AMR Chief Racing Against the Clock
By SUSAN CAREY And JACK NICAS
CHICAGO (WSJ.com) - American Airlines parent AMR Corp. fears that an extended stay in bankruptcy-court protection heightens the risk of being taken over or broken up, Chief Executive Tom Horton said in an interview.
"Any of those things could happen," said Mr. Horton, a longtime AMR executive who took the top job the day the company filed for bankruptcy nearly four months ago. "Break up the company, sell off the parts, a combination where someone acquires the company in a way that is not advantageous to our people." The CEO didn't rule out a deal once the company emerges from bankruptcy.
AMR Chief Tom Horton is pushing for $1.25 billion in labor concessions.
Mr. Horton said he thinks AMR could emerge from Chapter 11 by the end of this year. While that would be "an aggressive schedule," he said, "what I've said to our team is, 'Let's get out of this as fast as we can. Nothing good happens in bankruptcy and the longer we wait, the more opportunity there is for an outcome that is not good for our company.' "
AMR is pressing its labor unions to accept concessions it says are essential to cutting its costs and returning to profit. Mr. Horton, in Chicago to visit supplier Boeing Co. BA +0.27%and American Airlines employees at O'Hare International Airport, said AMR's turnaround plan "is a really good one...But it's not inevitable."
He said he hammers home that message when he travels the country, meeting employees in crew rooms, cockpits and galleys, telling them, "We must move forward." AMR's labor unions have expressed dismay at the size of the cuts and negotiations are moving slowly.
Mr. Horton said AMR's business plan will be robust enough to attract investors to commit the capital needed to cover its underfunded pension obligations. He said investors will likely include existing creditors and possibly private-equity and hedge funds.
The Fort Worth, Texas, company aims to increase revenue by $1 billion a year, partly by increasing flights from its five most important U.S. cities and strengthening its relations with overseas partners. While AMR foresees "modest reductions" in capacity this year, Mr. Horton said, it plans to add 20% more flights from those five cities—New York, Chicago, Miami, Dallas and Los Angeles—by 2017.
Contrasting AMR's plans for growth with bigger capacity cuts at other airlines that went through bankruptcy, the 50-year-old CEO said those efforts were "about shrinkage and mergers," while AMR's "is about renewal and growth."
Most other big U.S. carriers already have combined. Delta Air Lines Inc. DAL +3.55%merged with Northwest Airlines in 2008. United Airlines and Continental Airlines married in 2010. United Continental Holdings Inc. UAL +4.99%now is the world's largest airline by traffic and Delta is No. 2, while American is a distant third. AMR is seen as the last opportunity for a tie-up.
US Airways Group Inc., LCC +6.91%itself the product of a 2005 merger with America West Airlines, has hired investment and legal advisers to help it assess a possible combination with AMR. Delta is studying options that could include buying AMR or going after US Airways, people familiar with the matter have said.
Mr. Horton said AMR isn't interested in merger opportunities while it is in bankruptcy-court protection. "Contemplating a merger in the middle of a complex restructuring is like running a marathon with a backpack on. You just wouldn't do it."
But once the airline emerges in good health, he said, "I think there are ample opportunities to consider combinations, and we would not dismiss that. Consolidation has been good for the industry."
Mr. Horton extolled AMR's business plan, which some analysts and investors have criticized for being too similar to its failed 2009 turnaround effort. He said the new plan will be bolstered by an ambitious fleet overhaul, increased revenue from new joint ventures with Japanese and European partners and $2 billion in annual cost-savings.
Of that, American's employees are being asked for $1.25 billion in concessions that include the elimination of 13,000 jobs and requirements that pilots and flight attendants fly more hours per month. AMR intends next week to tell employees at its American Eagle regional subsidiary what cuts it intends for them.
Denise Lynn, vice president of employee relations, said "there's still a fairly significant gap between the proposals the unions have made to us and the $1.25 billion we need to achieve."
If no agreements can be reached soon, AMR has said it will petition the bankruptcy judge to let it abrogate existing labor contracts and impose changes. "There's not an unlimited amount of time," Mr. Horton added.
AMR last week backed off a controversial labor concession it had been insisting on, agreeing to freeze three of American's four underfunded employee pension plans. It had planned to terminate all four.
Mr. Horton said Thursday that the about-face was a response to its creditors committee, which includes three unions, the federal Pension Benefit Guaranty Corp., Boeing and banks representing bondholders.
Creditors didn't want their claims to be diluted by the PBGC, which would take on a $9 billion liability in assuming the four plans and become AMR's largest creditor.
The fate of the fourth pension plan, covering American pilots, is uncertain, but the company and the pilots union are trying to find a way to freeze it. Freezing plans means that retirees and employees will receive all the benefits they have accrued so far, and future pension benefits would come in the form of 401(k)-type plans.
Because AMR compromised on the pension issue, the company must raise outside capital to fund the remaining pension shortfalls in the frozen plans. Mr. Horton said declined to estimate how much the company may seek.
