US Air Makes Push for Potential Merger – 5.02.12

US Air Makes Push for Potential Merger

Wed May†2,†2012 9:32†pm (PDT)

By SUSAN CAREY

http://online.wsj.com/article/SB10001424052702304743704577380671487453632.html?mod=googlenews_wsj

US Airways Group Inc., LCC +0.98% which is stalking American Airlines parent AMR Corp. in the hopes of merging the two carriers as the way to bring AMR out of bankruptcy-court protection, already has won the support of American’s three big unions, and says it trying to line up additional backing from other members of AMR’s creditors committee.

But the Tempe, Ariz., company also is wooing its own employees as part of its attempt to do an end-run around a resistant AMR management team. Doug Parker, US Airways’ chief executive, visited Charlotte, N.C., earlier this week to meet with leaders of the US Airline Pilots Association, the union that represents his 4,200 pilots, and the Association of Flight Attendants, bargaining agent for 6,700 US Airways attendants.

According to the pilots union, Mr. Parker made a detailed presentation that laid out the business case for why a combination would help American overcome network deficiencies now that it faces larger rivalsóUnited Continental Holdings Inc.UAL -1.14% and Delta Air Lines Inc. DAL -1.63% óthat expanded through mergers of their own. The presentation didn’t contain any potential terms of a merger deal, such as whether it would be a stock swap, what the allocation of shares would be and whether outside equity would need to be raised, the union said.

It focused instead of how the complementary route networks of US Airways and American would lift the combined airline to No. 1 in the East and Central U.S. regions by domestic passenger revenue, from American’s current fifth place in the East and fourth in the Midwest. The presentation said the merger would create new route opportunities, eliminate the size gap to United and Delta, help attract more corporate and elite fliers and bolster the prospects for Oneworld, American’s global marketing group. US Airways has said a merger would generate at least $1.2 billion in annual revenue gains and cost-savings, even with the contract terms it envisioned for employees.

Mr. Parker suggested that if the merger occurs, his pilots could be in line for the same contract terms American’s pilots agreed to when they threw their support behind the merger plan, according to Capt. James Ray, a spokesman for the US Airways pilot group. So members of the unions’ negotiating and merger committees have begun meeting to make a potential joint contract as attractive as possible, he said. The idea is that US Airways pilots would negotiate the American terms on a quick timeline, and get such a deal if they agree before a potential merger closed, said a person familiar with the planning.

The Allied Pilots Association, the union the represents American’s 8,000 pilots, has said it backs a merger because it would strengthen American and result in fewer lost jobs and less severe concessions than AMR is seeking to buttress its standalone reorganization effort.

AMR, based in Fort Worth, Texas, filed for Chapter 11 last November. The company has said it doesn’t rule out consolidation, but would prefer to exit from court protection on its own. AMR has the exclusive right to field a plan of reorganization through September. But AMR’s creditors could petition the court to shorten that period or deny another extension if they believe a better offer is available. The three American unions that support US Airways sit on that nine-member creditors committee, along with bondholders, the Pension Benefit Guaranty Corp., Boeing Co. BA +0.01% andHewlett-Packard Co. HPQ +0.32%

A combination with AMR could solve one of Mr. Parker’s top labor problems, a seemingly intractable dispute that dates back to the 2005 merger of America West Airlines and US Airways. The former US Airways pilots disagreed with an arbitrator’s ruling on how to reach a single seniority list for the two groups, while the former America West pilots supported the decision. That impasse has sparked numerous lawsuits, requires US Airways to schedule the two groups separately and has kept the pilots from winning a joint labor contract that would lift their compensation, which is below industry standards.

Since then, a federal law was enacted that would govern seniority integration and resolve disputes through binding arbitration. When America West and US Airways combined, their decision to arbitrate was based on internal union policy, not a federal statute.

US Airways flight attendants also remain on separate seniority lists and must be scheduled independently. After years of negotiations, the combined group reached tentative agreement on a joint contract early this year. But the attendants voted down the accord in March. The union said in a member update Tuesday that Mr. Parker briefed leaders on US Airways’ plan to merge with AMR. But no details were released.

Earlier this week, Capt. Dave Bates, president of the American pilots union, visited the US Airways pilot leadership to explain why his members support the merger plan. The two sides agreed to work together to facilitate a merger and begin talks on how to reach a combined labor agreement, both unions confirmed.

While the contingent contract terms offered by US Airways would require American pilots to fly more hours, hourly pay rates would move up to approach Delta rates, representing a big boost for US Airways pilots group. US Airways also is offering the American aviators an initial raise of 5.5% and then annual increases of 3% for five years, raises that ostensibly also would be granted to US Airways pilots.

AMR is seeking larger give-backs from its labor unions, as part of its goal of reducing its overall labor costs by $1.25 billion a year. In the absence of consensual agreements on those new terms, the company is hoping to persuade the judge overseeing its bankruptcy proceedings to let it rescind the existing labor contracts and impose terms on the workers. The judge could render a decision on the issue in early June.

If the pilots’ contract is abrogated in court but US Airways’ merger with AMR subsequently occurs, the American pilots would receive the contingent contract already agreed with US Airways, according to a spokesman for the American pilots union.

Capt. Bates on Tuesday urged his members to sign a petition of "no confidence" in AMR’s business plan. "Are the managers who drove American Airlines into bankruptcy the ones to lead us out?" he said in a letter to the pilots. "Except for a handful of entrenched managers at AMR, nearly everyone in the airline industry believes that consolidation now is the right way to go."

The pilot chief also took issue with AMR’s assertion that its terms would result on only 400 pilot furloughs. With the big productivity increases the company is seeking, the job loss could exceed 2,000, he said.

A spokesman for American said the company’s plan to increase by 20% the number of flights from its five key domestic hubs by 2017 will create growth in pilot positions. Pilot retirements also will create opportunities for those who remain, as will a large number of new planes slated to enter the fleet. The 400 pilots furloughed would be recalled after about a year, he added.

"Our expected fleet should create 1,500 new captain promotions through 2017," he said. "We remain confident this is the right plan for our employees and our future."

Write to Susan Carey at [email protected]