American Airlines hopes to dodge takeover bids
AMR Corp.’s American Airlines, whose bankruptcy made it a possible takeover target, may try to buy a rival after leaving Chapter 11 as the U.S. industry shrinks, chief executive Tom Horton said.
“It’s not hard to envision how we could be a force in the industry and, potentially, a consolidator,” Horton said in an interview
“I don’t think we need to combine with anybody, but I think there will be ample opportunities to.”
Openness to a future acquisition contrasts with Fort Worth, Texasbased AMR’S decision to sit out a round of deal-making by U.S. airlines from 2005 through 2010.
Horton said AMR would like to exit Chapter 11 this year and expects to do so independently, which would mean dodging potential bids from Delta Air Lines Inc. and US Airways Group Inc.
American, the third-biggest U.S. airline, must move quickly to secure $2 billion in cost cuts that include axing pensions and 13,000 jobs to help fend off potential suitors, Hor- ton said. Its turnaround strategy also counts on adding $1 billion in revenue as overseas routes expand and new jets join the fleet.
“If we don’t get our act together and we don’t show some progress on this plan, that’s an opening for others,” said Horton, 50, who was AMR president until predecessor Gerard Arpey stepped down upon the company’s Nov. 29 bankruptcy filing.
American’s restructuring success is by no means certain, said Jeff Straebler, an independent airline analyst in Stamford, Conn.
“American will know their labour costs relatively shortly,” Straebler said.
“They won’t have the same control over revenues. Capacity restraint has benefited the industry and I don’t see how adding even more flights” at hub airports, as the airline projects, will restore profits.
Deals done shortly after bankruptcy aren’t unknown in the U.S. industry.
Delta began exploring mergers less than six months after its 2007 bankruptcy exit, a process that led to its purchase of Northwest Airlines Corp. in 2008. Northwest agreed to buy Midwest Air Group Inc. in 2007, within three months of leaving court protection.
At the same time, AMR’S public discussion of possible future purchases comes “early in the process” of reorganizing in Chapter 11, said Betsy Snyder, a Standard & Poor’s analyst in New York.
“It seems premature to be talking about an acquisition for them at this point,” Snyder said Monday in an interview. “If you know there’s another 1-1/2 to two years to even exit bankruptcy, who knows what the industry is going to look like at that point?”
While American holds exclusive rights to file a reorganization plan with the bankruptcy court, rivals can talk with its unsecured creditors committee. That panel, which includes the airline’s three biggest unions and the U.S. Pension Benefit Guaranty Corp., is involved in all American’s major decisions outside routine business.
Tempe, Ariz.-based US Airways has acknowledged hiring bankers to study AMR. Any future mergers among U.S. airlines are likely to see smaller carriers, including Alaska Air Group Inc. and Jetblue Airways Corp. and perhaps US Airways, gobbled up by bigger rivals, Horton said.
“They are not likely to be independent in the long run,” he said. “Over time, there will be more consolidation in North America.”