February 8, 2013 / 12:27 AM / 6 years ago

Exclusive: AMR creditors to meet February 11, may vote on US Air merger

NEW YORK/ATLANTA (Reuters) - AMR Corp AAMRQ.PK creditors plan to meet on Monday and could vote on a potential merger agreement between the bankrupt parent of American Airlines, and US Airways Group Inc LCC.N, several people familiar with the matter said.

A US airways plane takes off behind an American Airlines jet at Ronald Reagan National Airport in Washington April 23, 2012. REUTERS/Kevin Lamarque

The two airlines are working to finalize deal terms so the board of each company could also meet to vote on a merger on February 11, the same day AMR’s unsecured creditors’ committee is scheduled to convene, the people said.

If the parties meet this potential timetable - as currently envisioned but seen as aggressive - a merger agreement could come as soon as Tuesday, the people said, asking not to be identified because the matter is not public.

AMR filed for bankruptcy in November 2011 citing high labor costs. A combination with US Airways would create the world’s largest airline by passenger traffic and help the two carriers better compete with rivals United Continental Holdings Inc UAL.N and Delta Air Lines Inc (DAL.N).

Discussions are continuing and could still fall apart, they cautioned. While timing of a deal remains fluid, there is desire to get it done before February 15, when the confidentiality agreements AMR bondholders signed are set to expire, the people familiar with the matter said.

Under terms of the non-disclosure agreements, the group of influential AMR bondholders is not allowed to trade the airline’s debt, people familiar with the matter have said.

Detailed financial information related to the merger talks is set to be publicly disclosed on February 15 so that the bondholders can resume trading without possessing confidential information. That is putting pressure on all the parties to reach a deal before then, the people have said.

US Airways, AMR and its creditors are hoping that the bondholders group will support the deal terms before the parties announce a merger agreement, the people said.

Representatives of the creditors committee, AMR and US Airways declined to comment. The bondholder group did not immediately respond to requests for comment.


Negotiations in recent weeks have largely come down to a few major sticking points, including how ownership of the combined company would be split between shareholders of US Airways and creditors of AMR, and who will run the merged airline, the sources have said.

While no final decision has been made, AMR creditors are expected to receive between 70 percent to 75 percent of the ownership in the combined company, the people said. US Airways’ formal merger offer made in November proposed that AMR creditors own 70 percent of the equity and shareholders of US Airways own the rest.

US Airways may also assume AMR’s retiree liabilities excluding pensions, in the event of a merger, the people said. The combined airline could take on retiree health and welfare liabilities, known as Other Post-Employment Benefits (OPEB), that AMR has been trying to reject through the bankruptcy process, the people said.

US Airways’ original merger proposal had assumed that there would be no OPEB liability, the people said.

US Airways Chief Executive Doug Parker is widely expected to become chief executive of the merged airline, while AMR Chief Executive Tom Horton could become non-executive chairman of the board for a limited time to allow for a smooth transition, the sources said.

Horton rebuffed an aggressive takeover push from US Airways early in the bankruptcy process, saying the airline preferred to exit court protection on its own and consider a deal later. But after several months of talks with its own creditors as well as US Airways, Horton has softened his approach and agreed to consider all options.

A combined American-US Airways would provide the scale to match bigger rivals that are upgrading service and expanding international routes. The merged company would have revenue of $38.69 billion based on 2012 figures, ahead of United Continental which had revenue of $37.15 billion last year.

The new American would have a solid presence on the important U.S. East and West coasts and on North Atlantic routes, given American’s revenue-sharing joint venture with British Airways and Iberia.

The case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

Reporting by Soyoung Kim in New York and Karen Jacobs in Atlanta; Editing by Phil Berlowitz and Carol Bishopric

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