APFA says American Airlines exec opposes merger for personal gain – 6.18.12

[email protected]
10:17 am on June 18, 2012

In the war of words between American Airlines unions and its management, some of the sharpest comments have come from the Association of Professional Flight Attendants. In its weekly update Friday evening, the union may have hit a new high, or low, depending on oneís viewpoint.

The unionís hotline alleged that AMR/American chairman and CEO Tom Horton opposes a merger with US Airways for financial reasons ó heíll make more money by waiting for a merger after American emerges from bankruptcy.

Said the hotline:
ìSome of you may have been wondering why it seems like our CEO isnít hearing what everyone else is saying: that the best option for AAís survivability ñ a merger with US Airways. Actually, as it stands, Iím sure he hears fine. He just chooses not to listen. Instead, he plugs along promoting the Standalone Plan regardless of its lack of viability.

ìSome of you may also know why heís doing this. For those who donít, here it is in a word: millions.î

The hotline noted that the heads of United Airlines and Northwest Airlines saw a big payoff when their companies emerged from bankruptcy. United merged with Continental Airlines, and Northwest merged with Delta Air Lines, but those mergers didnít occur until after the companies came out of bankruptcy.

The AA union said whatever AMR shares Horton gets in the reorganization, those shares will appreciate more if he retains control of American Airlines and if a US Airways merger happens after AMR exits bankruptcy.

It seems that negotiations between the APFA and management made the least headway of any union after American laid out the size of money savings and job cuts it was seeking in bankruptcy.

APFA president Laura Glading has been a harsh critic of managementís efforts, and an enthusiastic supporter of US Airwaysí efforts to merge with American and take over management of the carrier.

Keep reading for the portion of the hotline that discusses the situation.

APFA hotline, June 15, 2012

ìHow Many Million is Too Many Million?

ìSome of you may have been wondering why it seems like our CEO isnít hearing what everyone else is saying: that the best option for AAís survivability ñ a merger with US Airways. Actually, as it stands, Iím sure he hears fine. He just chooses not to listen. Instead, he plugs along promoting the Standalone Plan regardless of its lack of viability.

ìSome of you may also know why heís doing this. For those who donít, here it is in a word: millions.

ìIn order to exit bankruptcy, the Company must file and receive approval for a Plan of Reorganization (POR). This is the roadmap that lays out the companyís post-bankruptcy existence as well as the percentage creditors will recover on their claims.

ìFirst, the POR will likely provide for cancellation of the stock that was issued before the bk filing. The POR will state the total value of the company, the number of shares of new stock to be issued, and the price of that stock. For example, if the POR Sets the value of the Company at $1 million and the number of shares at 10,000, the price of each share will be $100. (In nearly all cases, unsecured creditorsí recovery is in the form of stock.) If the POR provides for a 50% recovery and an unsecured creditor has a claim of $1,000 the value of that claim will be reduced to $500 for which the creditor receives 5 shares of stock (5 x $100).

ìFinally, the POR will disclose the number of shares the officers will receive for their anticipated success after the bankruptcy. Of course, as was the case before the bk filing, the AMR officers expect to be showered with gobs of compensation. To accomplish this, they will receive large amounts of stock. When Doug Steenland (then-CEO of NW Airlines) and Glenn Tilton (CEO of UAL) exited bankruptcy it was with $27 million and over $30 million respectively. And that was after the first day upon emerging from bankruptcy. The ìrealî money is based on the fact that the valuation of the company is invariably understated. Consequently, when the stock starts to trade on the open market, investors appreciate the real worth of the company and are willing to pay more than the price of the stock. Back to our example, if Wall Street believes the real price of AA is $2 million, that doubles the amount of compensation our CEO would make right off the bat.

ìTom Horton wants the same treatment as the CEOs of United and Northwest received. If he remains in control of AMR until it emerges from bankruptcy he just may get it. And if he then announces a merger with US Airways, AAís stock will skyrocket. We know this because, based merely on the possibility of a merger with AA, US Airwaysí stock has increased by about 150% over the past several months.

ìAlternatively, if Horton is not in control at exit and instead US Airways is sponsoring the POR, which would include the distribution of stock, Horton will receive far less than the tens of millions bestowed upon other airline CEOís.
ìThat should about explain it.î