AMR board approves US Airways merger

American Airlines and US Airways

Credit: WFAA

AMR board approves US Airways merger

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by JASON WHITELY / WFAA

WFAA

Posted on February 13, 2013 at 6:59 PM

Updated Wednesday, Oct 30 at 6:46 AM

DALLAS –– The board of directors for AMR voted late Wednesday afternoon to approve a merger with smaller rival US Airways, leaving its fate in the hands of the Arizona-based carrier. 

Sources tell KVUE's sister station, WFAA, the official announcement will happen at Dallas/Fort Worth International Airport on Thursday. Another will follow later in the day in Phoenix. After more than a year of speculation and weeks of direct talks, Fort Worth-based American Airlines and Tempe-based US Airways would become the world's largest airline.

The new carrier will retain the American Airlines name and headquarters will stay in Tarrant County, just south of D/FW Airport. But the US Airways name and brand will eventually disappear.

Sources tell WFAA that US Airways CEO Doug Parker will lead the new airline. He has actively lobbied for the combination for 14 months. 

AMR CEO Tom Horton’s role in the new airline, if any, was immediately uncertain. Last week, WFAA reported that Horton was being considered for a ceremonial position on the new board of directors such as non-executive chairman. But Horton, who remains unpopular with American’s own labor unions, had been lobbying his board for a more prominent role in the new airline.

NEW LEADERSHIP

Horton and Parker

Doug Parker, 51, once worked at American Airlines. He held a number of financial management positions at American from 1986 until 1991, according to his US Airways biography.

But his executive star began to rise in 2005 when, as CEO of America West Airlines, he successfully purchased a bankrupt US Airways and moved its headquarters from Charlotte, North Carolina to Tempe, Arizona.

"Under Parker's leadership, the airline has achieved record revenue growth, operational performance and profit margins that have outpaced most industry peers," the bio added.

Parker, a married father of three, tried unsuccessfully to purchase Delta Airlines when it was reorganizing under bankruptcy protection in 2006. Using lessons learned from the failed Delta deal, he approached Horton in 2011 about a possible deal.

For months, though, Horton and American insisted they were only interested in emerging from bankruptcy as a standalone carrier. 

But American's labor unions, which have long had a deep level of mistrust for American management, began to lobby hard for a merger with US Airways. Parker agreed to deals with American’s Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union which would help them transition to a new contract if the airlines combined.

The Allied Pilots Association, specifically, negotiated $87 million in improvements per year for its pilots –– mainly in increased pay and retirement contributions, along with training pay and per diem.

UNION INFLUENCE

American pilots

"The unions actually were very successful in this case in guiding the company toward a merger they were in favor of,” said Mark Drusch, a former airline executive with Continental, Delta and Lufthansa who is now the Chief Supplier Relations Officer for Fareportal, a New York-based travel company.

“It's good for us as consumers because we won't have labor issues for quite some time,” he said. “I can tell you, in the last 20 years, this is probably the only time where the unions would have such a strong say on what would happen to the company in bankruptcy." 

But as pieces of a possible merger between American and US Airways began falling into place in late December and January, insiders tell News 8 that Horton turned against the deal since it appeared Parker would lead the new airline.

"His claws are in the carpet trying to keep his job," said one source familiar with talks.

But Horton has done the job AMR’s Board of Directors hired him for in November 2011. 

Under his 15 month control at American, the airline has reduced its labor costs by 17 percent, shed its expensive pension plan and replaced it with a defined contribution plan similar to a 401(k). American also reduced its overall number of employees by 8,900 through attrition, layoffs or voluntary departures.

In addition, Horton also won concessions from labor to fly larger regional aircrafts and bolster code-sharing with other airlines, making the legacy carrier much more nimble than it had been previously.

PASSENGERS 

Christmas snow

Passengers on both American Airlines and USAirways will not notice any immediate changes, experts said. Both carriers will continue to operate on their own until the Federal Aviation Administration grants them a single operating certificate. 

But in the long run, experts expect fares to increase since fewer airlines will be offering seats for sale. Ticket prices in North Texas might not see a noticeable increase, however, because competition will heat up in 2014 once the Wright Amendment expires. That will allow Southwest Airlines to fly directly to destinations across the country without having to stop in neighboring states.

American's AAdvantage Miles and USAirways Dividend Miles will continue to accrue and eventually be merged into a single account, industry experts expect. 

Experts said there is little overlap in the two airlines' current flight operations. Domestically, American maintains its biggest presences in Dallas/Fort Worth and Miami while also maintaining hubs in New York, Chicago and Los Angeles.

By contrast, US Airways has strong operations in Phoenix, Charlotte and Philadelphia; the latter two hubs will help strengthen American's presence on the east coast with lucrative business travelers.

EMPLOYEES

Aside from Walmart, American Airlines is the largest employer in North Texas with 22,450 employees on its payroll locally.

Parker has said publicly that he thinks the two airlines can merge operations with minimal job loss.  But some positions will have to go, experts said, especially at headquarters where two marketing teams, corporate communication groups and other departments would be duplicated.

TIMELINE

American-US Airways merger

Completing a merger between the two airlines will take one to two years, experts have said, and requires a number of approvals. 

First, the boards of both airlines must approve a merger. Then creditors in the American Airlines bankruptcy, along with the judge, must also approve the business marriage. In addition, the U.S. Department of Transportation, U.S. Department of Justice and the European Union will also have to give the combination their blessings once they're certain it won't stifle competition.

Email jwhitely@wfaa.com

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