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

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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

He wasn’t the only one floating the idea of a merger.

Horton was also feeling pressure from American’s creditors, who were owed $29.6 billion. Bankruptcy law gives a company 18 months to exclusively present its own plan to return to profitability. The creditors and judge have to sign off on the plan but typically sit on the sidelines.

American’s creditors took a much more active role.

It started with their choice of lawyers. After American filed for bankruptcy protection, the creditors interviewed several law firms.

“You have to decide whether you are going to be proactive or reactive,” Jack Butler, of Skadden Arps Slate Meagher & Flom, told the committee.

The creditors chose proactive, and Butler’s team was hired.

It probably helped that Butler had represented US Airways in its 2002 bankruptcy and Skadden’s head of restructuring, Jay M. Goffman, had worked closely with Parker after 9/11, when Parker ran America West. Skadden was also America West’s counsel when it later merged with US Airways.

The full press started in February 2012, when the committee’s lawyers invited Horton and two of his top lieutenants to dinner, where creditor representatives talked about the merits of a merger. They didn’t like American’s plan to stay independent, thinking they could get back more of their money  through a merger.

Horton stood firm, preferring to consider a merger only after American emerged from bankruptcy.

Then came American’s unions.

David Bates, who was head of American’s pilots’ union at the time, was worried that the airline’s plan would fail and the company would shortly return to bankruptcy. He also wanted to stop Horton from gutting his members’ pay and benefits. So he turned to US Airways.

“If we had hope of a better outcome, I needed to move very quickly,” Bates said.

Through a mutual friend, he set up a dinner on March 12, 2012, with Scott Kirby, president of US Airways and Parker’s right-hand man.

SECRET MEETINGS

Bates and another union leader – Dennis Tajer – ordered a mix of East Coast and West Coast oysters. A joke was made because US Airways has two separate unions, referred to as east and west.

The meeting went well. Bates and union vice president Tony Chapman flew to Phoenix 10 days later for dinner with Kirby and Parker. Another dinner quickly followed with some of the union’s leaders and most of US Airways management.

Steps were taken to ensure the meetings remained a secret.

Too many American pilots recognize Bates and the other union officials, so they flew US Airways.
Pilots will often fly other airlines in uniform and chat with the crew. That couldn’t happen on these flights.

“Everybody was told to be invisible, not to talk to anyone,” Bates said.

FORMAL PROPOSAL

When Parker and Kirby flew to Texas to make their case to the union, there was even a higher level of secrecy. They used a private jet and Bates personally made the 12-mile drive to the meeting site in the union’s red Chevrolet Suburban.

Union security guards were stationed around the Hilton Arlington, but when Bates pulled up at the back entrance, he recognized a reporter lurking nearby. He quickly made a U-turn and the meeting was moved to union headquarters.

Similar meetings were being held with the flight attendant union and one that represents ground service employees and maintenance workers.

Around this time, Parker sent a letter to American formally proposing a merger. US Airways would own 51 percent of the new airline. The offer wasn’t taken seriously.

On April 20, Parker publicly announced that American’s three unions were backing a merger.
It was an audacious move.

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