AMR CEO says it’s time to weigh merger options

American Airlines (AMR) President and CEO Thomas W. Horton

DALLAS — The head of American Airlines says that seven months into a bankruptcy restructuring it’s time to consider options, including a merger with another airline.

American parent AMR Corp. discussed strategic alternatives with its creditors on Tuesday and said it will reach out to potential merger partners or investors.

US Airways has been pushing hard for a merger with American almost since the day that American and AMR filed for bankruptcy protection in November. But AMR and American CEO Thomas Horton has taken a slower approach, saying he preferred to wait until after AMR cut costs and emerged from bankruptcy protection.

On Tuesday Horton said that American has improved its revenue, made progress on cost-cutting labor deals, and is well on its way to a successful restructuring.

“It now makes sense to carefully evaluate a range of strategic options, including potential mergers,” Horton said in a letter to employees. He said options including a merger “could make the new American even stronger.”

Separately the Transport Workers Union said that it reached tentative contract agreements that would grant pay raises for mechanics and other ground workers at American Airlines. The work groups — which voted down company offers in May — will hold ratification votes by early August.

Horton’s comments continued an evolution in AMR’s public statements about a possible merger. AMR told the bankruptcy judge in May that it would work with creditors to consider alternatives to Horton’s plan of emerging from bankruptcy as an independent company.

Notably, however, Horton didn’t promise to pursue a merger while his company is still operating under bankruptcy protection, which is US Airway’s preference.

US Airways has lined up support and negotiated tentative contracts with American’s three unions by promising them fewer job losses and smaller concessions than American has demanded.

American is the nation’s third-biggest airline and US Airways ranks fifth in passenger traffic. Combined, they would be roughly the same size as United and bigger than Delta.

Delta and buyout firm TPG, which has invested in airlines before, have also been rumored to be interested in AMR, although many industry experts think Delta would have trouble getting approval from antitrust regulators.

“The only solution, really, long-term for American and US Airways is to merge,” he said. “They just aren’t going to be competitive without merging,” said Robert Herbst, an independent airline analyst.

Officials at American’s unions claim that Horton and other executives are resisting a merger during bankruptcy so they can get stock in the new company that could be worth tens of millions of dollars. The CEOs of Northwest Airlines and United Airlines got compensation worth $27 million and $40 million after their companies emerged from Chapter 11 and went through mergers.

“This is an issue of who’s going to control a combined US Airways-American Airlines,” said Tom Hoban, a spokesman for the Allied Pilots Association. “There’s a potential windfall for the (American) executives.”

AMR has continued to lose money while it’s been in bankruptcy, but lately the company has posted better revenue numbers than its main rivals. On Monday, AMR said revenue for each seat flown one mile rose 8.6 percent in June after a 7.3 percent jump in May. The figures show American’s ability to raise fares while still filling seats. Analysts say it has benefited from cutting unprofitable flights.

Chief commercial officer Virasb Vahidi said American has signed up more corporate-travel accounts — a lucrative business for airlines — this year than in the first half of 2011, although he didn’t provide numbers.

In the past two months, American also won labor approval of cost-cutting contracts from thousands of ground workers other than mechanics, and pilots are voting now on a company contract proposal. American says it has the highest labor costs in the airline industry. Agreements with its unions would give American certainty about labor costs for several years.

“We are approaching the point where we have greater clarity on our revenue outlook and cost structure and can begin to accelerate the plan for the new American,” Horton said.

AP Airlines Writers Scott Mayerowitz in New York and Joshua Freed in Minneapolis contributed to this report.