Doug Parker, CEO of Tempe-based US Airways, hasn’t been shy in expressing his intent to merge his company with bankrupt American Airlines. This week, however, American’s CEO Tom Horton came out and said that the merger was actually his idea and that it may no longer be on the horizon, The Associated Press reports.
In November, American’s parent company, AMR, filed for Chapter 11 bankruptcy. Ever since the filing, rumors of a possible merger with US Airways have been in the air. After Horton’s recent statements, however, the chances of a merger seem slim.
Companies generally file for Chapter 11 bankruptcy in order to reorganize and become profitable again. This can involve selling off certain assets, closing branches of the business, and renegotiating contracts. Sometimes, however, a company facing bankruptcy merges with another company in order to pool their resources.
At first glance, a merger with US Airways seems like a strong move for the airliner. American’s unions supported the merger, contending that it was the best way for the company to retain its workforce.
However, according to Horton, a merger with US Airways isn’t in the best interests of American. In fact, Horton claims that US Airways needs the merger a lot more than American does.
According to Horton, US Airways is facing increasing financial pressure to raise salaries, since the company hasn’t negotiated a new contract with its unions in over seven years. US Airways is in “a race against the clock” to increase revenue before the salary hikes kick in. A merger with American would allow US Airways to do just that, as American has more international flights, which bring in higher fares.
Tom Horton contends that the best route for American Airlines is to avoid the merger with US Airways and emerge from bankruptcy independent. “It would be tremendously unwise for us to pursue a combination with a company because they are seeking to solve their own problems,” Horton said.
- American chairman not happy with Parker’s portrayal of merger efforts (Fox News)
- Corporate Bankruptcy: What Every Investor Should Know (FindLaw)
- Mergers & Strategic Transactions: Forms and Contracts (FindLaw)
- US Airways Buys American Airways’ Debt to Become a Creditor (FindLaw’s Phoenix Bankruptcy Law Blog)