American Airlines Needs Merger Less Than Suitor, CEO Says

“American is not going to determine its strategic future based on the urgent need of another company to make a deal,” Horton said in an interview yesterday at Bloomberg’s global headquarters in New York. While the value of US Airways “is probably at its high water mark,” he said, the “value of our company is increasing.”

AMR Corp.’s American is positioning itself to thrive after bankruptcy with aircraft upgrades and improving operational performance, which led to record sales last quarter, Horton said. American, which recently said it’s ready to compare mergers and strategic options against its own plan to remain independent, doesn’t see a combination as necessary, he said.

Even if AMR decides a merger is in the best interest of its stakeholders and creditors, Horton said it’s not clear that US Airways is the foremost contender. The most vocal of AMR’s possible suitors, US Airways said this week it won’t wait indefinitely for a merger agreement.

“US Airways has been for sale for a very long time,” Horton said. “It’s fair to say what their sort of earning power looks like today will erode over time.”

AMR on July 18 reported second-quarter profit of $95 million, excluding bankruptcy and severance costs, a $381 million improvement from a loss of $286 million a year earlier. It was the first second-quarter profit in five years, excluding special items.

Other Mergers

Once the world’s biggest airline, American filed for bankruptcy protection in November as it neared a fourth-straight annual loss after skipping industry consolidation that created two larger competitors, Delta Air Lines Inc. and United Continental Holdings Inc. American remains larger than US Airways, the country’s fifth-biggest carrier.

“It’s accurate that both American and US Airways have a revenue deficit to Delta and United,” US Airways President Scott Kirby said in a telephone interview. “That’s because we do not have the networks Delta and United have. That’s why this merger creates an airline that generates the same revenue as Delta and United and can compete.”

US Airways financial results “speak for themselves,” Kirby said. The airline’s shares more than doubled this year through yesterday.

Lagging Margin

AMR reported a second-quarter operating margin of 3.8 percent, according to data compiled by Bloomberg. US Airways, which reports results next week, is forecast to have an operating margin of 10 percent, while Delta is projected to have 9.2 percent and United to post 8.6 percent, Bloomberg data show.

“We recognize the value that consolidation has created,” Kirby said. “We’ve been very public about the need to consolidate, to do what’s right for our employees and our investors.”

While US Airways has argued a merger needs to be undertaken while American is in bankruptcy, Horton said it’s not clear that is a better course than waiting until the carrier exits court protection.

Horton outlined to US Airways CEO Doug Parker in a meeting in Washington yesterday how a review of alternatives to its stand-alone plan will work and what criteria the company will apply, Mike Trevino, a spokesman, said in an e-mailed statement.

Potential Partners

US Airways was one of five carriers Horton mentioned as potential partners in a meeting with AMR’s creditors committee June 10, people familiar with the matter have said. The others were Alaska Airlines, Frontier Airlines, JetBlue Airways Corp. and Virgin America Inc.

US Airways reached tentative contracts in April with American’s unions, contingent on a merger. Horton called the accords “fake labor agreements” in yesterday’s interview because they are “an agreement to agree.”

The judge overseeing American’s bankruptcy yesterday extended until Dec. 28 its exclusive right to file a plan of reorganization.


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