American-US Airways merger plan clears last union hurdle

Posted Saturday, Feb. 09, 2013  comments  Print Reprints
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US Airways pilots approved a memorandum of understanding Friday on terms related to a merger with American Airlines, removing the last union obstacle to a potential deal.

With negotiations winding down, the boards of both carriers are scheduled to meet Monday and are prepared to vote on a merger if the terms are finalized over the weekend, Bloomberg News reported Friday.

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The memorandum -- approved by the US Airline Pilots Association with 75 percent in favor -- provides assurances to AMR Corp.'s bankruptcy creditors that labor groups support the merger.

The board of American's pilots union, the Allied Pilots Association, already agreed to the memorandum, which provides for $500 million in contract improvements, such as enhanced pensions or pay, instead of profit-sharing.

The US Airline Pilots Association said the memorandum gives its pilots "$1.6 billion in economic improvements" over the next six years. It also lays out a process to determine seniority integration in a merger.

"Your ratification also ensures that your union will arrive at the merger as equal partners with APA in pay, benefits and working conditions -- which is of paramount importance during any integration process," USAPA President Gary Hummel said in a letter to pilots.

US Airways pilots have not reached a new contract with management since the airline merged with America West in 2005.

With a merger of American and US Airways appearing more likely, Wolfe Trahan analyst Hunter Keay told investors Friday that they are unlikely to get any money for their AMR stock.

In most bankruptcies, shareholders receive little or no value when the company restructures under court protection, because the equity in the new company goes to creditors and bondholders.

Recent reports suggested that AMR stockholders might get something in a merger, but Keay dismissed that idea.

"We believe the final split will fall at about 72/28 [AMR/US Airways] with no recovery for AMR equity holders," Keay wrote in a research note Friday.

"AMR's creditors are likely to advocate for a merger before the expiration of the [nondisclosure agreements], as most other issues seem to be largely settling out."

Sources told Bloomberg News that the deal being negotiated would give 72 percent of equity in the new carrier to AMR's creditors and 28 percent to US Airways shareholders.

US Airways Chief Executive Doug Parker would run the combined airline as CEO while AMR's chief executive, Tom Horton, would become nonexecutive chairman for one or two years, they said.

Keay likes that arrangement. He said that separating the chairman and CEO positions is good corporate governance and that stock performance is typically better for airlines with split roles.

Separately, more passengers flew on Fort Worth-based American Airlines and its regional carrier American Eagle in January than in the same month last year, AMR said Friday.

AMR said passenger traffic grew 1.8 percent in January even though capacity was essentially flat, up 0.2 percent for the month.

As a result, its load factor was 78.9 percent, up 1.3 percentage points from January 2012.

Domestic traffic grew 3 percent on a 0.4 percent increase in capacity for AMR. The domestic load factor was 79.9 percent, up 2 percentage points. International traffic, which has recently been strong for AMR, was flat in January, with only a 0.1 percent increase in traffic and no increase in capacity.

AMR said that it paid an average of $3.24 per gallon for fuel in January and that its unit revenue grew 3.1 percent from a year ago.

This report includes material from Bloomberg News.

Andrea Ahles, 817-390-7631

Twitter: @Sky_Talk

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