US Airways Merger with AMR Remains on Front Burner

CHARLOTTE, N.C. ( TheStreet) -- As American Airlines ( AAMRQ.PK) pilots head back into negotiations with the carrier, the question remains: Will the contract ever matter?

Even as the labor negotiations proceed, US Airways ( LCC), which signed a tentative contract agreement with the Allied Pilots Association in April, continues to pursue an effort to merge with American.

On Aug. 31, US Airways signed a non-disclosure agreement enabling the two carriers to review one another's confidential financial information, which meant a temporary end to its public advocacy for a merger, as well as to its discussions with American unions.

"AMR's analysts and advisors are likely still poring over data relating to the validity of LCC's merger synergy assumptions with scrutiny" wrote Wolfe Trahan analyst Hunter Keay, in a note issued Wednesday. "The slow pace of the process has surprised us, to some degree."

Nevertheless, the recent effort by American pilots to fly-by-the-book and take notice of every maintenance anomaly has, if anything, increased the likelihood of a merger, said consultant Robert Mann.

"You have a bunch of American employees right now who are very demotivated," Mann said. "There is more than a decade's worth of stuff boiling over right now, even though (CEO Tom) Horton has only been there for 10 months.

"If you're a member of the creditors committee, looking at how is this company going to perform under Horton subsequent to reorganization, when almost no employees seem interested in working for him, and the prospect of a much different outcome under US Airways management, that creates doubt about the value of the franchise under the existing team," Mann said.

Tom Hoban, spokesman for the Allied Pilots Association, which represents American pilots, said the group remains committed to a merger with US Airways. "The level of anger out there at this group of senior executives is such that the pilots of American want a change in leadership," he said.

"We're still firmly behind US Airways, from top to bottom. We've just been focused on our bankruptcy case and the termination of our contract," Hoban said, adding that before the non-disclosure agreement was signed, APA leadership communicated frequently with US Airways management. More recently, he said, "there's been no contact with US Airways management, which people misinterpret as sagging enthusiasm."

"We still have revenue and network gaps with Delta ( DAL) and United ( UAL)," he said. A merger with US Airways could provide American with the critical mass to compete.

American's other labor unions also remain committed to a merger, for which Laura Glading, president of the Association of Professional Flight Attendants, has emerged as a key advocate.

In a recent note, consulting firm Leading Edge said American pilots last month rejected a tentative contract deal by a 62%-38% margin partially because they felt that "rejecting the last best final offer was the best path to the US Airways merger.

"Although mergers, with the contentious process of integrating seniority lists, are usually anathema to pilots, APA pilots are overwhelmingly in favor of a merger with US Airways" Leading Edge said. The tentative contract agreement with US Airways "is superior by orders of magnitude for the pilot group, offering a voluntary limit to a modest amount of code sharing and the promise of real compensation parity, to include profit sharing and retirement as well as wages, with industry leaders."

While it is clear that US Airways has suffered from an inability to merge pilot seniority lists following a 2005 merger with America West, it is possible to conclude that a proposed decision ,unveiled Tuesday by a U.S. District Court Judge in Phoenix, defines a path to resolve the dispute. That decision would tentatively enable US Airways to negotiate a joint contract with its pilots, after which pilots who felt disadvantaged by that contract's seniority provisions would have the right to sue.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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