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The Deal: AMR Resists Pondering Life Without US Air

NEW YORK ( The Deal) -- When AMR Corp. (AAMRQ) and its advisers regroup in a Manhattan courthouse on Thursday to push for the bankrupt airline's proposed merger with US Airways Group Inc. (LCC), they are likely to keep their thoughts close to the vest about what would happen to the parent of American Airlines if the deal was never consummated and it had to continue life post-Chapter 11 as an independent company.

In the wake of the U.S. Department of Justice filing a lawsuit against the merger on Aug. 13, Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York at a confirmation hearing two days later asked the parties involved to come back on Aug. 29 to brief him on whether or not AMR's reorganization plan, which is centered on the merger, should proceed.

Don't expect AMR to back down and present any type of alternative to the court that would undermine the carrier's or its advisers' resolve in getting the $11 billion US Air deal done. Others, such as DOJ, will have to assert that AMR can survive outside of bankruptcy as an independent carrier, and that, perhaps, may soon be the key question. Will the nation's fourth-biggest airline still be able to fly on its own?

The Fort Worth carrier is certainly showing it can compete now. Just recently AMR announced a $357 million net profit, which was the "best second-quarter result in company history." It was a $262 million improvement over the same period last year.

The DOJ's trial team, led by antitrust division litigation director Mark Ryan, jumped all over those results on Tuesday in a court filing it made that argues for starting the trial on DOJ's suit on March 3 instead of Nov. 12, which is what AMR wants. Government attorneys noted that AMR is capable of emerging from Chapter 11 in solid financial shape without being acquired. "American's restructuring efforts have been extraordinarily successful and have positioned the company to compete as a strong and vibrant standalone firm," the DOJ said in the filing.

Both bankruptcy and the ability to endure outside it goes beyond a wonderful quarter -- or a few, for that matter. AMR still has to worry about working capital going forward as a legal fight with DOJ beckons. Its unions are now supportive of the merger, but it's uncertain if that would be the case if the deal fell through and AMR had to reorganize. Meanwhile, no creditor or shareholder activist right now is agitating to present an alternative plan to the merger, which creates a worrisome flipside -- are there any ideas out there about how AMR can stand on its own two feet if it had to?
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