Top Ten Business Deals of 2013: American Airlines – U.S Airways

By on / Dealmaking

On November 29, 2011, the same day American Airlines filed for bankruptcy, US Airways CEO Doug Parker called American head Tom Horton to discuss a possible merger. Horton rebuffed Parker, saying airline needed to spend time reorganizing and renegotiating its labor contracts before focusing on a deal, the Wall Street Journal reports.

Undeterred, Parker visited Wall Street to tout the benefits of a merger with American.

And in March 2012, US Airways president Scott Kirby launched informal contract negotiations with American’s pilots union by outlining how US Airways would improve their job satisfaction.

On April 20, catching Horton off guard, US Airways announced that all of American’s large unions supported a merger between the two airlines and issued a formal merger proposal to American and its creditors. Confidential negotiations with American led to a new deal template from US Airways in November: American’s shareholders, creditors, unions, and employees would get 70% ownership of a combined airline, US Airways’ shareholders would get 30%, and Parker would run the company.

In February 2013, the merger was unveiled, and it cleared to pass in November after the airlines settled an antitrust lawsuit from the U.S. Department of Justice and American emerged from bankruptcy.

Pivotal to US Airways’ success was Parker’s recognition of the importance of negotiating with American’s pilots first. Their enthusiasm for a merger and new management made it difficult for Horton to continue resisting negotiations.

In their book 3-D Negotiation: Powerful Tools to Change the Game in Your Most Important Deals (Harvard Business School Press, 2006), David A. Lax and James K. Sebenius suggest that this type of indirect route to your target may be the best strategy. Through a process they refer to as backward mapping, you can think in reverse about how to reach your preferred outcome and then ensure that you are approaching negotiating partners in the right order.

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