US Airways: We'd Share Merger Synergies With Workers
CHARLOTTE, N.C.( TheStreet) -- US Airways (LCC) said it can afford to offer more to AMR(AAMRQ.PK) workers in a merger than AMR could as a standalone company because a merger would offer revenue and cost synergies.
"There's a tremendous amount of value created by merging US Airways and AMR," said US Airways President Scott Kirby, on the carrier's earnings conference call. "We can and should share with employees."
Kirby said merger synergies, after sharing some of them with labor, would be more than $1.2 billion. Every previous recent airline merger has generated significant cost savings due to reductions in areas such as leased airport space, management headcount, and prices for goods and services due to enhanced purchasing power, as well as revenue synergies, Kirby said.
He said costs declined by 6.5% following the 2005 merger between US Airways and America West, by 6.3% following the 2008 merger between Delta(DAL) and Northwest and by 3.9% following the 2010 merger of United(UAL) and Continental.
American has said its labor cost disadvantage vs. competitors is $800 million, a number its unions have disputed. Kirby said that number reflects only "pension and productivity" differences. He noted that American is seeking contract concessions worth $1.25 billion, an indication that it "went beyond the industry average" in setting the labor rates it wants to pay.
Following a merger with US Airways, American would have "revenue generating capabilities like United and Delta," Kirby said. "It should also have labor costs like United and Delta."
The American unions "recognized early on that the goal is to build a company that could succeed, compete and restore American to its rightful place as the pre-eminent airline in America," Kirby said, explaining why they chose to negotiate with US Airways.
Meanwhile US Airways CEO Doug Parker said US Airways is pursuing a merger effort because "we have concluded that there's an opportunity to do something that's in the best interests of both companies" but that "American has made it clear that they would like to focus only on their standalone emergence from bankruptcy.
"We understand where there focus is," Parker said. "Instead, we've been working with their unions and creditors." He added that "we would look forward to a cooperative and consensual process with AMR's management."
So far, American management hasn't seemed that interested in consensuality. On Monday, American Senior Vice President Jeff Brundage told reporters attending the carrier's bankruptcy hearing in New York that "this US Air thing is a creation of US Air and the unions. It's not real."
In bankruptcy court, American has argued that abrogation of its labor contracts would bring its costs more in line with its competitors' costs, but has not said they would be lower. The carrier's costs would, of course, decline in bankruptcy, whether it completes a merger or emerges as a standalone company.