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February 18, 2013

Anatomy of a merger: How American and US Airways joined

AMERICAN_US_AIR_18_25124197It started with a phone call on Nov. 29, 2011, the day that AMR Corp. filed for bankruptcy.

US Airways Chief Executive Doug Parker called his former cubicle mate at American Airlines, Tom Horton, to congratulate him on his promotion to CEO of the Fort Worth-based carrier.

Parker believed that a union with American Airlines was the next logical step in industry consolidation. But a merger was the furthest thing from Horton's mind.

"He was upfront from the beginning: 'Look, we're always willing to talk, but you need to understand that our objective here is to get in and get out as fast as we can and we're laser-focused on that,'" Parker said in an interview last summer.

The two executives, both 51, had known each other since the 1980s, when they worked together in American's finance department under then-CEO Bob Crandall. But now, some 25 years later, they had different views on what American's future should be and what was best for the airline industry.

Parker thought it made perfect financial sense for American and US Airways, the nation's No. 3 and No. 5 airlines, to join forces. Combined, they would create the world's largest carrier, with a network that could rival industry leader United Continental and Delta Air Lines, which was a close second in terms of revenue.

Horton didn't agree. He believed American could get its operating costs under control and emerge from bankruptcy as an independent carrier, with plans to increase its network by 20 percent and then contemplate a merger.

But as 2012 progressed and AMR terminated aging aircraft leases and signed new cost-cutting labor contracts, the pressure on Horton to consider strategic alternatives increased, particularly after an ad hoc group of bondholders entered the confidential discussions among American, US Airways and the unsecured creditors committee in December.

Horton says he was never opposed to the idea of a merger but thought it was premature to consider before the carrier restructured its finances. He wanted American to negotiate from a position of strength.

"I'm not really sure my mind changed," said Horton, AMR's former chief financial officer, who became chief executive when Gerard Arpey resigned on the day of the bankruptcy filing. "It was all about getting the most value for our owners and the best outcome for our customers and our people."

But in interviews with the Star-Telegram, several people involved in the discussions say that American's leaders continued to advance a stand-alone strategy well into December and that even after deciding that a merger was the best course, they believed that their executive team should lead the combined carrier.

After about two months of intense negotiations, when a deal was struck and the $11 billion merger of American and US Airways was announced Thursday, Parker's vision had won out.

To read the full article that ran in Sunday's Star-Telegram, click here.

-Andrea Ahles


Read more here: http://www.star-telegram.com/2013/02/17/4626182/anatomy-of-a-merger-how-american.html#my-headlines-default#storylink=cpy

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NYC Events

There is no doubt that the merger was a logical continuation on the business path. Lets hope that the service also improves. The good part is that AMR can now come back on its feet after this.

KW

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