It started with a phone call on Nov. 29, 2011, the day that AMR Corp. filed for bankruptcy.
US Airways Chief Executive Doug Parker called his former cubicle mate at American Airlines, Tom Horton, to congratulate him on his promotion to CEO of the Fort Worth-based carrier.
Parker believed that a union with American Airlines was the next logical step in industry consolidation. But a merger wasnt uppermost on Hortons mind.
He was upfront from the beginning: Look, were always willing to talk, but you need to understand that our objective here is to get in and get out as fast as we can, and were laser-focused on that, Parker said in an interview last summer.
The two executives, both 51, had known each other since the 1980s, when they worked together in Americans finance department. But now, some 25 years later, they had different views on Americans future.
Parker thought it made perfect financial sense for American and US Airways, the nations No. 3 and No. 5 airlines, to join forces. Combined, they would create the worlds largest carrier, with a network that could rival industry leader United Continental and Delta Air Lines, which was a close second in terms of revenue. Charlotte would be its second-largest hub, behind only Dallas-Fort Worth.
Horton contended American could get operating costs under control and emerge from bankruptcy as an independent carrier.
But as 2012 progressed and AMR terminated aging aircraft leases and signed new cost-cutting labor contracts, the pressure on Horton to consider strategic alternatives increased.
Horton says he never opposed the idea of a merger but thought it was premature to consider before the carrier restructured its finances. He wanted American to negotiate from a position of strength.
Im not really sure my mind changed, said Horton, AMRs former chief financial officer, who became chief executive when Gerard Arpey resigned on the day of the bankruptcy filing. It was all about getting the most value for our owners and the best outcome for our customers and our people.
But in interviews with the Fort Worth Star-Telegram, several people involved in the discussions said Americans leaders continued to advance a stand-alone strategy well into December and that even after deciding that a merger was the best course, they believed that their executive team should lead the combined carrier.
After about two months of intense negotiations, when a deal was struck and the $11 billion merger of American and US Airways was announced Thursday, Parkers vision had won out.
Bringing in the unions
In early 2012, US Airways started quietly making the rounds on Wall Street to talk up a possible merger. A PowerPoint presentation was put together showing all the benefits of a combination, from route maps to fleet optimization to labor costs.
Parker named the effort Tetris, after the popular puzzle video game.
David Bates, then president of the Allied Pilots Association at American, heard about the presentation from the unions advisers and decided to reach out to the Tempe, Ariz.-based carrier.
On March 12, the day before US Airways President Scott Kirby was scheduled to speak to analysts at a conference in New York, Bates and Kirby met at the Oceana restaurant in a private room for dinner.
He told me what he could do in terms of a pilot contract, Bates said, recalling that the presentation, made over oysters, was impressive. It was vastly more attractive than what AMR was willing to give the pilots.
Having learned a lesson from a failed bid for Delta, when US Airways didnt move fast enough to get unions on its side, Kirby reached out to Americans two other major unions, the Association of Professional Flight Attendants and the Transport Workers Union.
APFA President Laura Glading met Kirby at Oceana a week later to confidentially talk about a merger.
Everyone was a little bit nervous about one of us getting recognized, Glading said.
She said that when she flew to Arizona a few days later to meet with Parker, she was recognized at the Phoenix airport and some asked on Facebook why she was there.
Of the initial meeting with Kirby, Glading said: I feel like I just about made up my mind that night. I was very interested in what he had to say.
On April 19, all three unions announced that they had signed conditional labor agreements with US Airways that would take effect in a merger.
Could be substantial value
With pressure building as the summer began, AMR announced that it would examine strategic alternatives with its creditors committee.
Around the end of August, Horton told AMRs board of directors that a US Airways deal might be the best course of action.
Horton reported to the board that he believed there could be substantial value from the combination with US Airways and that it could be a better deal for creditors and stakeholders than any other plan available, including the stand-alone plan, said Thomas Roberts, a corporate partner with Weil, Gotshal & Manges, AMRs lead counsel.
So when the CEO comes into the boardroom and says that, it opens up possibilities and it starts you down the path.
In November, US Airways presented the creditors committee a merger proposal that included a 70-30 equity split in favor of AMR. American countered with an 80-20 split.
Union leaders involved in the meetings viewed Hortons merger negotiations as halfhearted because American executives continued to move forward with a stand-alone restructuring plan.
They were taking the single-carrier approach all along. They were not interested in a merger in bankruptcy. They felt they were being pressured, said Robert Gless, deputy director of the Transport Workers Union. They even used the words being pushed by US Airways into something they didnt want.
The final issues
The final weeks left two outstanding issues to resolve: the equity split and who would run the new carrier.
Its a complicated situation because we have to negotiate with US Air and then you have to negotiate with the creditors committee and then you have to negotiate with the ad hoc creditors. Its just a lot of negotiations, Roberts said. Within the last week, the offer on the table from US Airways was still 70-30.
Wall Street analysts assumed all along that Parker would run the merged airline, but Horton had to consider whether he wanted a chairman role or an executive position in the new company.
I would say that they were very reluctant up until the very end, Glading said. But Id also have to say that I think in their heart of hearts they believed they were the team to do this. I think they thought they knew how to do it better.
Horton doesnt think he was an obstacle to a merger and doesnt believe he threw up any roadblocks as the agreement was negotiated.
I think I was enhancing the maximum value creation for the American owners, Horton said. And I think the American owners would tell you that, if you speak with the bondholders and the board of directors, the record is pretty clear on how we moved the ownership percentage up to the range of where it is today.
The final equity split was 72 percent for AMR and 28 percent for US Airways.
Horton was named chairman, and Parker will be the chief executive of the new American Airlines Group when the merger closes, most likely in the third quarter.
For navigating AMR through bankruptcy, Horton will receive a cash and stock severance package worth close to $20 million.
On Wednesday, the AMR board considered the merger agreement and voted unanimously for a deal that puts Parker at the helm of the new carrier.
We had a plan that called for bringing the two companies together, and it created one stronger than either of us could be independently, Parker said as he and Horton stood in the Admirals Club at Dallas/Fort Worth Airport on Thursday and announced the merger.
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