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TheStreet Open House

In American Airlines Merger, One CEO Had to Go

Horton initially was safe in his job.

When American's parent, AMR Corp., filed for bankruptcy five days after Thanksgiving in 2011, it did so from a unique position. It had lost more than $12 billion during the past decade but still had $4.1 billion in cash. That meant it didn't need to borrow money to keep operating, and that gave Horton more autonomy and control over the company's fate.

His first task was to get the airline to stop bleeding money. Aircraft leases and vendor agreements were quickly changed. The airline reviewed every part of its revenue and moved to cut labor expenses.

This was not the time to work out a merger, although Wall Street analysts were already speculating.

The official line became: American was open to a merger, but only after it emerged from bankruptcy protection. Horton's preference was for American to remain an independent airline. The unspoken reason was that American wasn't worth as much as executives hoped it would be later.

And that's exactly why Parker wanted to move quickly, while he still had the upper hand and could pay significantly less. US Airways hadn't signed new contracts with its unions in years. That was benefiting shareholders. Eventually, Parker would need to pay out large raises, which would weaken his position in any merger. Time was of the essence.

In January 2012, Parker decided to shop around his idea for a merger on Wall Street and in Washington.

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 in a basement ballroom of the Sheraton New York Times Square Hotel.

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

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