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

Published on NewsOK Modified: February 19, 2013 at 8:01 am •  Published: February 19, 2013
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Kirby had reserved a private table. It turned out to be in the kitchen.

"It was private," Bates said. "Just noisy."

Bates and another union leader — Dennis Tajer — ordered a mix of East Coast and West Coast oysters. A joke was made because US Airways has two separate unions, referred to as east and west.

Kirby passed on the appetizer.

"I found out he's not a fan of oysters," Bates said.

The meeting otherwise went well. Bates and union vice president Tony Chapman flew to Phoenix 10 days later for dinner with Kirby and Parker. A steakhouse dinner quickly followed with some of the union's leaders and most of US Airways management.

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.

Pilots will often fly other airlines in uniform and chat with the crew. That couldn't happen on these flights.

"Everybody was told to be invisible, not to talk to anyone," Bates said.

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 personally made the 12-mile drive to the meeting site in the union's red Chevrolet Suburban.

Union security guards were stationed around the Hilton Arlington, but when Bates pulled up at the back entrance, he recognized a reporter lurking nearby. He quickly made a U-turn and the meeting was moved to the union's headquarters.

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

Around 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 publically 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. The unions told the court that jobs and wages didn't need to be cut.

Wall Street analysts supported a merger, preferring Parker as the new CEO.

Horton publically told employees "nothing changes as a result of these announcements." But privately he and other top American executives were rethinking a deal.

American had originally planned to emerge from bankruptcy and talk to several airlines, including US Airways. Horton became convinced that if he waited too long, a deal might not be available to him.

"He's a great numbers guy," said Thomas Roberts, a partner with Weil, Gotshal & Manges, the law firm that represented American.

In summer, Horton alerted his board that it was time to investigate a merger.

He reached out to Parker and arranged a 6:15 a.m. breakfast on July 19 at the Jefferson Hotel in Washington. Both men had oatmeal. They spoke about sharing financial documents and Horton asked Parker to ratchet down the public push for a merger.

A deal and decision about who would run the new airline was still way 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. They were at an exclusive gathering of top airline executives in Wyoming known as "conquistadores del cielo," or the conquerors of the skies. During a barbeque lunch, Horton approached Parker, saying there could be value in a merger.

"I made that pitch. We nodded heads to one another," Horton had said in July 2012.

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

"It does not mean we are merging — it simply means we have agreed to work together to discuss and analyze a potential merger," Parker told employees.

For the next three months, teams of lawyers, accountants and consultants started reviewing each airline's books. There were so many people that eight separate conference rooms in Weil's Dallas office were required.

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

"We wowed them with Mexican food and BBQ," said Glenn West, a partner with Weil who oversaw American's negotiations.

By this point, American had secured new contracts from its unions, cut other costs and improved its revenue.

After months of negotiations, US Airways presented the merger to the creditors on Jan. 10. It proposed giving 70 percent of the new airline to them and American's employees and the remaining 30 percent to US Airways shareholders. The creditors were sold. But Horton wasn't.

His team eventually was able to shift another 2 percent ownership away from US Airways shareholders, ensuring that American's pre-bankruptcy shareholders would see some money. The new airline would be valued at $11 billion.

The only sticking point was who would lead it.

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 prepared to hand over the reins to Parker, his friend and rival for three decades.

Horton put his principles first and did what was right for American, said Beverly Goulet, American's treasurer and chief restructuring officer.

"He's put his heart and soul into this for most of his career," she said. "All things being equal, he might prefer to be the guy sitting in the CEO chair."

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Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.

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