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UPDATE 2-US Air says AMR deal would yield $1.2 bln a year
By Kyle Peterson and Nick Brown
Wed, Apr 25 2012
* US Airways president: Deal could yield tremendous value
* Bankrupt AMR has shunned merger talk
* AMR unions support a merger deal
* AMR, unions locked in court battle over labor contracts
CHICAGO/NEW YORK, April 25 (Reuters) - A merger of bankrupt American
Airlines and US Airways would generate at least $1.2 billion a year in
new value beyond the benefit that could be passed to employees of the
combined carrier, the president of US Airways said on Wednesday.
Speaking on a conference call with reporters and analysts about US
Airways' first-quarter earnings, Scott Kirby said a merger of his
carrier and American parent AMR Corp would generate more savings and
revenue improvements than AMR's plan could produce on its own.
"There is a tremendous amount of value created by merging US Airways
and AMR, and we can and should use a portion of that to give employees
more than AMR can on a stand-alone basis," Kirby said.
US Airways has not made a bid for AMR but said it hopes to start
merger talks with its reluctant rival, which is restructuring in Chapter
11.
AMR so far has shunned interest from US Airways, which has already
won the support of AMR labor unions. The unions say that more jobs can
be saved by casting their lot with US Airways than with AMR alone.
An AMR spokesman declined to comment on Kirby's estimates. The
company's CEO, Tom Horton, has said US Airways' interest would not alter
AMR's efforts to formulate its own, stand-alone restructuring plan in
bankruptcy.
At a hearing on Wednesday in U.S. bankruptcy court in Manhattan,
AMR's financial adviser, Rothschild Inc managing director David Resnick,
said the company needs its own plan against which to measure
alternatives like merger offers.
"In my view, it makes no sense to put all your eggs in one basket, to
pursue one alternative without looking at an array of options," Resnick
said during testimony. "The base case against which to compare
alternatives is a stand-alone plan. Then, from there, you can compare
other options."
But Resnick acknowledged that AMR might ultimately consider a merger
because the company has a fiduciary duty to seek maximum recovery for
its creditors.
THE FATE OF LABOR CONTRACTS
The merger debate has taken center stage as AMR and its unions fight
over a company business plan that contemplates cutting 13,000 union
jobs. The plan seeks $1.25 billion in annual savings from AMR's labor
force, including $990 million a year from its unions.
AMR has asked the bankruptcy court for permission to abandon its
current labor agreements altogether and unilaterally impose interim
terms as negotiations for long-term deals continue. That request is the
subject of a court-hearing this week in which a handful of witnesses,
including Resnick and AMR restructuring chief Bev Goulet have testified.
For its request to be approved, AMR must show that it explored
alternatives to avoid abandoning union deals. Unions argue the company
has not sufficiently explored the alternative of a merger.
US Airways said it could avert 6,200 of AMR's proposed job cuts and
still derive $1.2 billion in improvements.
Kirby said the US Airways plan would "generate significant cost
savings even though we wouldn't shrink the combined airline."
Savings would come from reducing or eliminating facility space and
management headcount. He said other savings could be achieved by
combining computer systems and through the improved purchasing power of
a larger airline.
US Airways on Wednesday reported net profit of $48 million, or 28
cents a share, in the quarter, compared with a net loss of $114 million,
or 71 cents a share, a year earlier.
LONG WAY TO GO
AMR's bankruptcy hearing is expected to last at least through Friday,
but resolution could be weeks away.
When the hearing ends, the company and its unions will have two weeks
to negotiate consensual deals. If the period lapses without new deals,
the unions will have a chance to present their case in court in May.
Judge Lane would then be expected to issue a ruling in June.
AMR witnesses have generally said the company's business plan,
focused on beefing up its international presence and updating its
aircraft fleet, will not make it profitable unless augmented by major
labor concessions.
Resnick testified that without a cost-effective labor structure, AMR
may not gain the high credit ratings and access to capital markets that
it needs to finance its business plan.
Resnick has said the proposed labor cuts are the "absolute minimum"
necessary to make AMR viable after bankruptcy, an opinion that garnered
ample attention from union lawyers during Resnick's cross-examination.
The case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern
District of New York, No. 11-15463.
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