American Airlines alters merger posture, reaches TWU agreement

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by BYRON HARRIS and Associated Press reports

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WFAA and Associated Press reports

Posted on July 10, 2012 at 7:18 PM

Updated Wednesday, Jul 11 at 4:58 PM

FORT WORTH - In a letter to American Airlines employees, CEO Tom Horton announced the airline will "accelerate the plan for the new American" and that "...it now makes sense to carefully evaluate a range of strategic options, including potential mergers, which could make the new American even stronger."

Separately, the Transport Workers Union said that it reached tentative contract agreements that would grant pay raises for mechanics and other ground workers at American Airlines. The work groups — which voted down company offers in May — will hold ratification votes by early August.

American parent AMR Corp. discussed strategic alternatives with its creditors on Tuesday and Horton's announcement means American will be exchanging financial data with potential partners.

Two things have happened to bring this change in posture: an improvement in revenue over the last few months, and US Airways' relentless pursuit of a merger with American.

Horton said that American has improved its revenue, made progress on cost-cutting labor deals, and is well on its way to a successful restructuring.

"We understand our revenues and costs going better than forward," said AMR Spokesman Bruce Hicks. "We have a better base to judge things by. Now, it's the appropriate time to look at strategic alternatives."

The Allied Pilots Association (APA), which has already had talks with US Airways, was skeptical that American would be talking to a few potential partners.

"The only viable candidate that addresses the revenue and network disparities when compared to the competition is US Airways," said Tom Hoban of the APA.  "[The letter is] an admission of failure on the corporation's stand alone plan."

Doug Parker, CEO of US Airways, told Dallas Morning News reporter Terry Maxon that he's pleased American is pursing merger opportunities, and all US Airways wants is a fair chance against other candidates.

Other potential partners might be Jet Blue, Delta -- although that would face legal challenges, and an alliance with TPG Capital of Fort Worth, which already owns part of US Airways and Republic Air.

Horton's comments continued an evolution in AMR's public statements about a possible merger. AMR told the bankruptcy judge in May that it would work with creditors to consider alternatives to Horton's plan of emerging from bankruptcy as an independent company.

Notably, however, Horton didn't promise to pursue a merger while his company is still operating under bankruptcy protection, which is US Airway's preference.

US Airways has lined up support and negotiated tentative contracts with American's three unions by promising them fewer job losses and smaller concessions than American has demanded.

American is the nation's third-biggest airline and US Airways ranks fifth in passenger traffic. Combined, they would be roughly the same size as United and bigger than Delta.

In the past two months, American also won labor approval of cost-cutting contracts from thousands of ground workers other than mechanics, and pilots are voting now on a company contract proposal. American says it has the highest labor costs in the airline industry. Agreements with its unions would give American certainty about labor costs for several years.

"We are approaching the point where we have greater clarity on our revenue outlook and cost structure and can begin to accelerate the plan for the new American," Horton said.

American has asked its New York bankruptcy judgment to extend its deadline for completing bankruptcy proceedings until the end of the year.

E-mail bharris@wfaa.com

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