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6.09.12 – (LAA) – Bankruptcy Update, AA’s Cascade Plan, Possible Hurdles to Merger

This is Leslie Mayo, National Communications Coordinator, with the APFA Hotline for the week ending Saturday, June 9, 2012.

Bankruptcy Update
Labor stands strong in its commitment to our members for the best possible outcome of AMR’s Chapter 11. We have no doubt that this will be achieved by continuing to pursue a possible merger with US Airways. This week, Morningstar came out with a particularly interesting analysis of the benefits of a merger and the reorganizational value of the two airlines. Here are its findings in a note as reported by Bloomberg News:

June 7 (Bloomberg)  American Airlines reorganization value of $22b through a merger w/ US Airways (LCC), $4b higher than standalone valuation, Morningstar analyst Basili Alukos said in a note this morning. Merger w/ LCC is ìessentialî for AMR to shrink $2b rev[enue] gap vs the industry

  • $22b valuation would imply 73% recovery for creditors w/ impaired liabilities, incl. senior unsecured bondholders; would face 21% downside if AMR didnít merge w/ LCC
  • Morningstar sees LCC shareholders having 30% downside w/ no deal; sees 59% upside if merger takes place, achieves all projected synergies
  • Morningstar sees rev. synergies $1.5b annually in AMR-LCC dealî

According to Alukos, the Unsecured Creditors’ are projected to recover .73 cents on the dollar with a merger and a 21% downside without one. He also agrees with US Airwaysí business plan that projects a synergies revenue of $1.5 billion a year with the combined airline.î

The following is an excerpt from APFA’s attorneys’ final brief submitted to the court on Monday: ì[Airline] industry analysts have responded negatively to Americanís stand-alone business plan. Rodman and Renshaw analyst Daniel McKenzie concluded: “AMRís plan to grow 20% over 5 years is problematic bad for AMR & the industry.î J.P. Morgan analyst Jamie Baker concluded: ìWe are underwhelmed with AMRís standalone restructuring plan…”Wolfe Trahan’s analyst Hunter Keay concluded: ìWe view AMRís restructuring plan, founded on the idea of ëgrowth and renewal,í as unlikely to succeed.î These views reflect the consensus opinion, as explained by Analyst Baker: ìMost airlineís management and clearly the majority of investors feel that Americanís stand-alone plan represents a clear and present danger.”

The question is this: ìWho wins in an AA/US Airways Merger?î The answer is: everyone. The company will be far stronger, the employees will have greater job security and the creditors will receive a higher recovery. And the likelihood of a new management team interested in the growth and success of American Airlines will prevail. If the merger doesn’t take place, it is probable that Horton will be the only one reaping the benefits of that.

If you would like to read APFA’s final brief, click here. All of the court transcripts from the 1113 hearings can be found here. You will gain an invaluable amount of knowledge about the entire AA bankruptcy process if you take the time to review these documents. APFA encourages our members to also read the Wall Street Airline Analysts reports uploaded to our web site.

As you know, Judge Lane plans to make his decision regarding abrogating our contracts on June 22nd. Next week, TWU begins bargaining in mediated talks with Judge Peck in New York. Meanwhile, the pilots have extended talks with AA to next week. APFA will keep you posted of any changes to our bargaining status.

AA’s Cascade Plan
Meanwhile back at Amon Carter Blvd., AA announced the fourth layer of its Cascade Plan – another name for management and staffing cuts from the top, down. This week we saw several changes affecting Flight Service including changes in Base Managers and Regional Directors – complete with severance pay for their troubles. For more information, visit Jetnet.

With a snappy sign off by our CEO that reads: ìItís time to start winning again,î the first column of Uniquely American was launched on Jetnet last Monday. It is intended to be a new way of communicating by Tom and gang. In his first entry, our Chairman writes, ì[You’ll hear about] our people, our best and most unique strength when it comes to taking on the competition.î It is described as a place to share the exciting changes at American. You know, like how it wants to take over a billion a year from labor or convince the world of its Standalone Plan or ignore the obvious benefits of a merger with US Airways. Those are exciting changes.

APFA has received a few questions about possible hurdles regarding a merger with US Airways. The following should help clarify some of those issues.

Q. What is the status of the US Airways flight attendant pension fund and how will that impact our pensions?

A. In 2004, US Airways – prior to the merger with America West Airlines – was in bankruptcy. During the Chapter 11 process in 2004, the pension plan for US Airways flight attendants and other applicable union employee groups was terminated and the pension plan was moved to the jurisdiction of the Pension Benefit Guaranty Corporation (PBGC).

This doesnít have any bearing on American Airlinesí pensions because the PBGC will continue to oversee the former US Airwaysí flight attendant pensions as they do today. AA flight attendants’ pensions are frozen and therefore are not handled by the PBGC. They are separate from US Airways with or without a merger. Bottom line, the merger has no impact on either groupís pensions.

Q. Someone told me that one of the hurdles the merger faces is that if we merge with US Airways, the wages for US Airways flight attendants who are based in CLT, DCA and PHL snap back to rates they earned before the US Airways bankruptcy in 2004. Is that true?

A. No. The contract for US Airways flight attendants based in CLT, DCA and PHL provides that if US Airways is acquired by another entity (as defined within their Collective Bargaining Agreement), the flight attendant wages will snap back to pre-US Airways bankruptcy rates. Since US Airways plans to take control of American Airlines, the wage snap-back provisions would not be triggered.

Implementation Schedule For Possible AA Term Sheet
APFA, APA and AA engaged in interviews this week to assist in the selection of a vendor for a Preferential Bidding program. The interview process continues and no vendor has been hired to date.

It is important to note that if AA receives approval to abrogate our contract, it is their plan to hold a special enrollment period and implement the proposed changes to our current medical coverage as soon as administratively possible. Once we know more, we will pass the information along to you. AA Human Resources has told us there would be no changes to any benefits other than medical coverage prior to 2013. It is APFA’s understanding that deductibles and out-of-pocket maximums would be carried over to the new plan, however, if changes do occur, the deductible under the proposed health plans will be higher.

Other than these two items, APFA has received no indication from AA regarding its plans to implement the changes in its Term Sheet in the event that their request for contract abrogation is approved by the judge on June 22nd. As soon as we receive any further information, members will be notified. Meanwhile, we have encouraged AA to hold off with implementing anything in the event their request is granted.

Thatís it for this week. Encourage your coworkers to subscribe to this Hotline to receive the most up-to-date, accurate information.

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