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US Airways said it would take its case for a merger with American Airlines, the carrier in bankruptcy protection, to the company’s creditors in an effort to win support for the deal.
Last week US Airways won backing for the tie-up plan from American’s unions, a crucial constituency within the Chapter 11 process, and on Wednesday the company said it was turning its attention towards bondholders of AMR, American’s parent company.
“With those 50,000 plus [union] employees on our side, we are focused on the full unsecured creditors committee,” Doug Parker, chief executive of US Airways, said as the company announced its first-quarter results.
“We are eager to demonstrate to the creditors of AMR that our plan would result in higher returns than the AMR standalone strategy would,” Mr Parker told analysts on a conference call.
A US Airways bid for AMR faces numerous hurdles. AMR’s management opposes the move and it has the exclusive, court-granted right to lead the restructuring process until September and can petition to extend that period.
To cut short that timeframe, US Airways would have to convince the unsecured creditors committee, where unions have only three of nine seats, and then the bankruptcy judge that it was offering a more credible restructuring plan.
Committee members appear unmoved. Jack Butler, lawyer for the committee, on Tuesday told the court that it supports the carrier’s standalone business plan during hearings to determine the fate of AMR’s labour contracts.
As a result, insiders said that unsecured bondholders and their representatives on the creditors committee have become the new front line and convincing them of the merits of a deal has become a priority for US Airways and its advisers.
To help win them over, US Airways has argued that a tie-up would create substantial cost savings by eliminating redundancies and generate revenue benefits via a stronger network of hubs and flights.
Scott Kirby, president of US Airways, said that the company estimated that even with more generous labour contracts for American workers than the company is offering, a merger would create $1.2bn in synergies.
“This means significantly greater recoveries for AMR’s creditors and US shareholders,” he said. “Also, the impact on labour and jobs is far less draconian because some of the synergies have been appropriately shared with labour.”
So far the pitch seems to be having some impact. AMR’s unsecured debt has traded up sharply over the year to date, while shares in US Airways have jumped more than 80 per cent based in part on the merger speculation.
In court, David Resnick, a banker at Rothschild who is advising AMR, indicated that the company would probably consider a merger at some point because of its duty to get the best deal for stakeholders.
“Stakeholders would want to ensure they are getting the highest possible value so they would want the debtor to look at alternatives to a standalone plan,” Mr Resnick said on Wednesday.