US Airways And Pilots Of Bankrupt American Airlines Seek Creditor Approval For Carriers To Merge, AMR Fighting Back

A battle between bankrupt American Airlines parent AMR Corp. and spurned suitor US Airways Group Inc. (NYSE:LCC) for support of AMR's creditors will intensify now that American's pilots have approved a new contract.

By a vote Friday of 5,489 for and 1,951 against, or nearly three-quarters of the Allied Pilots Association (APA) members, the APA membership voted Friday to ratify the six-year contract. More than 96 percent of eligible APA members voted.

The newly approved contract gives the APA a 13.5 percent stake in AMR Corp. and includes a 4 percent pay raise when it’s signed, with yearly pay hikes of 2 percent except in the third year when the pay scale will be adjusted to the industry average, Bloomberg News said. The contract also requires pilots to fly more hours each month, cuts company contributions to health care and freezes their pension. Further, American's regional partners will be able to fly larger aircraft.

"We are pleased our pilots supported and ratified this agreement, which is an important step forward in our restructuring," Fort Worth, Texas-based AMR said in a statement. "Today's ratification gives us the certainty we need for American to successfully restructure, providing opportunity and growth for all of our people and stakeholders."

The pilots, who have been working without a contract since 2006, were the last of the three unionized employee groups to approve a new contract. The flight attendants union and the union representing ground workers like mechanics and baggage handlers already had approved new contracts.

Analysts said Friday's approval of the pilots' contract means bond holders are that much closer to getting a clear idea of exactly how AMR proposes to emerge from Chapter 11 as a standalone entity, something that can only happen with the approval of the parties that have lent it money. Specifically, the approval means creditors can closely examine American's exact costs, something they had not been able to do since the airline declared bankruptcy more than a year ago.

"Now there are more concrete details on which to base negotiations with bond holders," said one New York analyst. "The next big thing will probably be a standalone plan getting submitted to the creditors and then, maybe, after that to the court."

While AMR will be working in the coming weeks to win the support of its creditors to remain independent, US Airways will pull even more intensely in the opposite direction, trying to convince creditors that their best option is with a combination of American Airlines and US Airways.

The APA, which with American's two other unions holds a seat on the unsecured creditors committee, has particularly bitter relations with AMR's current leadership and has consistently urged the bankruptcy court and other creditors to approve a combination of American with US Airways.

"This ratified agreement should not in any way be viewed as support for the American standalone plan or for this current management team," APA spokesman Dennis Tajer told Reuters. "This contract represents a bridge to a merger with US Airways.

Many Wall Street analysts think the odds favor the APA's position.

“AMR’s existing plan is essentially the same failed strategy that drove the company to failure over the past decade,” Vicki Bryan, an analyst at Gimme Credit, told the New York Times. “We remain convinced that the best solution for AMR is to be run by someone else, and the best candidate in our view still is US Airways.”