A group of some of bankrupt American Airlines' most significant bondholders said it will not support a standalone restructuring unless a new board is brought in, a move that may increase hurdles for chief executive Tom Horton and his team.
The 12-member bondholder group, which includes JPMorgan Chase, Pentwater Capital Management and York Capital Management, is the primary well-organized group to have expressed an interest in funding an independent exit for the airline's parent company AMR.
AMR filed for bankruptcy in November 2011, seeking to reduce costs.
Entities that gain a controlling equity stake in a company through bankruptcy routinely appoint new boards, and those boards do not necessarily oust the company's incumbent managers.
But AMR's current management team, led by Horton who is also chairman of the board, has lost the confidence of the company's unions, which support a takeover bid by smaller competitor US Airways.
The bondholders, who hold more than USD$700 million in AMR debt, said in the letter to Keith Wilson, president of American's pilots' union, its support for an independent exit was "conditioned, among other things, on that plan providing for the naming of a new board of directors."
It added that the new board would be selected with input from other shareholders.
That could include the pilots' union if the union votes to ratify a proposed contract offering it a 13.5 percent equity stake in the company, which means Horton's future at the company could depend on his ability to convince other shareholders of his team's leadership credentials.
"The board will... be responsible for selecting a management team," the bondholders said in the letter. "We expect the board to share our view that an important criteria for selecting the leader of that team will be a demonstrated ability to maximize shareholder value."
The letter, sent on November 15, was not public, but the Allied Pilots' Association made it available to its 8,000 members on Wednesday and reporters obtained a copy.
A spokesman for AMR declined to comment on Wednesday.
The circulation of the letter may also signal an attempt by the union to nudge its members toward ratifying the new contract proposed by AMR.
Resolving the bitter, years-long dispute between AMR and its pilots is a top priority for the company and its creditors, as AMR tries to convince investors of its long-term stability.
The bondholders' commitment to work cooperatively with shareholders "shows that APA's 13.5 percent equity claim is of critical importance in shaping what the new American Airlines will look like and who will lead it," the union said in a statement circulated to its members along with the letter.
A vote on the proposed contract is set for December 7.