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US Airways merger wins backing from AMR bondholder group

By Mary Schlangenstein Jeffrey McCracken And Beth Jinks
Bloomberg News
USAIR_AMERICAN_MERGER
TODD SUMLIN - tsumlin@charlotteobserver.com
An American Eagle jet is unloaded, foreground as US Airways and American Airlines jets taxi to the runway for takeoff at Charlotte Douglas International Airport Thursday, January 3, 2013. TODD SUMLIN - tsumlin@charlotteobserver.com

A group of AMR Corp. bondholders with about $1.5 billion in unsecured debt is backing a merger in bankruptcy with US Airways Group Inc. and pushing for a deal by Feb. 15, people familiar with the matter said.

The bondholders coalesced around the idea after reviewing confidential data from AMR’s American Airlines and US Airways, said the people, who asked not to be identified because the talks are private. The promise of more cost savings and other financial benefits from a combined carrier than from a stand-alone American helped sway the group, one of the people said.

While the ad hoc group doesn’t hold a seat on AMR’s unsecured creditors committee, the debtholders’ support gives US Airways an ally as it makes the case for a tie-up that would create the world’s largest airline. AMR said Jan. 3 it expected to decide in weeks to merge or stay independent.

Feb. 15 is the expiration date of nondisclosure agreements the bondholders signed with the two airlines, one of the people said. Besides giving the debt owners access to proprietary information, the accords restrict them from trading in AMR or US Airways debt, two people said.

Gerard Uzzi, an attorney at Milbank, Tweed, Hadley & McCloy LLP in New York who represents the bondholders, declined to comment when asked about the ad hoc group’s support of a merger. An AMR spokesman, Michael Trevino, also declined to comment, as did John McDonald, a US Airways spokesman.

US Airways operates about 90 percent of the flights at Charlotte Douglas International Airport, its largest hub.

Members of the ad hoc group include MatlinPatterson Capital Management LP, JPMorgan Chase & Co., Cyrus Capital Partners LP, Pentwater Capital Management LP and Marathon Asset Management LP, according to a Dec. 13 court filing.

Based on that filing, the group’s holdings included more than $880 million of unsecured AMR notes and more than $620 million in unsecured trade claims, according to Kevin Starke, an analyst at CRT Capital Group LLC in Stamford, Conn.

The division of equity in a combined airline and who would run it remain unresolved in talks among the carriers and AMR creditors, the people said. The bondholders want the ownership of a combined airline to be settled first, with a decision to follow on management, one person said.

AMR has urged that creditors get 80 percent of the equity versus 20 percent for US Airways shareholders, while US Airways favors a 70 percent to 30 percent division, another person said. American is the third-biggest U.S. airline, while US Airways is No. 5.

US Airways CEO Doug Parker has pushed for a merger since at least January 2012. Tom Horton, the CEO of AMR, agreed to consider merger options in restructuring after saying the airline preferred to exit court protection and then weigh consolidation.

Speculation that Parker would succeed has more than tripled US Airways shares since the day before AMR’s Chapter 11 filing on Nov. 28, 2011, topping the 26 percent gain for the Standard & Poor’s 500 Index. The stock rose nearly 4 percent Tuesday to $14.43.

US Airways has said combining the airlines could produce at least $1.2 billion a year in savings and incremental revenue. A merged carrier would surpass the top two by global traffic, United Continental Holdings Inc. and Delta Air Lines Inc.


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