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Categorized | Financial

TPG and US Airways look at American tie-up

Posted on May 31, 2012

Private equity group TPG and US Airways are in talks over a joint bid for AMR Corp, the parent company of American Airlines, according to people familiar with the situation.

American, the third-largest US carrier, filed for bankruptcy protection in November citing untenable labour costs. For US Airways, the fifth-largest carrier, working with TPG would add financial heft and an investment group with experience in the airline industry.

    The talks are at an early stage, any deal would be stuck once American exited the bankruptcy procedure and a possible partnership is just one of several options under consideration, according to people familiar with the situation.

    The private equity group would be interested in a deal that provided the opportunity for operational improvement, rather than just straight financing, according to those people.

    Rick Schifter, a managing partner at TPG, previously sat on the board of US Airways and David Bonderman, a TPG co-founder, is an experienced airline investor. He has been chairman of Ryanair for 15 years, even though TPG no longer has a stake in the European budget airline.

    TPG declined to comment. US Airways did not immediately respond to requests for comment.

    AMR filed for bankruptcy protection in an attempt to reduce its debt burden and squeeze costs after losing ground to rivals for more than a decade after American shunned bankruptcy in the early 2000s and sat out the wave of consolidation that followed.

    Under bankruptcy rules, AMR’s management has an 18-month “exclusive period” in which the company can determine its own plan of reorganisation and can bat away proposals from third parties.

    After that period, or once AMR has filed its standalone plan with the court, creditors can propose alternatives, possibly in conjunction with potential buyers.

    AMR said that it had agreed with creditors that it would develop potential consolidation scenarios, but that “this agreement does not in any way suggest that a transaction of any kind or with any particular party will be pursued.”

    Industry experts said they also expected United Continental and Delta Air Lines to look at the possibility of bidding for AMR. However, any bid would be subject to intense antitrust scrutiny after a series of mergers that has left the industry highly consolidated.

    US Airways, the smallest of the US’s national carriers, has long been considered a logical merger partner for AMR and has been public in its support of further airline consolidation. AMR has previously dismissed talk of a tie-up while the company is still in bankruptcy.

    The potential tie-up between TPG and US Airways was first reported by Reuters.

    TPG has been known for investing in airlines since the private equity group took a stake in Continental Airlines in 1993, helping to turn the company round and making significant profits in a sector better known for destroying the capital of optimistic investors.