Phoenix Bankruptcy Law News

US Airways Buys American Airways' Debt to Become a Creditor

US Airways’ courtship of American Airlines continues. On Thursday, US Airways announced that it had purchased “a small amount of debt” of AMR, American Airway’s bankrupt parent company, USA Today reports.

Tempe-based US Airways has repeatedly expressed its desire for a merger with American Airlines. Its recent debt purchase makes the company one of AMR’s creditors, giving it a voice in AMR’s bankruptcy. AMR representatives have dismissed the purchase as a publicity stunt.

AMR, American’s parent company, filed for Chapter 11 bankruptcy protection in Nov. 2011. Rumors of a possible merger with US Airways have been in the air since the company filed. Many of American’s unions support a merger, contending that it’s the best way for American to retain its workers and avoid bankruptcy.

Now, in order to keep tabs on American, US Airways has paid $630,000 to buy AMR’s 6.25 percent notes due in October 2014, Bloomberg reports. The purchase makes US Airways one of AMR’s creditors, giving the company a say as to what direction the bankruptcy takes. US Airways spokesman John McDonald recently implied that US made the move in order to better advocate for a merger between it and American.

“We purchased the debt to ensure that we would have standing to participate in proceedings before the Bankruptcy Court in AMR’s Chapter 11 case,” McDonald said. “We think this will be particularly important now that AMR has publicly committed itself to a review of strategic alternatives.”

Companies generally file for Chapter 11 bankruptcy in order to reorganize and become profitable again. This often involves selling off certain assets, closing branches of the business, and renegotiating contracts with third parties. In some cases, the bankrupt company merges with another company in order to pool their resources and avoid bankruptcy.

American Airlines spokesman Bruce Hicks has dismissed US Airways’ purchase as “a meaningless ploy to garner publicity.” Whatever the case, US Airways wasted no time in taking advantage of its new-found status as a creditor. On Thursday, US made a filing in bankruptcy court, approving AMR’s request to extend the period for filing its plan of reorganization.

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