February 19, 2013

Twist ends 'friendly' fight to run largest airline

Runner-up gets $19.9 million and a free ticket to ride.

SCOTT MAYEROWITZ The Associated Press

NEW YORK — The 14-month battle for control of American Airlines came down to two men who got their start there.

click image to enlarge

US Airways CEO Doug Parker, right, and American Airlines CEO Tom Horton pose at DFW International Airport on Thursday in Grapevine, Texas.

The Associated Press

When the airline filed for bankruptcy in November 2011, Tom Horton was simultaneously elevated to CEO. But from the minute he reached the top, a number of forces started converging against him. The airline’s unions didn’t trust him. Creditors questioned his plans.

The strongest opposition, however, soon came from his old friend Doug Parker. The two had worked side by side as financial analysts at American’s Fort Worth, Texas, headquarters in the 1980s, until Parker moved on to other airlines, eventually becoming CEO of rival US Airways.

Parker had spent the last five years looking to merge with another airline. With American in bankruptcy, he sprang into action.

By the end of the year, the 51-year-old Parker will be at the helm of a combined American and US Airways – the world’s largest airline. Horton, also 51, will serve as chairman for about a year and then depart the company he worked at for nearly a quarter century. For his efforts, he will receive $19.9 million in cash and stock as well as a lifetime of free first-class tickets on American for himself and his wife.

Parker and Horton have spent most of their lives in the airline business. But that’s where the similarities end.

Horton is a buttoned-up guy who loves long runs and starts each morning with a bowl of oatmeal and freshly cut Texas peaches. Parker, on the other hand, is easily the life of a party. He commands a room and fills his conversations with energy.

There was never going to be room for both at the top of American.

AT OPPOSITE ENDS OF MERGER

This is the story of how two old friends and former proteges of legendary American Airlines CEO Robert Crandall found themselves on opposite ends of what may be the last great airline merger in the U.S. Horton and Parker declined to comment but interviews with executives, union officials, lawyers and others connected to the deal outline how it was filled with tactical negotiations, clandestine meetings and gut-wrenching decisions. The prize: A chance to bring American back to its glory days.
Horton initially was safe in his job.

When American’s parent, AMR Corp., filed for bankruptcy five days after Thanksgiving in 2011, it did so from a unique position. It had lost more than $12 billion during the past decade but still had $4.1 billion in cash. That meant it didn’t need to borrow money to keep operating, and that gave Horton more autonomy and control over the company’s fate.

His first task was to get the airline to stop bleeding money. Aircraft leases and vendor agreements were quickly changed. The airline reviewed every part of its revenue and moved to cut labor expenses.
This was not the time to work out a merger, although Wall Street analysts were already speculating.

The official line became: American was open to a merger, but only after it emerged from bankruptcy protection. Horton’s preference was for American to remain an independent airline. The unspoken reason was that American wasn’t worth as much as executives hoped it would be later.

And that’s exactly why Parker wanted to move quickly, while he still had the upper hand and could pay significantly less. US Airways hadn’t signed new contracts with its unions in years. That was benefiting shareholders. Eventually, Parker would need to pay out large raises, which would weaken his position in any merger. Time was of the essence.

CREDITORS TAKE ACTIVE ROLE

In January 2012, Parker decided to shop around his idea for a merger on Wall Street and in Washington.

(Continued on page 2)

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