American Airlines Management Can Get a Huge Payday If It Avoids Merging With US Airways

An American Airlines employee helps travelers at the ticket counter in the Miami International Airport on Sept. 18 in Miami

Photo by Joe Raedle/Getty Images.

I mentioned Monday morning that part of what’s so frustrating about the self-immolation of American Airlines is that there is a better way out. US Airways wants to buy American. Many of American’s creditors want a merger with US Airways. Federal anti-trust regulators seem OK with the idea of a merger with US Airways. And American’s labor unions, including the pilots, have said they favor a merger and think it’s the best way to keep the airline viable. But to a much greater extent than you might think, American’s management doesn’t seem interested in seriously exploring this resolution to their company’s bankruptcy.

So thanks to Josh Koehn on Twitter for showing me this great Andrew Ross Sorkin item from July on why American’s CEO is so opposed to the merger:

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.

That CEOs can get rich this way is especially important, because in the aviation industry the old-fashioned way of getting rich by running a profitable company has rarely been on the table. Southwest consistently makes money (and not coincidentally has a good relationship with the unions representing its workers), but the rest of the industry’s aggregate profits over the decades are a large negative number. In an industry like that, there are substantial incentives to spend your time trying to work the angles rather than just focusing on basic business, and that’s perhaps part of what’s going on here.