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Flight Disruption: AMR's plans to exit bankruptcy delayed

Robert Francis

rfrancis@bizpress.net

The end of bankruptcy seemed within easy grasp of AMR Corp. until mid-August.
That was when Texas Attorney General Greg Abbott and AGs in five other states joined a U.S. Justice Department lawsuit seeking to block a key component of the airline’s plan to emerge as a stronger, more competitive force: a merger with US Airways.
The Justice Department and the AGs oppose the merger on antitrust grounds. They charged that the merger was designed to reduce competition and raise prices for consumers by leaving four airlines controlling more than 80 percent of the U.S. air-travel market. The airlines vowed to fight back in court, and they left open the possibility of negotiating a settlement that would allow the deal to go ahead.
In bankruptcy court, lawyers for American parent AMR Corp. and its unsecured creditors said the Justice Department’s case shouldn’t stop the bankruptcy judge from approving AMR’s reorganization plan.
But Judge Sean Lane wasn’t so sure. He said he had “lingering doubts” about approving the turnaround plan and even considered postponing an Aug. 22 bankruptcy hearing. Instead, he went ahead with the hearing but delayed a decision on AMR’s plan until at least Aug. 29.
Despite this setback, AMR has made significant gains since filing for bankruptcy last year. The company reported a second-quarter net profit of $220 million, a $461 million improvement compared with the prior-year period.
Voicing support for the merger are the Dallas and Fort Worth chambers of commerce and union pilots at Fort Worth-based American Airlines who say the state’s attorney general should support American’s proposed merger with US Airways instead of fighting it in court.
The presidents of both chambers said the merger will help the local economy and create jobs, and the alternative is economic uncertainty for the region and state. The combined company would be based in Fort Worth.
“By any stretch of the imagination, having what the press refers to as ‘the World’s Largest Airline’ based in Texas makes our state more competitive,” James Oberwetter of Dallas and Bill Thornton of Fort Worth wrote Aug. 19 in an open letter to Abbott.
Separately, the Allied Pilots Association said in an advertisement in the Aug. 19 Dallas Morning News that American is “a powerful economic engine” in Texas but needs the merger to compete with bigger United and Delta.
The union asked Abbott, “Are you opposed to having a leading global carrier in Fort Worth? Considering everything at stake – including the large number of jobs and the tax revenues they generate – that doesn’t make any sense.”
A spokesman for Abbott, Jerry Strickland, said in an email that the attorney general was “keenly aware of the role American Airlines plays in Texas, however, this action is based on the law and not politics.”
Strickland said Abbott would try to work out the legal concerns with parties to the merger and find a “solution that benefits all Texans, American Airlines employees and their customers.”
Speaking of politics, Abbott’s possible opponent for the governor’s chair, State Sen. Wendy Davis (D-Fort Worth) has voiced her support for the merger. And Abbott’s interparty rival, Tom Pauken, has done the same.
The pressure on Abbott from the business community and labor comes just weeks after the Republican announced his candidacy for governor in the 2014 election. - Associated Press contributed to this story. 

INDUSTRY INSIGHT

The 10 largest airlines achieved an operating profit margin – as a group – in each of the last eight quarters. Together, they posted a pre-tax profit of $438 million in the first quarter of 2013 in contrast to a net loss of $433 million a year earlier.
Total revenue for all passenger airlines in the first quarter of 2013 was $34.1 billion. All U.S. passenger airlines collected a total of $800 million in baggage fees and $685 million from reservation change fees from January through March 2013.
 

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