US Airways CEO: Merger with American would be more profitable

Unloading baggage in Boston. “Our plan would result in higher returns than the AMR stand-alone strategy would,” said CEO Doug Parker. AP, File
Unloading baggage in Boston. “Our plan would result in higher returns than the AMR stand-alone strategy would,” said CEO Doug Parker. AP, File
Posted: April 26, 2012

US Airways, pursuing a possible merger with bankrupt American Airlines, is seeking to convince American’s creditors that a combined company would be more profitable than a stand-alone American, US Airways chairman Doug Parker said Wednesday.

“We are eager to demonstrate to the creditors of [American parent] AMR that our plan would result in higher returns than the AMR stand-alone strategy would,” Parker said during an earnings conference call with industry analysts. Cost savings and additional revenue would produce $1.2 billion a year more for a merged company than for a go-it-alone American, he said.

On Friday, three major American Airlines labor unions, representing more than 50,000 pilots, flight attendants, and mechanics, announced their support for a merger. The unions have three seats on the nine-member, unsecured-creditors committee in the bankruptcy process, and support from two additional members would give US Airways, the dominant carrier at Philadelphia International Airport, the backing of the majority of the panel.

The unions oppose American’s plan to eliminate 13,000 union jobs and to cut labor costs to return to profitability. American is seeking to throw out contracts with the unions that govern pay, benefits, and work rules and to impose its own terms on employees.

US Airways says its plan would save at least 6,200 of those jobs.

“Now, with those 50,000-plus employees by our side,” Parker said Wednesday, “we are focused on the full unsecured-creditors committee.”

Philadelphia is one of US Airways’ three main hub cities and would remain a hub for the merged airline, Parker said last week.

American Airlines did not respond directly to Parker’s comments Wednesday, but referred to a letter issued Monday by American chairman Tom Horton to employees. In that letter, Horton reiterated American’s intention to emerge from bankruptcy as a stand-alone company.

Horton called the US Airways effort “part of an attempt to force a merger with American” and said, “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.”

US Airways is the nation’s fifth-largest airline, and American is the third-largest. A merger would create the world’s largest airline, which would retain the American name and Dallas-Fort Worth headquarters.

For several years, US Airways, which emerged from bankruptcy in a merger with America West in 2005, has been seeking a new merger partner. The airline is still digesting the effects of its earlier merger, unable so far to reach contract agreements with the unions that represented premerger pilots and flight attendants of the two airlines. Those pilots and flight attendants still fly separate planes under separate contracts.

On Wednesday, US Airways reported a first-quarter profit of $48?million, a one-time gain associated with its swap of landing rights with Delta Air Lines. Without that trade, US Airways would have lost $22 million, or 13 cents per share, for the quarter. During the first three months of last year, the airline lost $114 million, or 71 cents per share.

US Airways reported record first-quarter revenue of $3.3 billion, as it raised fares to offset higher fuel prices. Per-seat passenger revenue rose 8.2 percent, while fuel costs were up 13.2 percent.

Parker said that passenger demand was strong and that he was encouraged by the company’s prospects for the busy summer traveling season.

Meanwhile, Delta Air Lines, the third-largest carrier at Philadelphia International, also reported first-quarter earnings Wednesday, announcing net income of $124 million, or 15 cents a share, compared with a loss of $318 million, or 38 cents a share, for the same period a year earlier.

Excluding one-time gains associated with fuel-price hedges and the landing-slot transaction with US Airways, Delta had a loss of $39 million, or 5 cents per share. That is a $355 million improvement compared to the first quarter of 2011.

Contact Paul Nussbaum at 215-854-4587 or pnussbaum@phillynews.com.

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