US Airways Group chairman and chief executive officer Doug Parker told shareholders Thursday that a merger between his airline and American Airlines has “tremendous financial support.”

Parker said he understands that American and the unsecured creditors committee will begin entertaining strategic alternatives like a merger after U.S. Bankruptcy Judge Sean Lane rules on American’s motion to reject American’s collective bargaining agreements with its three unions.

“We’re looking forward to this process. Once we get the M&A [merger and acquisition] process moving forward, we look forward to participating in it, along with AMR management, the AMR board and the unsecured creditors committee,” Parker said at US Airway’s annual shareholders in New York.

Keep reading for his comments regarding US Airways’ efforts to merge with American and its parent AMR, after he noted the strong performance of US Airways shares in 2012. Click here to see the slides that accompanied his presentation.

 

“Now, I know some of you might say the stock price increase is not just because of the performance of US Airways. I’m not sure whether that’s true or not. I certainly think our own performance justifies that kind of improvement in the stock price. But we need to acknowledge that some of the increase may be due to speculation around a potential merger between US Airways and American Airlines.

“There’s no doubt that there’s tremendous financial support for the transaction and our shareholders are interested in hearing about it, so I’ll take a minute to talk about it.

“I do want to point out that in addition to the support of the financial markets, we also are pleased to have the support of the employees of American we have here today with us in the room, Capt. Dave Bates, who is president of the APA. Laura Glading, president of the APFA. Thanks, Laura. John Conley who is with TWU.

“These individuals represent over 55,000 employees of American Airlines who are here. These guys are representing their constituents extremely well. They’re obviously in a difficult time fighting some pay cuts, fighting layoffs.

“But they’re doing what they’re supposed to do for their constituents. They’ve gone and hired world-class advisers and strategic advisors. They’ve offered a plan that’s an alternative to the standalone. That plan is a merger with US Airways. We certainly appreciate their support and their presence here today.

“It would take me a long time to talk about this transaction in total. I just want to spend a couple of slides to describe to you the situation in summary as we see it.

“First off, the problem that American has today. This slide simply shows that if you look at market share by three regions of the company, east, middle of the country, west. This is market share amongst U.S. carriers.

“You see back just in 2006, American was #3 [in the East}, #1 [in the middle of the United States}, #3 [in the West]. There’s a lot of dark blue on this map.

“Now in 2011, they’re #4 in the West, #4 in the center of the country, #5 on the very important East Coast. This is an issue that has happened because they’ve sat out consolidation. The consolidation I talked about earlier that American has not participated in has resulted in them losing relative share.

“And again, back here [in 2006], there were a lot more airlines to be compared to when they were #1 and #3. Now, in a smaller industry, further down the chain. This creates, of course, a problem that bankruptcy can’t fix.

“Bankruptcy can do a lot of things for companies. Companies can file for bankruptcy and not pay back the people that they borrowed money from in full. They cannot honor the labor contracts they’ve signed. But they can’t fix this. This is a structural weakness that the bankruptcy cannot fix. So, what does fix it, what could fix it?

“Again, this is American Airlines today on this same map. Now, look, we at US Airways are in a similar situation. We have a route network that’s much stronger on the East Coast, #3, but weaker throughout the company.

“We, however, manage this as I’ve just showed you through results, by understanding that this is what our network looks like. We keep our costs in line with that revenue-generating capability. Even though we have this kind of overall market share, we fly in and out of markets where we’re #1, as I’ve shown you. That makes all the difference. We are able to compete with this network.

“That’s not what American is planning to do. They’re not getting their costs in line with their revenue generating capabilities, and they’ve announced an intention to grow in the markets where they’re the weakest, not the strongest.

“However, if you put these two networks together, they’re highly complementary and they create this, an airline that can compete with anyone, that can be the best airline in the world, compete with Delta and United, #1 on the East Coast, #1 in the middle of the country, #3 on the West Coast behind only Southwest and United.

“This airline that we’ve put together can be the best airline on any metric. That’s what gets us excited about this. We see this could be good for the employees of both companies.

“An airline with this kind of revenue-generating capabilities can do more for its employees than either of these two airlines can do independently.

“An airline with this kind of revenue-generating capability, with this kind of network can provide better service to customers throughout the country, throughout the world.

“An airline with this kind of network is better for the creditors of AMR and it’s better for the shareholders of US Airways. So that’s what gets us exciting about this in a couple of slides.

“We’ve got a lot of questions about the process, what’s going to happen next, what are you guys doing next, so I want to spend a minute on that. The reality is that bankruptcy is a complicated process. We’re happy that we’ve never gone through it.

[Editorial note: Although Parker has not worked at the airline while it was in bankruptcy, the two airlines that make up today’s US Airways have been in bankruptcy three times. America West was in Chapter 11 proceedings from June 27, 1991, to Aug. 25, 1994. US Airways was in Chapter 11 proceedings twice, from Aug. 11, 2002 to March 31, 2003, and from Sept. 12, 2004, to Sept. 27, 2005, the day it merged with America West. Parker joined America West as CFO in 1995 and became its CEO in 2001.]

“We are learning a lot about it through the process. What we know is this a process supervised by the bankruptcy court. It’s got its own rhythm, its own pace. We at US Airways fully respect and understand the process. We are making great progress so far. It is necessarily affected by many other tasks that AMR has to get through in their process.

“We further understand that AMR has a fiduciary duty as a debtor to consider all the alternatives that might maximize return to its unsecured creditors. We respect the process they’ve designed to meet that duty.

“To that end, we were very encouraged that AMR and the unsecured creditors committee have come to an agreement to establish an M&A process to consider strategic alternatives. We’ve been told that protocol will begin post the 1113 ruling.

“And that process, by the way, is not just a US Airways process, nor should it be. This is a process, we are being told, that is open to consider all strategic alternatives that American may have or that the creditors of American may want to bring forward.

:That’s all we want. All we’re asking for is a level playing field, a chance to show our plan up against any others. We’re highly confident that given that opportunity, the benefits of the network I just showed you, of an AA-US combination, would be far superior to any other alternative available to American today.

“We’re looking forward to this process. Once we get the M&A process moving forward, we look forward to participating in it, along with AMR management, the AMR board and the unsecured creditors committee. So that’s where we are.”

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