Investors are looking at bankrupt American Airlines

The Fort Worth Star-TelegramJanuary 13, 2012 

It didn't take long for rivals and investment firms to begin circling bankrupt American Airlines.

On Thursday, Delta Air Lines, US Airways and private equity firm TPG Capital were all reported to be considering bids for the Fort Worth-based carrier.

Although any offer for American or its parent company, AMR Corp., is likely several months away, The Wall Street Journal reported that Delta has hired the Blackstone Group as its financial adviser to assess a bid while TPG Capital is looking for a strategic partner to invest in American. US Airways has also hired advisers, the Journal reported.

AMR, which filed for Chapter 11 bankruptcy protection in November, declined to comment on the report. Delta spokesman Trebor Banstetter said the airline does not comment on industry rumors or speculation.

Maxim Group analyst Ray Neidl said in a research note to investors that he believes a Delta-AMR combination is unlikely.

"We believe that any possible takeover of AMR by Delta is remote since the sheer market size of the combined airlines would probably not obtain DOJ [Department of Justice] or foreign approval," Neidl said. "AMR, even though they are in bankruptcy, is not a failing company since we believe that they can successfully reorganize, hence this argument would have a difficult hearing with the DOJ."

TPG Capital also had no comment on the speculation. However, TPG -- formerly known as Texas Pacific Group and operating from Fort Worth and San Francisco -- has a history of investing in distressed airlines.

In 2009, TPG offered to partner with American to make a $1.1 billion investment in Japan Airlines when the Asian carrier was struggling financially.

TPG has also invested in America West Airlines, Continental, Tiger Airways and Ryanair Holdings, and it bought Midwest Air Group in 2007 before selling it to Republic Airways in 2009.

TPG has "been very successful in dealing with companies coming out of bankruptcy," said Bill Swelbar, an airline industry researcher at the Massachusetts Institute of Technology.

"I just don't see them playing a hostile role in this deal. They are a friend of American."

American's management team has about 180 days to file a reorganization plan with the bankruptcy court, and the judge could extend that exclusivity period, said Louis Stripling, an adjunct business professor at Texas Christian University's Neeley School of Business. Any bids from third parties would come after that.

"If management comes up with a plan and it's accepted, it will preclude everyone else," Stripling said.

Also Thursday, federal mediators met with the Allied Pilots Association, the Association of Professional Flight Attendants, the Transport Workers Union and the carrier to discuss future contract talks now that AMR is operating under bankruptcy court protection.

At the meeting, the National Mediation Board told American and its unions that it will continue to mediate talks between the parties.

"Harry Hoglander, a member of the NMB, made clear that the agency retains its jurisdiction during the bankruptcy and will continue to mediate the negotiations as was the case before the Chapter 11 filing," the flight attendants union said in a statement.

"We anticipate that negotiations with American will resume once it has prepared a business plan and proffered a contract proposal which would initiate the Section 1113 process. At that point, the NMB will assign a mediator to each of the negotiations who will oversee the bargaining and assist the parties in their efforts to reach a consensual resolution."

And in court filings Wednesday evening, American Airlines asked the bankruptcy court for permission to keep 85 planes.

The planes are 11 to 13 years old and are Boeing models 737-800, 757-200, 767-300ER and 777-200ER.

The filings were part of the Section 1110 process in bankruptcy in which the carrier can reject aircraft leases and pay "cure" amounts to bring other aircraft leases up to date.

American said it does not believe that any payment is needed to bring these aircraft up to date; they were financed or leased through three separate debt issuances.

The carrier has terminated leases on 20 MD-80s and four Fokker 100s that are parked in the desert. The airline has also asked to keep 47 Bombardier CRJ-700s, paying $10.2 million to bring 19 up to date.

As of Sept. 30, American had 616 aircraft in its fleet, as well as 52 planes that it owned or leased but was not operating.

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