AMR CEO Makes Case for Independence

DALLAS ( TheStreet) -- The board of AMR ( AAMRQ.PK) is not going to turn the airline over to US Airways ( LCC) without a fight.

On Monday, as AMR's attorneys tried to convince a bankruptcy court judge to abrogate its existing labor contracts, CEO Tom Horton reasserted his plans for American to remain independent, despite the surprise announcement on Thursday that US Airways had reached a tentative contract agreement with American's three principal labor unions.

"It's easy to understand US Airways' sense of urgency to find a way to address the challenges it has faced for a long time," Horton wrote in a letter to employees. "But I want you to understand these developments in no way alter our course."

He noted that under bankruptcy law, AMR has the exclusive right to pursue its plan of reorganization through the end of September, and possibly longer if an extension is granted. "It would be natural to look for an easy way out," he wrote. "But there is no easy path back to renewal and growth and industry leadership."

AMR's plan includes lower labor costs, an increased ability to fly regional jets and code-share with partners once the pilot's contract is altered under bankruptcy law; the ability to serve more markets when new aircraft arrivals begin; and lower costs associated with operating newer, more efficient aircraft.

There are also expectations for the maturation of a trans-Pacific joint venture with partners as well as a trans-Atlantic joint venture with partners, which is something that regulators approved for American's competitors long before they approved the same thing for American.

On Friday, American reported first-quarter results that showed its first-quarter passenger revenue per available seat mile rose 10.3%, ahead of both US Airways at 8.4% and United Continental ( UAL) at 5.2%. The same metric at Delta ( DAL) rose 13.5%.

Such results, if the trend continues, would no doubt become part of American's case, which is likely to include this question: If a carrier in bankruptcy can show that it can reduce costs and implement a plan that would enable it to produce profits in the future, doesn't such a company typically get a chance to reorganize?

The counter argument is that American's plan will not work. In an interview with the Dallas Morning News, Dave Bates, president of the Allied Pilots Association, questioned the plan's viability.

"Our advisors have universally been very skeptical of American's plan," Bates said. "They see American's, AMR's business plan as a kind of re-bake of the cornerstone plan. There are very few analysts, there are virtually zero analysts that we have talked to that think that will provide the value that the US Airways merger proposal will provide."

-- Written by Ted Reed in Charlotte.

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