- Nov 4, 2003
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Noted New York Times writer Andrew Ross Sorkin, in an article Tuesday, links AMR’s desire to remain independent to its executives’ desire for a big payoff.
Sorkin notes that AMR chairman and CEO, Tom Horton, had stood behind his position that the best option for American Airlines and parent AMR is to emerge from bankruptcy independently rather than merge with US Airways, as US Airways and its chairman and CEO Doug Parker have been pushing:
“But there potentially is another reason — one that would be a perverse incentive — that Mr. Horton may be shunning a deal with US Airways before emerging from bankruptcy: a giant payday.
“Mr. Horton and his management team stand to receive somewhere between $300 million and $600 million if he can make it through bankruptcy court without merging first with a rival like US Airways.
“In an odd twist of the bankruptcy process, airline management teams have typically managed to extract 5 percent to 10 percent of the company’s shares for themselves upon exiting Chapter 11, with the C.E.O. often getting 1 percent.
“This happens, oddly enough, despite some of the same management wiping out shareholders (including themselves) by filing for Chapter 11 in the first place. AMR is expected to be valued at as much as $6 billion if it exits bankruptcy independently, analysts estimate.
“Over the last several decades in the airline business, this is where C.E.O.’s have gotten rich.”
Sorkin also notes at the end of the article that Parker also has a big potential payoff. His contract has a change-of-control provision that could pay him more than $20 million if there’s a merger and he’s the odd man out in the executive shuffling.
American’s flight attendant union, the Association of Professional Flight Attendants, had already attributed Horton’s opposition to a merger to the potential for a big stock payoff at the end of the bankruptcy process. The APFA and American’s other two unions, the Allied Pilots Association and Transport Workers Union, have come out in support of a US Airways-led merger with American.
Sorkin notes that AMR chairman and CEO, Tom Horton, had stood behind his position that the best option for American Airlines and parent AMR is to emerge from bankruptcy independently rather than merge with US Airways, as US Airways and its chairman and CEO Doug Parker have been pushing:
“But there potentially is another reason — one that would be a perverse incentive — that Mr. Horton may be shunning a deal with US Airways before emerging from bankruptcy: a giant payday.
“Mr. Horton and his management team stand to receive somewhere between $300 million and $600 million if he can make it through bankruptcy court without merging first with a rival like US Airways.
“In an odd twist of the bankruptcy process, airline management teams have typically managed to extract 5 percent to 10 percent of the company’s shares for themselves upon exiting Chapter 11, with the C.E.O. often getting 1 percent.
“This happens, oddly enough, despite some of the same management wiping out shareholders (including themselves) by filing for Chapter 11 in the first place. AMR is expected to be valued at as much as $6 billion if it exits bankruptcy independently, analysts estimate.
“Over the last several decades in the airline business, this is where C.E.O.’s have gotten rich.”
Sorkin also notes at the end of the article that Parker also has a big potential payoff. His contract has a change-of-control provision that could pay him more than $20 million if there’s a merger and he’s the odd man out in the executive shuffling.
American’s flight attendant union, the Association of Professional Flight Attendants, had already attributed Horton’s opposition to a merger to the potential for a big stock payoff at the end of the bankruptcy process. The APFA and American’s other two unions, the Allied Pilots Association and Transport Workers Union, have come out in support of a US Airways-led merger with American.
