Authors: Soyoung Kim and Nick Brown
US Airways Group is hoping to file paperwork with U.S. antitrust regulators as early as July for a proposed merger with AMR Corp, the bankrupt parent of American Airlines, according to people with knowledge of the matter.
US Airways believes securing regulatory approval for its proposed deal would remove one key element of uncertainty from the picture, bolstering its case as AMR's creditors compare the merits of a merger with the carrier's standalone restructuring plan, said the sources, who asked not to be named because they were not authorized to speak publicly about the matter.
The fifth-largest U.S. airline first confirmed its interest in merging with AMR, the third-largest, in January.
The sources said the exact timing of a filing with antitrust regulators depends in large part on the status of AMR's ongoing contract disputes with its three primary labor unions, and the timeframe could slip beyond July.
In addition, US Airways is hoping to make the antitrust filing with the consent of AMR and its creditors, under the bankrupt carrier's recent agreement with its unsecured creditors committee to study alternative restructuring plans, the sources said. US Airways does not plan a unilateral filing, they said.
While AMR has been reluctant to pursue a merger option aggressively, it has agreed to a general framework for exploring consolidation scenarios.
And though details of that protocol have yet to be determined, US Airways is hoping that process may provide an avenue for AMR to sign letters of intent with potential suitors seeking to file antitrust paperwork, the people said.
Under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act, companies must not complete a merger until the U.S. Federal Trade Commission and Department of Justice determine that the transaction will not hurt competition.
A potential acquirer can trigger the HSR process by reaching a consensual deal with a target company, or by launching an unilateral offer without any agreement with the target.
US Airways prefers to go the consensual route, according to the people with knowledge of the matter.
That means the company will have to make a written proposal to merge with AMR as early as next month, and come to an agreement in principle or enter into a letter of intent with AMR under which the two companies agree to pursue a combination, they said.
It remains unclear if US Airways could get the blessing of AMR in such a timeframe. AMR management has so far emphasized it prefers to exit bankruptcy as an independent entity before considering any merger.
In addition to initiating the regulatory review process, US Airways is also hoping to conduct due-diligence over the next few months so that it can present the creditors' committee with a definitive proposal not subject to any conditions, the people said.
AMR's unsecured creditors' committee, which helped craft the merger protocol, has not said exactly what the protocol includes, or where the committee stands on filing HSR paperwork in the near future. Jack Butler, the committee's lead attorney, declined to comment.
Representatives for US Airways declined to comment. AMR did not have an immediate comment.
AMR sought bankruptcy protection from creditors in November and wants $1.25 billion in annual cost savings from labor. It has threatened to cancel collective bargaining agreements covering thousands of workers, including pilots and flight attendants, if new agreements are not struck soon.
AMR's creditors want the labor talks to conclude before they begin a detailed review of merger scenarios, because that will give a concrete sense of AMR's labor structure and provide a benchmark against which to measure the costs or savings of a merger, according to the people with knowledge of the matter.
AMR and its unions are on the clock to try to reach new work deals by June 22. In the absence of consensual deals, Bankruptcy Judge Sean Lane has the right to grant an earlier request from AMR to scrap its current labor deals altogether and unilaterally implement new, interim labor terms.
AMR's labor unions believe the airline cannot remain competitive long-term without a merger, after four prominent rivals have already merged to form two mega-carriers at United Continental Holdings (UAL.N) and Delta Air Lines (DAL.N). The labor unions have said they do not believe that concessions from them alone will solve AMR's growing revenue disparity with Delta and United.
In court papers filed last month, AMR said it was expanding the role of its adviser McKinsey LLC to include a merger analysis, such as "evaluating costs and risks of alternative restructurings" and "complying with all due diligence requests" from its creditors in connection with those alternatives.