US Airways Buys Debt to Earn Seat at American Airlines Bankruptcy Table
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US Airways Buys Debt to Earn Seat at American Airlines Bankruptcy Table

July 30, 2012

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An aggressive bid by US Airways to force a merger with American Airlines took a strange turn this month when US Airways purchased some of its rival’s debt in order to participate in American’s bankruptcy case.

According to a report from USA Today, US Airways announced this week that it purchased "a small amount of debt" from AMR, the parent company of American Airlines that filed for bankruptcy several months ago.

A spokesman for US Airways told Texas sources that the company purchased roughly $1 million worth of AMR’s debt for the discount price of $600,000. While this seems like an odd move — purchasing debt owned by a rival, bankrupt company — it was based on a very cold calculation.

Under U.S. bankruptcy law, by purchasing this debt, US Airways immediately becomes one of AMR's creditors, which allows US Airways to have a voice in its rival's Chapter 11 bankruptcy proceedings.

And the airline was very explicit about the purpose of its move, telling sources that it purchased the debt "to ensure that we would have standing to participate" in AMR’s bankruptcy.

Through a spokesman, American Airlines dismissed the unusual strategy as a "meaningless ploy to garner publicity," and that the purchase of a relatively tiny amount of debt "gives them no special position with the court or in this process."

Indeed, the small amount of debt purchased by US Airways will not make the airline a major player among the larger creditors involved in the case, but it does come with very real strategic advantages in the airline’s efforts to merge with AMR’s airline.

Sources indicate that US Airways has already used its status as an official creditor to file a petition with the bankruptcy court giving its explicit approval of AMR’s request to have a longer period of time to hash out its reorganization plan.

And by giving AMR more time to evaluate its options, US Airways reportedly hopes that the bankrupt company will consider merging with US Airways in order to "maximize the value available to stakeholders."

If the reorganization plan reveals a dire financial future for an independent American Airlines, AMR may eventually welcome the hostile embrace of its high-flying rival.


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