's union contracts until after members finish voting on the carrier's latest offer.

Over the weekend, the Association of Professional Flight Attendants opened up voting on American's latest proposal and told members that ballots will be accepted until Aug. 19. That date is four days after the judge is scheduled to rule on American's request to reject existing contracts.

"The bankruptcy judge has made clear throughout this process that the most preferable resolution to labor contract negotiations is a mutual deal," the union told its members Wednesday.

"Although the court's ruling on AA's Section 1113 motion is currently scheduled to be issued by Aug. 15, we are confident that the court will accommodate our balloting period as it has done with both APA and TWU by delaying its decision until after Aug. 19."

American said Tuesday that the judge has not changed his ruling date and that the carrier will update the court Aug. 9 after the vote results for the Transport Workers Union and the Allied Pilots Association.

Source: (c)2012 Fort Worth Star-Telegram. Distributed by MCT Information Services.

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