Category Archives: Airlines/Aviation

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at 4:47pm

AMR merger with US Airways approved, but $20M CEO severance/bonus on hold

American Airlines won bankruptcy-court approval to merge with US Airways at a hearing in Manhattan this morning, but Judge Sean Lane shot down a proposed $20 million severance payment to AMR CEO Tom Horton.

Lane made his ruling after a lengthy back-and-forth between the U.S. Trustee in the case and AMR’s lawyers regarding the proposed severance package for Horton, consisting of $10 million in cash and $10 million in stock. Although creditors anticipate a full recovery as a result of the merger – an outcome that Judge Lane called a “truly tremendous result” – the U.S. Trustee objected that the proposed bonus violates the Bankruptcy Code and should not be granted.

In his ruling, Lane clarified that the proposed severance package was not off the table for good, but he would not approve it today as part of the merger.

Skadden partner Jack Butler, representing the official committee of unsecured creditors in the case, said the payment to Horton – consisting of $10 million in cash and $10 million in stock – was labeled a severance payment, but is in fact “much more than that.” The $20 million figure incorporates a number of incentives that the committee preferred be rolled into a single payment. Butler did not elaborate on each of the incentives in play.

Following an extended lunch break during which negotiations between AMR’s lawyers and the Trustee took place out of court, AMR said it was prepared to add yet another threshold to the severance payment. The bonus was already contingent on approval of a reorganization plan and completion of the merger, but AMR would also agree to subjecting the payment to a vote by the new board of directors of the merged company. AMR lawyer Stephen Karotkin, a partner at Weil, Gotshal & Manges, said doing so would make the board accountable to its new shareholders, putting the decision well outside the realm of the Bankruptcy Code.

The U.S. Trustee disagreed, calling the bonus issue “incredibly troubling.” A lone American Airlines pilot was among the parties to speak at today’s hearing, reading a prepared statement that decried the large bonus and general lack of leadership among company management over the past decade. He proposed an alternative offer for Horton: $500,000 and free coach tickets for life.

The airlines have said they expect the $11 billion merger deal to close in the third quarter of this year, a timetable that could be met with a plan filed by or near the end of May.

Judge Lane today also granted the company’s request for a final extension of its exclusive right to file a reorganization plan, through May 29, and to solicit votes on a plan, through July 29. The extension will give AMR time to formulate and propose a Chapter 11 plan that will implement the merger with US Airways, the company said in its motion seeking exclusivity.

American has not yet revealed when it will actually file its plan, but has said it is currently “in the process of formulating” it. AMR lawyer Stephen Karotkin told Judge Lane at one point during today’s hearing that “between now and confirmation of a plan will likely be six months.” – John Bringardner

 

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at 8:30am

American Airlines creditors eye full claims payment from US Air deal

American Airlines and US Airways announced their long-anticipated merger this morning, saying the deal would have an implied combined equity value of roughly $11 billion based on the price of US Airways’ stock as of Feb. 13.

Under the terms of the merger agreement, US Airways stockholders would receive 28% of the diluted equity of the combined airline, with the remaining 72% diluted equity ownership of the combined airline to be distributed to American, its labor unions and current employees.

The merger, which is to be effected pursuant to a reorganization plan in American’s Chapter 11 case, is expected to be completed in the third quarter of this year.

The combined company will keep the American Airlines name, and will be headquartered in Dallas-Fort Worth, with “significant corporate and operational presence in Phoenix,” where US Airways is currently based.

In connection with the deal, American entered into a plan support agreement with certain unsecured creditors holding roughly $1.2 billion of prepetition unsecured claims against the company.

Regarding distributions for American’s creditors, so-called “double dip” creditors (holders of prepetition unsecured claims to which both American and parent AMR are obligors) are to receive shares of mandatorily convertible preferred stock equal to the full amount of their claims. These shares would convert into common stock of the combined airline at 30-day intervals during the 120-day period following the effective date of the plan, based on a formula tied to the market price of the common stock of the combined airline.

The “single dip” creditors (holders of prepetition unsecured claims that are not guaranteed) would receive a combination of shares comprised of the same class of mandatorily convertible preferred stock as the “double dip” creditors are to receive, along with shares of common stock of the combined airline.

American’s labor unions and other employees are slated for an aggregate of 23.6% of the common stock of the combined airline ultimately distributed to holders of prepetition unsecured claims against American.

Finally, American equityholders would receive 3.5% of the new company, “with the potential to receive additional shares if the value of common stock received by holders of prepetition unsecured claims would satisfy their claims in full.”

The combined company is expected to have roughly $40 billion in revenue based on the combination of each company’s projected 2013 performance, and is projected to be “significantly accretive to EPS for US Airways shareholders in 2014,” the companies said in a joint announcement.

The companies further said the deal would generate more than $1 billion in annual net synergies in 2015, including $900 million in network revenue synergies, resulting predominantly from increased passenger traffic, taking advantage of the combined carrier’s improved schedule and connectivity, an improved mix of high-yield business, and the redeployment of the combined fleet to better-match capacity to customer demand.

Furthermore, American and US Airways expect one-time transition costs for the merger of approximately $1.2 billion, spread over the next three years.

Rothschild is serving as financial advisor to American Airlines, and Weil, Gotshal & Manges, Jones Day, Paul Hastings, Debevoise & Plimpton and K&L Gates are serving as legal counsel. Barclays and Millstein & Co. are serving as financial advisors to US Airways, and Latham & Watkins, O’Melveny & Myers, Cadwalader, Wickersham & Taft, and Dechert are serving as legal counsel to US Airways.

Moelis & Company and Mesirow Financial are serving as financial advisors to the unsecured creditors’ committee, and Skadden, Arps, Slate, Meagher & Flom and Togut, Segal & Segal are serving as the panel’s legal counsel. – Alan Zimmerman

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at 11:59am

Reports point to American/US Air merger announcement this week

Numerous news reports over the weekend signaled that merger talks between American Airlines and U.S. Airways were in their final stages, with the resolution of final details and – forgive the pun – up-in-the-air meeting schedules for the companies’ respective boards creating uncertainty with respect to the precise timing of deal approval and an announcement.

While the reports carried the usual warnings from unnamed sources that the deal could yet fall apart, they all pointed to an announcement some time this week.

Reuters reported in a Feb. 9 article that the all-stock deal on the table would value the combined company at between $10.5 billion and $11 billion. American’s creditors would receive 72% of the new company, effectively valuing American at $7.6 billion to $7.9 billion.

The airline, which would be the world’s largest in terms of passenger traffic, would keep the American name.

The hang-ups
Reuters reported that current U.S. Airways CEO Doug Parker would serve in the same role for the new company, with Tom Horton, American’s CEO, serving as a non-executive chairman until 2014. A subsequent report from the Associated Press, however, identified Horton’s title and role as an ongoing negotiating point in the talks.

Meanwhile, the timing of board meetings, along with the approval and announcement of a deal, were uncertain. According to Bloomberg, the board had been set to meet tomorrow, but those meetings have been put off until later in the week. Bloomberg said an announcement of a deal would come “no earlier than midweek.”

Reuters, similarly, said the boards would meet “around Wednesday.”

The AP said that it was unclear when the companies’ respective boards would meet to consider the deal. Citing an unidentified source, the AP reported that the delay was due to the fact that the American board wanted to meet in person and that the U.S. Airways board did not want to meet until after the American board had approved the deal.

The creditors’ committee meeting that was set for today will convene as scheduled, Reuters said.

Meanwhile, more definitively, on Friday the union representing the pilots of U.S. Airways approved a memorandum of understanding governing pilot work rules in the event of a merger, removing a potential hurdle to a deal.

Wither an equity recovery?
According to the aviation blog “Sky Talk” maintained by the Dallas-Ft. Worth Star-Telegram, Wolfe Trahan analyst Hunter Keay issued a report Friday stating that he saw a 72/28 equity split as the likely one in any deal, and that at a 72% share of the reorganized equity, American shareholders would not see any recovery in the case.

As reported, earlier this year an American attorney had suggested the “reasonable possibility” that the company’s equity would see a recovery “depending upon the ultimate strategic alternative adopted and pursued” by the company. That news sent the company’s shares, which are traded over-the-counter, from $0.90 to $1.60 per share over three trading days (Jan. 9-11) with about 113 million shares traded.

The stock, which had drifted back down to a low of $1.08 per share on Jan. 30, was at $1.49 cents per share in late-morning trading today, up three cents. – Alan Zimmerman

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at 1:22pm

AMR bonds lower in trading after co. defeats make-whole legal challenge

Notes of AMR Corp., the bankrupt parent of airline operator American Airlines, traded down after the company defeated the legal challenge from its bondholders and trustee to honor make-whole provisions, which would have required a premium for lenders. This decision allows the company to go forward with $1.5 billion in proposed financing secured by the company’s aircraft without paying the provisions.

The 13% secured notes due 2016 traded four points lower today, at 103-103.5, while the 8.625% pass-thru certificates due 2021 changed hands lower by the same amount, at 103.688, according to trade reports. And both traded in large blocks, with nearly $100 million in trades combined, according to MarketAxess estimates.

Judge Sean Lane, who is overseeing the case in Manhattan bankruptcy court, approved AMR’s request, according to court documents filed yesterday.

In November, US Bank Trust, the trustee and security agent for American Airlines’ $276 million issue of 2009-2 secured notes due 2016, sought a declaratory judgment that American must honor a make-whole provision before it can continue with a refinancing of the notes.

Arguing on behalf of the noteholders, US Bank said in a Nov. 7 motion and during a hearing with Judge Lane that contrary to the note indenture’s “plain language and underlying logic,” American is attempting to refinance the 2009-2 notes at par without paying the contractually required make-whole amount.

American issued the notes in July 2009 in order to refinance prior aircraft financing agreements that were scheduled to mature. The $276 million private placement offering was priced at par to yield 13%, refinancing the outstanding amount on American’s $401 million principal amount of 1999-1 enhanced equipment trust certificates.

Prior to the bankruptcy, American was party to three separate financing transactions, each of which was secured by a discrete pool of aircraft. The remaining two transactions were structured as enhanced equipment trust certificate financings, which involved the issuance of equipment notes secured by certain aircraft. The first EETC financing was entered into in July 2009, 2009-1, and the second in October 2011. The argument was over what the indentures of these financings meant for make-whole agreements. – Max Frumes/Matt Fuller

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at 12:21pm

American Airlines results improve for full year, fourth quarter of 2012

American Airlines today reported that it had 2012 fourth-quarter net income of $262 million on consolidated revenue of $5.9 billion, versus a net loss of $1.1 billion in the year-ago period, when the company entered Chapter 11.

The company said the 2012 fourth-quarter results reflected $350 million of net positive reorganization and special items, so the loss for the period excluding such items came in at $88 million – still a $121 million improvement over the year-ago period.

For the full year, the company reported consolidated operating income, excluding special items, of $494 million on revenue of $24.9 billion, which the company said was the highest in its history. The company said the operating income figure was an improvement of $749 million over 2011.

The company reported a net loss of about $1.9 billion for the entire year. Excluding reorganization and special items, the company said, the full-year net loss was $130 million, or $932 million better than 2011.

The reorganization and special items for the full year included $2.2 billion in reorganization items and $387 million in special charges associated with personnel-related restructuring costs, offset by a non-cash income tax benefit from continuing operations of $569 million and a $280 million benefit from the settlement of a commercial dispute, both of which occurred in the fourth quarter and contributed to the aforementioned $350 million of net positive reorganization and special items for that period.

The fourth-quarter revenue of $5.9 billion was off 0.3% versus the year-ago period, the company said, noting that fourth-quarter performance “was negatively impacted by Hurricane Sandy and the early November snow storm in the Northeast and, separately, by the residual headwind on fourth-quarter bookings from the operational disruptions experienced in late September and early October.” The company said that the cumulative effect from these events was estimated to have reduced net profits by $142 million.

On a full-year basis, the company attributed its record revenue performance – up 3.7% over 2011 – to “a 4.6% year-over-year improvement in yield, or average fares paid, and record high consolidated and mainline load factors, or percentage of seats filled, of 82.2% and 82.8%, respectively.”

As a result, American said, domestic PRASM, or passenger revenue per available seat mile, improved 5.5% in full-year 2012, versus full-year 2011, with PRASM increases across all five of American’s hubs.

American said it ended the year with about $4.7 billion in cash and short-term investments, including a restricted-cash balance of $850 million, versus roughly $5.1 billion in cash and short-term investments, including a restricted-cash balance of $847 million, at the end of the third quarter. The company’s cash and short-term investment balance at the end of 2011 was also about $4.7 billion, albeit including a restricted-cash balance of approximately $738 million at the time.

Looking ahead, American said it would “continue to realize restructuring-related savings and estimates [such] that in the first quarter of 2013, unit costs will improve year-over-year, despite a capacity headwind due to consolidated capacity decreasing by 1.7% and lapping some restructuring-related savings that impacted the first quarter of last year.”

The company’s announcement of its fourth-quarter and full-year 2012 financial results comes on the heels of the disclosure from one of American’s attorneys that the company’s “remarkable progress in stabilizing their businesses and improving their prospects” over the past year has “significantly appreciated” the company’s value to the point that its equityholders could see a recovery in the case (see “American Airlines now sees potential for equityholder recovery,” LCD, Jan. 9, 2012). – Alan Zimmerman

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at 4:58pm

Pinnacle Airlines pilots ratify new labor agreement

pinnacle airlines logoMembership of Pinnacle Airlines’ pilots union, the Air Line Pilots Association, ratified the tentative agreement union negotiators reached with the company last month, the company announced this afternoon (see “Pinnacle reaches tentative pact with pilots on new labor deal,” LCD, Dec. 18, 2012).

Details of the pact were not disclosed, but the company said the new agreement’s changes, which covers pilot pay, retirement, work rules and benefits, will become effective when concessions are implemented for the airline’s other labor groups and non-union employees.”

A court hearing is set for Jan. 16 on approval of the tentative agreement, as well as on approval of a series of agreements the company entered into earlier this month in connection with a restructuring-support deal it reached with its primary creditor and customer, Delta Airlines, on “a path forward … to emerge from bankruptcy.” Those agreements include a restructuring-support agreement, an amendment to the company’s existing DIP facility that would, among other things, extend the term by 45 days to May 15 and provide Pinnacle with $30 million of additional liquidity, and certain amendments to the company’s existing operating agreements regarding the composition of the company’s fleet that would form the basis of the company’s new business plan (see “Pinnacle reaches support pact on Chapter 11 plan; ups DIP by $52M,” LCD, Jan. 3, 2013).

As reported, yesterday the bankruptcy court approved an extension of the exclusive period during which only the company could file a reorganization plan through April 25 (see “Pinnacle nets plan-exclusivity extension to April 25,” LCD, Jan. 15, 2013). – Alan Zimmerman

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at 10:53am

Bankruptcy: American Airlines seeks fifth exclusivity extension, through April 1

American Airlines and its official committee of unsecured creditors filed a joint motion seeking a 20-day extension of the company’s exclusive right to file and solicit votes on a reorganization plan as they analyze a potential merger with US Airways, court records show.

In its fifth such exclusivity motion, American said the extra time would allow the company and its creditors to “pursue their collaborative review of strategic alternatives that might be beneficial to American’s economic stakeholders.” The phrase “strategic alternatives” is the euphemism American has been using to refer to a possible deal with US Airways. (See, “American Airlines now sees potential for equityholder recovery,” LCD News, Jan. 9, 2013)

American’s current exclusivity is set to expire on March 11. The extension would give the company until April 1 to file a plan, and until May 31 to solicit votes on that plan.

Among other things, during its most recent exclusivity extension American won bankruptcy court approval to sell a 5,242-square-foot company-owned townhouse in the Kensington section of London for 14.15 million pounds, or about $22.7 million.

A hearing on the exclusivity motion is scheduled for Feb. 14, before U.S. Bankruptcy Judge Sean Lane in Manhattan. – John Bringardner

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at 10:33am

American Airlines now sees potential for equityholder recovery

An attorney for American Airlines said that the company’s “remarkable progress in stabilizing their businesses and improving their prospects” over the past year has “significantly appreciated” the company’s value to the point that its equityholders could see a recovery in the case.

“Since January of 2012, the debtors have made remarkable progress in stabilizing their businesses and improving their prospects,” Weil Gotshal & Manges attorney Harvey Miller wrote to the U.S. Trustee at the bankruptcy court in Manhattan in a Jan. 3 letter, adding, “It appears that the value of the debtors has significantly appreciated. Depending upon the ultimate strategic alternative adopted and pursued [by the company], there exists a reasonable possibility that there may be value for AMR equity holders consistent with the absolute priority rule.”

The absolute-priority rule would require that all of the company’s creditors receive payment in full of their claims before equityholders would see a recovery.

As widely reported, American has been evaluating whether to pursue a reorganization pursuant to a standalone plan, or seek a merger with a third party, most likely US Airways, to bring it out of Chapter 11. The company has said it would make a decision “within a matter of weeks.” Miller’s letter is silent on which “strategic alternative” creates the reasonable probability of a distribution to equityholders.

Miller’s letter states it is intended to update prior letters sent to the U.S. Trustee dated Dec. 20, 2011 and Jan. 10, 2012, regarding the potential for an equity recovery in the case. At that time, the U.S. Trustee was seeking information in response to a request from an American shareholder to appoint an official equity committee in the case. Weil Gotshal’s earlier letters opposed the formation of such a panel, arguing that “there did not appear to be a substantial likelihood [that equityholders of AMR] would receive a meaningful distribution,” according to Miller.

Miller added that the law firm was updating its responses to the U.S. Trustee at this time “in the interests of full transparency.” – Alan Zimmerman

 

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at 11:32am

American Airlines sees decision on path out of Ch 11 – merger with US Airways or standalone – within ‘weeks’

American Airlines said it would decide on a path forward out of Chapter 11 – whether via a standalone plan or pursuant to a merger with US Airways or other partner – “within a matter of weeks,” the company’s CEO told employees in a letter dated Jan. 3.

The letter from American CEO Tom Horton was published on Sky-Talk, the aviation blog maintained by theDallas-Ft. Worth Star-Telegram.

As widely reported, in early December the company’s pilots voted to ratify a new collective-bargaining agreement, and in the month since merger talks among the company, the creditors’ panel, the pilots, and US Airways have heated up. As also reported, American’s other unions were also subsequently invited to join the talks.

The company’s board is scheduled to meet on Jan. 9, at which time it may vote on the company’s strategy for emerging from Chapter 11. The company currently has the exclusive right to file a reorganization plan through March 11.

Meanwhile, the union representing the company’s flight attendants, the Association of Professional Flight Attendants, said last night that it has agreed to a memorandum of understanding “clarifying several points contained” in an agreement signed last spring by the APFA and American’s other unions expressing support for a merger between American and US Airways.

According to the APFA, the memorandum “further illuminates the financial benefits of a merger [with US Airways] to AMR’s creditors,” although the union also said that confidentiality agreements prevented it from disclosing any further details. Still, the announcement suggests that a potential hurdle to a US Airways deal has been cleared.

Previously, the Allied Pilots Association had also approved a memorandum of understanding related to a potential merger with US Airways. – Alan Zimmerman

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at 8:58am

Bankruptcy: Hawker Beechcraft seeks court approval of pension settlement

Hawker Beechcraft will appear in bankruptcy court on Jan. 17 to present its settlement with the Pension Benefit Guaranty Corporation, resolving one of the last major hurdles to approval of the company’s reorganization.

Hawker filed its proposed settlement with the court on Dec. 21, a document reached “after months of lengthy and hard-fought negotiations,” the company said. Under the settlement, Hawker agreed to keep its pension plan for hourly employees in place upon emergence from Chapter 11, but will seek a distress termination of its salaried plan and base plan.

The PBGC will become trustee of the latter two plans in exchange for an unsecured claim of $419.5 million – $369.2 million on account of the salaried plan and $50.3 million on account of the base plan. Hawker will pay $11 million to the PBGC on the effective date in return for the PBGC’s release of liens.

“Bankruptcy forces tough choices, but termination of pension plans doesn’t have to be an automatic option,” said PBGC spokesman J. Jioni Palmer. “When Hawker Beechcraft first entered Chapter 11 the company intended to end all three of its pension plans. We immediately engaged Hawker’s leadership to convince them that one or more of their plans were affordable. After our talks with Hawker, the company decided to keep its hourly plan.”

If all three pension plans were to remain in place, Hawker projected that it would be required to pay about $516.5 million in minimum funding contributions from 2013-2019.

A hearing on Hawker’s reorganization plan is currently scheduled for Jan. 31, before U.S. Bankruptcy Judge Stuart Bernstein. The company said it hopes to emerge from bankruptcy no later than Feb. 28. – John Bringardner