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In path to American's merger, 1 CEO had to leave

Published on NewsOK Modified: February 18, 2013 at 1:39 pm •  Published: February 18, 2013
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NEW YORK (AP) — 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 simultaneously 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, soon came from his old friend Doug Parker. The two had worked side-by-side as financial analysts at American's Fort Worth, Texas, headquarters in the 1980s, until Parker moved on to other airlines, eventually becoming CEO of rival US Airways.

Parker had spent the last 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. For his efforts, he will receive $19.9 million in cash and stock as well as a lifetime of free first-class tickets on American for himself and his wife.

Parker and Horton have spent most of their lives in the airline business. But that's about 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, on the other hand, 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.

This is the story of how two old friends and former protégés of legendary American Airlines CEO Robert Crandall found themselves on opposite ends of what may be the last great airline merger in the U.S. Horton and Parker declined to comment but interviews with executives, union officials, lawyers and others connected to the deal — agreed to late Wednesday — outline how 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 five days after Thanksgiving in 2011, it did so from a unique position. It had lost more than $12 billion during the past decade but still had $4.1 billion in cash. That meant it didn't need to borrow money to keep operating, and that gave Horton more autonomy and 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 reviewed every part of its revenue and 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 after it emerged from bankruptcy protection. Horton's preference was for American to remain an independent airline. The unspoken reason was that American wasn't worth as much as executives hoped it would be later.

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. That was benefiting shareholders. Eventually, Parker would need to pay out large raises which 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 also 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. After American filed for bankruptcy protection, the creditors interviewed several law firms in a basement ballroom of the Sheraton New York Times Square Hotel.

"You have to decide whether you are going to be proactive or reactive," Jack Butler, of Skadden Arps Slate Meagher & Flom, told the committee.

The creditors chose proactive, and Butler's team was hired.

It probably helped that Butler had represented US Airways in its 2002 bankruptcy and Skadden's head of restructuring, Jay M. Goffman, had worked closely with Parker after 9/11, when Parker ran America West. Skadden was also America West's counsel when it later merged with US Airways.

"We said: You should pick a firm that does a lot of deals," Goffman recalled.

The full press started in February 2012, when the committee's lawyers invited Horton and two of his top lieutenants to a dinner at the firm's Times Square office. There, 38 floors above the city, overlooking the Empire State Building, creditor representatives talked about the merits of a merger. They didn't like American's plan to stay independent, thinking they could get back more of the money they were owed through 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 and the company would shortly return to bankruptcy. He also 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. They were both in New York for an investor conference and met at Oceana, an upscale seafood restaurant in the heart of Manhattan.

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