AMR-US Airways Talks Progress

 - September 10, 2012, 10:35 AM
US Airways has finally convinced AMR to start formal negotiations over a merger.

Talks between US Airways and AMR over a possible merger involving bankrupt AMR subsidiary American Airlines have reached a formal stage, as the two companies begin to exchange “certain confidential information” under the terms of a nondisclosure agreement signed August 31. The deal calls for both companies to work in good faith in evaluating the possibilities of a combination, marking an apparent softening of AMR’s previous stance against any merger talks before it exited Chapter 11 bankruptcy protection.

In a statement, the companies said they do not expect to make further announcements on the status of any discussions “unless and until” they either break off negotiations or enter into a transaction. Perhaps more significantly, the two sides agreed not to talk with other parties about their potential merger. That provision, however, does not preclude AMR from entering nondisclosure agreements with other potential suitors. In fact, British Airways parent IAG has signed a similar deal with AMR.

The nondisclosure agreement between AMR and US Airways effectively ends any further talks between US Airways management and the three major employee unions at American Airlines, all of which issued a joint statement several months ago announcing their support for the merger and their approval of the terms that would govern collective bargaining agreements at the merged airline.

But despite US Airways’ estimates that a merger would create at least $1.2 billion in new value for the combined companies, American continued to pursue its own path toward restructuring, delivering concessionary contract offers to all three unions: the Allied Pilots Association (APA), the Association of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU). By August 8 all seven of the TWU’s groups voted to ratify a tentative offer from AA management, and on August 19 members of the APFA followed suit. Unable to reach terms with its pilots, however, AA management won the right last Tuesday under a New York bankruptcy court ruling to void its existing APA contract, allowing it to impose new conditions unilaterally.

Meanwhile, according to US Airways chairman and CEO Doug Parker, the conditional offers from US Airways provide for only marginal improvements over offers American’s employees have received through the bankruptcy process. Nevertheless, unions representing American Airlines pilots, flight attendants, mechanics and fleet service workers continue to back the US Airways bid.