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American Airlines, US Airways Say Labor Deal Ratified By Pilot Associations

1/6/2013 8:52 PM ET

AMR Corp. (AAMRQ), the parent company of American Airlines, smaller rival US Airways Group, Inc. (LCC: Quote) and the unsecured creditors committee have on Friday reached a memorandum of understanding with the Allied Pilots Association's Board of Directors and the USAPA's board of pilot representative.

The MOU, ratified by the two pilot associations, will assist in a smooth merger process and to develop a framework for the terms of employment for pilots, as well as a process for pilot integration, in the event of a merger. This was revealed by the two companies in a joint statement.

The MOU will form the basis of informed discussions between the stakeholders in order to decide whether a merger of the two airlines should ultimately be pursued that will also help AMR emerge from bankruptcy.

The companies noted that "details regarding the MOU are still covered by the terms of a non-disclosure agreement so they cannot be further disclosed at this time."

Reports earlier in the month revealed that the two airlines are expected to reach a decision on the merger within weeks. AMR has a board meeting scheduled for January 9 and a decision on the merger may be reached in that meeting.

US Airways sent an all-stock merger proposal in mid-November to AMR and its creditors. As per the proposal, American's creditors would own 70 percent of the new combined airline and US Airways shareholders 30 percent, which implied a combined company valued at up to $8.3 billion that will be the world's largest airline.

AMR filed for Chapter 11 bankruptcy protection in November 2011, citing uncompetitive costs. Under some pressure from creditors, American started discussing a possible merger with rival US Airways in late August. The two airlines in September signed a nondisclosure deal that allows them to share confidential information and evaluate a possible deal.

AMR had until recently shrugged off takeover interest expressed by US Airways and insisted on a stand-alone restructuring plan as the efforts to reach a deal could prolong the bankruptcy proceedings for American Airlines as regulators may ask for an antitrust review as well.

US Airways had begun initial talks in late March with some creditors and advisers of bankrupt American Airlines regarding a merger of the carriers. US Airways said then that a merger of the two could translate to over $1.5 billion in revenue and cost savings. Three main unions of American are part of the creditors' committee.

Some members of the unsecured creditors committee reportedly gave a positive response to US Airways' plan for the combined airline, targeting to complete the combination before AMR exits bankruptcy.

AMR was one of the few airlines that averted bankruptcy after the 9/11 attacks and subsequent downturn. However, the company reported losses in the following years even as peers resolved cost issues and returned to profit.

LCC closed Friday's regular trading session at $14.73, up $1.07 or 7.83% on a volume of 12.05 million shares. AAMRQ closed at $0.87, up $0.03 or 3.67% on a volume of 2.68 million shares.

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by RTT Staff Writer

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