American Air CEO Not Focused On Merger

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Published: June 11, 2012

American Airlines still plans to exit bankruptcy at the end of this year but is not concentrating on a merger currently despite pressure from unions to forge a combination with US Airways, American’s chief executive said on Monday.

“We are not focused on a merger. Right now we are focused on a successful restructuring,” CEO Tom Horton said on the sidelines of an industry meeting.

American has the exclusive right until September to propose restructuring plans in bankruptcy. It has reluctantly said that it would explore the possibility of merging but has stressed it prefers to remain independent.

American would review “all the alternatives to create the best outcome,” Horton said, adding its plan remains to leave court protection as a standalone entity.

He told reporters that management’s approach is off to a good start.

“We are very focused on restructuring our company independently. That has to be our focus. Anything else, I think, for the time being has to be a distraction. That is our focus and I am pleased to say the results so far are very encouraging,” Horton said.

Horton said the year-end timetable for exiting Chapter 11, however, could slip if unions do not agree to contracts in a timely manner.

American sought bankruptcy protection from creditors in November and wants USD$ 1.25 billion in annual cost savings from labour. It has threatened to cancel collective bargaining agreements covering thousands of workers, including pilots and flight attendants, if new agreements are not struck soon.

A New York bankruptcy judge could rule as early as this month on American’s motion to void contracts. Talks with flight attendants broke off last week.

INDUSTRY TRANSFORMATION

American’s restructuring will complete a US airline industry transformation that was triggered by the sector’s worst-ever downturn last decade. Four prominent rivals have already merged to form two mega-carriers at United Airlines and Delta Air Lines and are reshaping US air travel in major markets, such as New York.

American’s decision to merge or go it alone will further alter the competitive landscape as well as influence where airlines will fly and how much consumers will pay to travel. Planes are full and fares are up this year.

Horton’s comments at the International Air Transport Association (IATA) meeting will no doubt resonate with key unions and other creditors who are pushing the company hard to merge.

Labour believes concessions alone will not suffice and that American cannot survive on its own. Unions are convinced that a deal with US Airways is the only way for American to compete with United and Delta.

Most Wall Street analysts, industry executives and bankers agree the company would find it difficult to convince creditors that going it alone would trump the benefits of consolidation.

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