AMR unions want to take a chance on U.S. Air merger

(Reuters) – Labor groups at bankrupt American Airlines said on Friday they support a potential merger

with rival US Airways Group Inc in a deal they say would save more jobs than a plan by parent AMR Corp to reorganize as a

stand-alone carrier.

The unions representing American’s pilots, flight attendants and ground workers said they struck a

deal with US Airways that would preserve 6,200 of the 14,200 jobs American says it would cut if it pursues its current

plan.

Their joint statement supporting a merger is an unusual and dramatic twist that comes ahead of a showdown next

week with AMR over the company’s request in bankruptcy court for permission to void labor contracts and impose new

terms.

Airline consultant Robert Mann, a former AMR executive, said he cannot think of another occasion when airline

unions actively supported a merger, because those deals usually mean job cuts.

“For the American unions, it’s a real

indictment to the company’s plan. In fact, they are casting their lot with the devil they don’t know rather than the devil

they do,” Mann said.

He added that none of the posturing by unions ahead of next week’s hearing necessarily moves AMR

any closer to a merger.

“We’re not yet even to the point where an alternate plan has been presented to the court,” he

said.

US Airways Chief Executive Doug Parker cautioned his employees in a letter on Friday that the union deal does

not mean a merger is in the works. He noted that a deal would need support from the AMR creditors, management team and its

board of directors.

“But this is obviously an important first step along that path and we are hopeful we can all work

together to make this happen,” Parker said.

AMR spokesman Bruce Hicks dismissed union support for merger talks, noting

the company’s right in bankruptcy court to create its own reorganization plan without interference at least until September

28.

“These statements do not in any way alter the company’s commitment to pursue our business,” the airline said in a

statement.

Parker, who worked at AMR in the 1980s with Tom Horton, now AMR’s CEO, has been a vocal proponent of

airline consolidation as a means to cut excess capacity on unprofitable routes. He said a deal with AMR would create a

“preeminent airline with the enhanced scale and breadth required to compete more effectively and profitably.”

Although

AMR has tried for months to blunt speculation, US Airways has hired advisers to explore merger options with AMR, but has not

issued a proposal.

In a statement on Thursday, Horton said recent merger talk is “fueled by those who seek to serve

their own agendas, including the circulation of misleading information.”

NEW AMERICAN AIRLINES

David Bates,

president of the Allied Pilots Association, which represents the pilots, said in a letter to members that a combined carrier

would be branded American Airlines and be based in Fort Worth, Texas, which is where AMR is currently based. US Airways has

its headquarters in Tempe, Arizona.

The new carrier would remain in the one world global airline alliance and would be

comparable in scope and size with rivals United Airlines and Delta Air Lines Inc, which overtook AMR in size after their own

mergers, Bates said.

He said American’s orders for narrow-body aircraft would proceed and the former US Airways

system would be aligned with American Airlines routes to add more cities.

AMR’s three labor unions are members of the

company’s unsecured creditors committee, which has nine members and gets a say in how AMR restructures.

“We are

pleased to confirm our support of a possible merger between our airline and US Airways,” the unions said on Friday in a

statement provided to Reuters.

Typically, a company cannot exit bankruptcy without the support of its unsecured

creditors committee. AMR also needs the support of the large investors that hold their secured debt, although their claims

are guaranteed and are the first to be repaid.

AMR management has said it may consider a merger with another airline

only after it emerges from bankruptcy as an independent company.

People familiar with the airline’s thinking have

said that management wants to negotiate a merger on its own terms and could set its sights on different targets, ranging from

JetBlue Airways Corp to Alaska Air Group Inc to US Airways.

But AMR’s creditors believe the management’s plan to

remain independent is not viable and that it should actively explore a merger with US Airways or another airline to compete

in the consolidating industry, several people close to the creditors said.

In addition to AMR’s labor unions, the

rest of the unsecured creditors committee also thinks AMR management should engage with US Airways to evaluate whether such a

combination will generate a better recovery of their claims as well as synergies on the operation front, the same sources

said.

In March, US Airways gave a presentation to representatives of AMR’s unsecured creditors and told them that a

proposed merger of the two airlines would create about $1.5 billion in synergies, the sources said.

Aside from the

unions, the committee includes the Pension Benefit Guaranty Corp (PBGC), the government agency that protects under funded

pension plans; Boeing Co, Hewlett-Packard Co; and the banks acting for AMR bondholders – Wilmington Trust Co, Bank of New

York Mellon Corp and Manufacturers & Traders Trust Co.

Delta is also studying a potential bid for AMR, but the

carrier has not presented a merger plan to AMR’s unions or creditors in a way that US Airways has made an outreach to the

stakeholders of AMR, people familiar with the matter have said.

SHOWDOWN WITH UNIONS

AMR filed for Chapter 11

last November, citing labor costs that were uncompetitive with profitable rivals such as United Airlines and Delta Air Lines

that restructured in bankruptcy and later took on merger partners.

AMR has pursued deals with unions on concessions,

drawing outrage by workers, who point to sacrifices they made to keep the company afloat in 2003.

The airline still

wants negotiated deals, but frustrated with the pace of talks, has asked the U.S. bankruptcy court in Manhattan for

permission to void labor contracts. A hearing on the matter is set to begin next week.

American wants to cut 13,000

union jobs, or roughly 15 percent of its work force, as part of a plan to save $1.25 billion in annual labor

costs.

The airline said on Wednesday it intends to cut another 1,200 nonunion jobs to reach its goal of trimming 15

percent of the work force.

Separately on Friday, U.S. Bankruptcy Court Judge Sean Lane dismissed a suit by the Allied

Pilots Association that had sought a ruling holding that American cannot void its labor contract because it has technically

expired.

Judge Lane, in ruling on that matter, said the union’s collective bargaining agreement has not expired but

rather had become amendable under U.S. labor law, meaning the contract could be subject to dismissal as part of the

bankruptcy process.

AMR shares closed 4.7 percent down at 55 cents. US Airways shares were down 1.8 percent at

$9.34.

(The lawsuit was Allied Pilots Association vs. AMR Corp et al, US Bankruptcy Court, Southern District of New

York, No 12-1094.)

(Reporting By Kyle Peterson in Chicago, Karen Jacobs in Atlanta and Soyoung Kim in New York;

editing by Dave Zimmerman, Steve Orlofsky, Matthew Lewis, Andre Grenon and Richard Chang)