US Airways has put forth a formal proposal for a merger with American Airlines, with US Airways CEO Doug Parker running the combined company, a person familiar with the matter has told The Associated Press.
In a separate development, pilots at American Airlines have approved a new labor contract, the pilots’ union announced Friday. That marks a key step in the company’s recovery from bankruptcy and could give added momentum to a merger.
American CEO Thomas Horton told employees after the vote that the company expects to make a decision on the potential merger soon.
The merger proposal from US Airways would give creditors of American parent AMR Corp. 70 percent of the combined company, according to a person who spoke on condition of anonymity because the talks are private. There have been reports that AMR might seek up to 80 percent for its creditors, which could be unacceptable to US Airways shareholders, the person said.
Charlotte is US Airways’ busiest hub, and the airline makes up nearly 90 percent of the daily traffic at Charlotte Douglas International Airport. The company has about 7,000 employees based in the city.
Parker, long an advocate of airline consolidation, has told the Observer he expects Charlotte to grow in importance should the merger with American be completed, with more flights out of the airport and more employees in the city.
Analysts say the pilots’ vote gives AMR creditors certainty about the company’s labor costs, making it easier for them to weigh which gives them more money – American on its own, or getting bigger through a merger with US Airways.
“This contract represents a bridge to a merger with US Airways,” said union spokesman Dennis Tajer. He said the vote “should not in any way be viewed as support for the American stand-alone plan or for this current management team.”
In a message to employees after the vote, American CEO Horton called the contract with pilots a milestone and said the company was nearing the end of its restructuring.
Horton said AMR was also wrapping up work on whether to remain independent or merge with US Airways. He said he was “confident the new American will be very strong” but was “still evaluating” the merits of a merger.
“We expect to have a conclusion on this soon,” he said.
US Airways spokeswoman Michelle Mohr said the company could not comment on Friday’s developments because of the nondisclosure agreement it has signed with American.
AMR and American filed for bankruptcy protection in November 2011. With the pilots’ deal in hand, the company could exit Chapter 11 early next year, a faster reorganization than those in the last decade at United Airlines and Delta Air Lines.
Friday’s vote filled in the last unknown piece in AMR’s labor-cost puzzle. The company’s creditors “very much wanted a contract because they want some visibility on what the cost structure will be,” said Ray Neidl, an airline analyst for Maxim Group PLC.
The airlines have exchanged confidential financial information and talked about a merger for several weeks, although a deal is not certain. Over the summer, Parker made a series of public appearances around the country, including in Charlotte, to gain support for the merger.
American has about 7,500 active pilots plus a few hundred others on furlough. The union said the vote to ratify the contract was 5,490 to 1,951.
The 6-year contract will raise pilots’ pay by 4 percent on signing and 2 percent per year after that, with an adjustment in the third year to bring pay in line with that at other big airlines. The union will get 13.5 percent of the stock in the new AMR when it emerges from bankruptcy, which analysts estimate would amount to at least $100,000 per pilot.
In exchange, pilots will fly more hours and American will get more flexibility to outsource flying to other airlines.
American, which has already frozen pension plans and made other changes in benefits and work rules, is trying to use the bankruptcy process to cut annual labor costs by 17 percent or about $1 billion.
In recent months, flight attendants and ground workers have ratified separate contracts that reduced benefits and outsourced thousands of jobs. American expects to cut about 10,000 jobs, with 3,000 layoffs and the rest coming from early retirements and attrition. The Associated Press and Observer Staff Writer Andrew Dunn contributed.
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