Monday, February 25, 2013

AMR, US Airways Name Integration Leaders

February 25, 2013, 12:57 p.m. ET

By SUSAN CAREY
The Wall Street Journal


Oversight of the integration planning that would help mesh AMR Corp.'s American Airlines and US Airways Group Inc. should their planned merger receive all necessary approvals—will fall to US Airways President Scott Kirby and Bev Goulet, chief restructuring officer of American, the two carriers' chief executives said in a memo Monday.

The combination, which was announced on Feb. 14 and would create the world's largest airline by traffic, requires transition and integration planning so the two can begin aligning their operations, with a goal of closing the deal in the third quarter of 2013, US Airways CEO Doug Parker and AMR CEO Tom Horton said in the memo. Under the plan, Mr. Parker would become CEO of the combined company, to be named American Airlines Group Inc. Mr. Horton would become nonexecutive chairman of the board until the spring of 2014.

Mr. Kirby was the team leader for US Airways during the merger analysis and negotiations, the memo said. He played a key role in shaping the revenue and cost benefits associated with the merger, as well as leading the labor negotiations that have buttressed employee support of the plan.

Ms. Goulet has run AMR's restructuring under bankruptcy-court protection, resulting in annual savings of more than $2 billion. She also led the team that helped refine the merger's revenue and cost benefits and negotiated the equity split, which gives AMR creditors 72% of the new company and US Airways shareholders 28%.

In a 336-page motion filed with U.S. Bankruptcy Court late last week, AMR and its creditors sought the court's support of the merger, which would have an implied market value of $11 billion. Judge Sean Lane has set a March 27 hearing on the matter.

In the court filing, AMR reiterated that the merged company would have annual net synergies of $1 billion by 2015, produce higher revenue, have improved liquidity and borrowing capacity and ensure maximum recovery to AMR's economic stakeholders. The company's creditors committee, its labor unions and holders of $1.2 billion of unsecured debt also favor the merger. The two companies have said they expect to spend $1.2 billion in transition costs over three years.

During AMR's bankruptcy case, which commenced in late November 2011, the company has reduced its labor costs by $1.1 billion annually for five years and achieved nonlabor cost savings of $4.3 billion over the same period through restructuring its aircraft leases, eliminating unsecured and tax-exempt debt and redoing vendor and real-estate contracts, the filing said. The two are expected to have revenue of $40 billion in 2013.

The merger can be terminated if it isn't consummated by Oct. 14, with the possibility of extending that date to mid-December. If US Airways shareholders don't vote for the deal, if the bankruptcy court doesn't approve it as AMR's bankruptcy-exit plan or if antitrust regulators shoot it down, the deal wouldn't go ahead.

If AMR pursued a superior deal, it would have to pay US Airways $135 million in a breakup fee, the filing said. If AMR knowingly breached the merger terms, it would have to pay $195 million. Conversely, if US Airways accepted a better deal, it would have to pay American $55 million. In the case of a knowing breach of the agreement, US Airways would owe American $195 million. Both airlines have "no shop" agreements.

The lengthy court filing also asked for permission to set up short-term incentive plans for AMR managers so they will stay around to help with the transition work, and long-term incentive awards for senior managers that would be close to the existing plan already in place for senior US Airways employees.

Source:   http://online.wsj.com

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