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Battle for American Airlines pit friend against friend

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By The Associated Press
Monday, Feb. 18, 2013, 8:45 p.m.
 

NEW YORK — The 14-month battle for control of American Airlines came down to two men who got their start there.

When the airline filed for bankruptcy in November 2011, Tom Horton was elevated to CEO. But from the minute he reached the top, a number of forces started converging against him.

The airline's unions didn't trust him. Those owed money by American questioned his plans. The strongest opposition, however, came from his old friend Doug Parker. The two worked side-by-side as financial analysts at American's Fort Worth headquarters in the 1980s, until Parker moved on to other airlines, eventually becoming CEO of rival US Airways.

Parker spent the past five years looking to merge with another airline. With American in bankruptcy, he sprang into action.

By the end of the year, the 51-year-old Parker will be at the helm of a combined American and US Airways — the world's largest airline. Horton, also 51, will serve as chairman for about a year and then depart the company he worked at for nearly a quarter century.

Parker and Horton have spent most of their lives in the airline business. But that's where the similarities end.

Horton is a buttoned-up guy who loves long runs and starts each morning with a bowl of oatmeal and freshly cut Texas peaches. Parker is easily the life of a party. He commands a room and fills his conversations with energy.

There was never going to be room for both at the top of American.

Horton and Parker declined to comment, but interviews with executives, union officials, and others connected to the deal show it was filled with tactical negotiations, clandestine meetings and gut-wrenching decisions. The prize: a chance to bring American back to its glory days.

Horton initially was safe in his job.

When American's parent, AMR Corp., filed for bankruptcy in 2011, it did so from a unique position. It had lost more than $12 billion in the past decade but had $4.1 billion in cash. That meant it didn't need to borrow money to keep operating, and that gave Horton more control over the company's fate.

His first task was to get the airline to stop bleeding money. Aircraft leases and vendor agreements were quickly changed. The airline moved to cut labor expenses.

This was not the time to work out a merger, although Wall Street analysts were already speculating.

The official line became: American was open to a merger, but only once it emerged from bankruptcy protection. Horton's preference was for American to remain independent. The unspoken reason: American could be worth more down the road.

And that's exactly why Parker wanted to move quickly, while he still had the upper hand and could pay significantly less. US Airways hadn't signed new contracts with its unions in years. Eventually, Parker would need to pay out large raises that would weaken his position in any merger. Time was of the essence.

In January 2012, Parker decided to shop around his idea for a merger on Wall Street and in Washington. He wasn't the only one floating the idea of a merger.

Horton was feeling pressure from American's creditors, who were owed $29.6 billion. Bankruptcy law gives a company 18 months to exclusively present its own plan to return to profitability. The creditors and judge have to sign off on the plan but typically sit on the sidelines.

American's creditors took a much more active role. It started with their choice of lawyers: Skadden Arps Slate Meagher & Flom. The firm had worked with Parker and US Airways.

The full press started in February 2012, when the creditors' lawyers invited Horton and two of his top lieutenants to a dinner to talk about a merger.

Horton stood firm, preferring to consider a merger only after American emerged from bankruptcy.

Then came American's unions.

David Bates, who was head of American's pilots' union at the time, was worried that the airline's plan would fail. He wanted to stop Horton from gutting his members' pay and benefits. So he turned to US Airways for a better deal.

“If we had hope of a better outcome, I needed to move very quickly,” Bates said.

Through a mutual friend, he set up a dinner on March 12, 2012, with Scott Kirby, president of US Airways and Parker's right-hand man.

The meeting went well. Other meetings between union leaders and US Airways management followed. Steps were taken to ensure the meetings remained a secret.

Too many American pilots recognize Bates and the other union officials. So they flew US Airways.

When Parker and Kirby flew to Texas to make their case to the union, there was even a higher level of secrecy. They used a private jet, and Bates made the 12-mile drive to the meeting site in the union's red Chevrolet Suburban.

Similar meetings were being held with the flight attendants union and one that represents ground service employees and maintenance workers.

About this time, Parker sent a letter to American formally proposing a merger. US Airways would own 51 percent of the new airline. The offer wasn't taken seriously.

On April 20, Parker publicly announced that American's three unions were backing a merger.

It was an audacious move.

American was still in control of its bankruptcy, but suddenly there was another option on the table.

Wall Street analysts supported a merger, favoring Parker as CEO.

Horton publicly told employees “nothing changes as a result of these announcements.” But privately, he and other top American executives were rethinking a deal. In summer, Horton alerted his board that it was time to investigate a merger.

He reached out to Parker. Horton asked Parker to ratchet down the public push for a merger. A deal and decision about who would run the new airline still was far off.

Three days later, Horton started to spin the idea of a merger as his own.

He told The Associated Press that the first conversation the two men had about a possible merger took place in September 2011, when Horton was just American's president.

“I made that pitch. We nodded heads to one another,” Horton had said in July.

On Aug. 31, the airline announced that nondisclosure agreements had been signed and that they were considering a merger.

For the next three months, teams of lawyers, accountants and consultants reviewed each airline's books.

US Airways executives came to Dallas to hammer out details between sips of Dr Pepper and iced tea.

The only sticking point was who would lead the merged carrier.

Parker badly wanted to be the one in charge. Horton, who had spent a year fixing a broken American, believed he should be able to finish what he started.

A small group of advisers met with Horton and appealed to his principles. The airline needed a fresh start. Horton agreed and began preparing to hand the reins to Parker, his friend and rival for three decades.

 

 
 


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