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Creditor, 'prospective merger partner' US Airways gives support to American exclusivity extension

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Creditor, 'prospective merger partner' US Airways gives support to American exclusivity extension

US Airways said it supported American Airlines’ request to extend the exclusive period during which only American could file a reorganization plan through Dec. 27, according to a July 12 court filing by US Airways.

As reported, American’s current exclusivity period expires Sept.28, but last month the company filed a motion jointly with the unsecured-creditors’ committee in the case to extend the period three months, saying it was doing so well before the expiration of the current period “in order to publicly establish a timetable” for the company’s reorganization.

Among other things, American said in its motion that it would use the additional exclusivity to pursue its standalone business and reorganization plans, but would also use the time to “complete a fair, balanced, and transparent strategic alternatives assessment.”

US Airways, which disclosed in its response to American’s exclusivity request that it was a creditor of American as well as a “prospective merger partner” for the company, said that it supported the extension because it “represents a commitment on the part of the debtors and the [creditors’ committee] to consider and review strategic alternatives, including a combination, in order to determine what approach would maximize the value available to stakeholders.”

US Airways said, “Such commitment, if fully and appropriately implemented, should allow the debtors and the [creditors’ committee] to discharge their respective fiduciary duties to explore all available strategic alternatives. Therefore, and in reliance on such commitment, US Airways respectfully joins in supporting the relief requested.”

On one level, US Airways’ support for the extension is counterintuitive, given that an extension of exclusivity would appear to enhance American’s ability to pursue its standalone plan at the expense of a third-party merger. But US Airways had previously signaled a lack of concern with the proposed extension, saying American would not emerge from Chapter 11 before next year in any event, and in effect arguing that time was on US Airways’ side in the sense that US Airways would have more opportunity to press its case. US Airways CEO Doug Parker told his employees in a July 4 letter, “That delay is fine by us. There is certainly no urgency for us to merge, so long as we are a given a fair chance to present our superior alternative in time to merge with AMR upon their emergence from bankruptcy.”

Still, given the expectation on the part of US Airways that American is committed to reviewing third-party merger alternatives, the exclusivity issue may not be completely off the table. Indeed, US Airways said in its court filing that it “reserved the right to seek relief from the court in the event that the process described in the joint motion is not properly and timely pursued.”

As for its new status as a creditor of American, industry blog Sky-Talk, which is published by the Dallas – Ft. Worth Star-Telegram, reported that US Airways bought $1 million of American debt at 60 cents on the dollar to ensure it had standing to participate in the case. – Alan Zimmerman