American and US Airways Merger Clears Bankruptcy Court

“The merger is an excellent result. I don’t think anybody disputes that,” Judge Sean H. Lane said in Federal Bankruptcy Court in Manhattan before issuing his decision.

But the judge declined to sign off on a proposed $20 million severance package for Thomas W. Horton, currently the chief executive of American’s parent company, the AMR Corporation.

The court’s approval is an important milestone for American, which filed for Chapter 11 bankruptcy in November 2011 after having long resisted using the bankruptcy process to cut labor and other costs. The merger still needs approval from Justice Department antitrust regulators and US Airways shareholders. It is expected to close by the fall.

The combined airline will have 6,700 daily flights and annual revenue of roughly $40 billion. The new American Airlines will fly slightly more passengers than United, the current No. 1. It will be run by Doug Parker, the chief executive of the US Airways Group, who began pursuing a merger shortly after American entered bankruptcy protection.

The federal bankruptcy trustee for AMR had objected to the severance package for Mr. Horton. While he didn’t question the amount, Judge Lane agreed that the timing of it seemed to violate prohibitions in the bankruptcy law.

“Approving it today is just not appropriate,” Judge Lane said. The judge plans to issue a written decision at a later date detailing his reasoning.

In 2011, Mr. Horton was paid a salary of $618,135. He also received stock awards and options that were valued that year at nearly $2.7 million, but the company argued those could be nearly worthless after the bankruptcy reorganization. Figures for 2012 aren’t yet available.

The proposed severance package includes $19.9 million in cash and stock as well as a lifetime of free first-class tickets on American for Mr. Horton and his wife.

He could still receive the payout. American’s lawyers offered a possible solution during the hearing: American and US Airways would amend their merger agreement to say that Mr. Horton’s severance would be subject to ratification of the board of the new airline after the merger closes.

In most bankruptcy cases, creditors lose part of the money they are owed. In part because of the merger, creditors in this case will get back what they are owed. Onetime shareholders of AMR are to get 3.5 percent of the new airline.

Article source: http://www.nytimes.com/2013/03/28/business/american-and-us-airways-merger-clears-bankruptcy-court.html?partner=rss&emc=rss