August 18, 2013

Many up in air as airline merger stalls

The U.S. lawsuit blocking the US Airways-American deal leaves thousands of employees in limbo.

By MARY SCHLANGENSTEIN Bloomberg News

DALLAS - About 1,000 white-collar employees with jobs on the block at US Airways and American Airlines got a temporary reprieve when the U.S. government sued to block the carriers' planned $14 billion merger.

Consolidating headquarters staffs is just one of the many tasks put on hold by the U.S. lawsuit.

A new stock ticker, reconstituted board and US Airways Chief Executive Officer Doug Parker's move to run American are all in limbo after the Justice Department said the deal would boost fares and harm consumers.

"There's a whole series of dimensions to how this screws things up," said Robert Mann, president of aviation consultant R.W. Mann & Co. "You have people who were announced out the door who you still need to run operations -- except now some might be gone. There's a whole group identified as their replacements, who now will be sitting on their hands for months."

A number of managers, including American Chief Commercial Officer Virasb Vahidi, have been told they won't join a merged carrier.

Some workers from Tempe, Ariz.-based US Airways face deadlines to accept a transfer or already have bought houses in Texas, where the company will keep American's Fort Worth home.

No one has been laid off or moved yet as part of the management shuffle, the airlines said. With no third-quarter closing for a tie-up creating the world's largest carrier, the 1,000 white-collar jobs targeted by Parker for elimination remain up in the air.

"Nothing can be implemented without the merger being executed," Mike Trevino, an American spokesman, said Thursday. "It was made abundantly clear that appointments were contingent upon the merger."

That includes Parker, President Scott Kirby and others from US Airways' executive group assuming control. American CEO Tom Horton stays on the job instead of ceding that title and taking on the chairmanship until the first shareholder meeting of the new company.

Also unsettled is the bankruptcy case of American parent AMR Corp. The U.S. acted just two days before a U.S. Bankruptcy Court hearing Thursday intended to confirm an AMR restructuring plan built around the U.S. Airways tie-up.

"This was Plan A," said Rob Pickels, an analyst at Fairport, N.Y.-based Manning & Napier Inc., whose holdings include US Airways. "We really don't know what Plan B is."

While changes such as installing the 12 announced directors for a combined board and unveiling a ticker for the rechristened American Airlines Group Inc. are being put off, the airlines say their 29 merger-integration teams will keep working.

Those groups were toiling on the details from human resources to operations needed to support the combination of American, the third-largest U.S. carrier, and No. 5 US Airways. Also still in the works: The continuing deliveries of 460 Boeing Co. and Airbus SAS jets whose 2011 orders were affirmed in the bankruptcy process, Trevino said.

What's been lost is the "cadence" of the preparations under way when the airlines thought the deal's consummation was just weeks away, said consultant Mann, a former American executive who is based in Port Washington, N.Y.

"Trying to run a business with the uncertainty of whether you can merge with somebody can really cause gridlock in an organization," said Greg Charleston, senior managing director at Conway MacKenzie Inc., an Atlanta-based restructuring- advisory firm. "You don't want to hire, you don't want to upgrade a system, you don't want to do anything until you know."

U.S. Bankruptcy Judge Sean Lane asked for briefs Thursday on the impact of the U.S. case on the standards for approving the restructuring plan and the appropriateness of ruling on it before the federal suit is resolved. He said in court in Manhattan that he proceeded with the hearing because scrapping it might have led to "unhelpful confusion or uncertainty."

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