US Airways President Scott Kirby's Analyst Conference Call Merger Comments: April 25, 2012
First off, I think every airline analyst and probably everyone listening to this call appreciates that a merger of US Airways and American Airlines would create enormous revenue synergies. Like United Continental, Delta-Northwest, US Airways AMR would have a network that could generate much more revenue than the 2 airlines can independently. We can also generate significant cost savings, even though we wouldn't shrink the combined airline by reducing or eliminating redundant facility space, management headcount, by combining IT systems and by much improved purchasing power.
For perspective, Delta-Northwest generated $2 billion in synergies, which was 6.3% of their combined revenues. Continental-United generated $1.1 billion in synergies, 3.9% of the combined revenues. And US Airways-America West generated $680 million in synergies or 6.5% of our combined revenues.
As to the agreements we've signed with AMR's union, I could describe them at a high level. Prior to bankruptcy, AMR said that their labor costs were $800 million over industry standards. In bankruptcy, however, American is asked for concessionary contract of $1.25 billion, meaning AMR's asked and labor went beyond industry average. And for what it worth -- for what it's worth, it appears AMR's $800 million disadvantage to the industry was basically all pensions and productivity.
We agree with all 3 unions that the merged American needs to have contracts that have neither a competitive advantage nor disadvantage to Delta and United. This merger creates an airline that can compete effectively against United and Delta. Since the new American will have revenue-generating capabilities like United and Delta, it should also have labor costs like United and Delta.
The leadership at all 3 unions recognize the need to be competitive and agreed with US Airways to freeze the pensions and the productivity enhancements that get AMR to a competitive position with United and Delta. So the synergies created by our merger allow us to set the pay of USA -- US Airways and AMR employees, comparable to the pay at United and Delta. The result is better contracts than American can pay independently and much better than they are attempting to impose on their employees to the 1113 process.
But those increases in compensation do not come close to negating the tremendous benefit and synergies created by merging US Airways and American. Indeed, we estimate that the synergies created by US-AMR merger, net of the labor de-synergies, when compared against AMR's standalone 11 13 plan, conservatively are estimated at over $1.2 billion per year. This means significantly greater recoveries for AMR's creditors and US shareholders are available. Also, the impact to labor and jobs is far less draconian, because some of the synergies have been appropriately shared with labor to better pay and to fewer job cuts.
The union leadership and employees of AMR have shown great leadership in getting us to this point. Importantly, they recognize early on that the goal is to build a company that could succeed, compete and restore American to its rightful place as a preeminent airline in the country. They recognize that labor cost is needed to be competitive to make that vision a reality, but we also recognize that it wasn't necessary to go beyond industry standard.
We worked together as partners with ATA, APFA and the TWU to forge a merger that will restore American to its preeminent position in the industry, do so with a competitive cost structure and with a route network that's built to compete and win.