US Airways CEO pushes case for American Airlines combination

June 15--CEO Doug Parker used US Airways' annual shareholder meeting in New York City to forcefully make the case for acquiring American Airlines, which has so far been publicly resistant to overtures as it works its way through bankruptcy court.

US Airways has been informed that the process to formally consider a merger or acquisition will begin after a federal judge rules on whether American can void its labor contracts to cut costs, Parker said. That ruling is expected to come as early as next Friday.

Earlier this week, American CEO Tom Horton said the company is "not focused on a merger" and plans to exit bankruptcy as a standalone company. Parker derided that plan Thursday.

"They can't fix this," he said of American's slip from the country's No. 1 to No. 3 airline. "This is a structural weakness that bankruptcy can't fix." He also said American's plans to expand and grow its network don't make sense. "They've announced an intention to grow in the markets where they're the weakest, not the strongest," he said.

Any changes at US Airways could have a big impact in Charlotte, which is the Tempe, Ariz.-based carrier's busiest hub. US Airways operates almost 90 percent of the more than 700 daily flights at Charlotte Douglas International Airport. The company also has about 7,000 employees based in Charlotte.

Parker said the possible deal is being received warmly on Wall Street. "There's tremendous financial support for such a transaction," Parker said. US Airways has not made a formal bid for American yet, and American has the exclusive right to present its own reorganization plan through September. But the creditors committee, which includes American's major unions, bondholders, airplane manufacturers and the Pension Benefit Guaranty Corp., could ask for the judge to shorten that window.

Some analysts have expressed skepticism about combining the two airlines. Aviation consultant William Swelbar recently wrote a piece where he said US Airways is ignoring the "elephants in the room" of possible labor strife when putting the combined airline together, and said hoped-for synergies in revenue generation and cost savings might not materialize.

US Airways plans to file for an antitrust ruling on the acquisition as early as next month, possibly clearing another hurdle for the transaction.

The combination of US Airways and American would create the nation's largest airline. Parker pointed to American's declining market share as evidence that it needs to merge with another carrier. "This is an issue that has happened because they sat out consolidation," he said. Since America West and US Airways merged, Delta and Northwestern, United and Continental, and Southwest and AirTran have all tied the knot, consolidating market share.

Employee support, concerns

The presidents of American's pilot, flight attendants and mechanics unions attended the meeting to show support for the merger, for which Parker thanked them. They've been promised fewer job cuts and higher wages under a merger with US Airways.

But the US Airline Pilots Association, US Airways' Charlotte-based pilots union, is concerned about the impact a new contract could have on its members. Labor issues have been a thorn in US Airways' side since it merged with America West in 2005. Since then, pilots and flight attendants have not been able to reach a new joint contract, and still operate under separate work rules and pay scales despite years of contentious and often bitter wrangling.

"We're guarded right now," said USAPA spokesman Capt. James Ray. He said the union wants assurances that current US Airways pilots won't lose their positions flying large jets to American Airlines pilots and end up flying smaller, regional jets. Even though the proposed terms call for a substantial across-the-board raise, a pay raise would be canceled out if US Airways pilots move to smaller planes, which pay less.

"We're done with pay cuts," Ray said. US Airways pilots took substantial wage and benefits cuts when the carrier went through bankruptcy in 2002 and 2004. "It doesn't need to come on our backs. We've done enough."

USAPA and the American Pilots Association are working to resolve issues. "We're simply trying to build some bridges here in anticipation of this merger happening sooner rather than later," said APA spokesman First Officer Tom Hoban.

US Airways first confirmed it was pursuing a merger with American in January. American, the country's third-largest carrier by revenue, filed for bankruptcy protection last year, seeking to lower its costs. All of the other legacy airline carriers had already been through bankruptcy, allowing them to shed high labor costs, and mergers, garnering them larger market share.

Parker said a deal with US Airways, which has stronger East Coast hubs but lacks a strong presence in the West Coast and Pacific markets, makes the most sense. "You put these networks together, and they're highly complementary," Parker said. "This airline that we put together can be the best airline in the world, on any metric."

Portillo: 704-358-5041On Twitter @ESPortillo

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