Judge OKs American Airlines' reorganization plan

The airline merger is part of American's bankruptcy emergence.
The airline merger is part of American's bankruptcy emergence. (Associated Press)
Posted: September 14, 2013

NEW YORK - A federal bankruptcy judge approved American Airlines' reorganization plan Thursday, including a merger with US Airways Group, conditional on the combination clearing an antitrust challenge by the Justice Department.

Judge Sean H. Lane also struck down nearly $20 million in severance payments for Tom Horton, CEO of American's parent AMR Corp. Horton quickly agreed to the move.

Lane said he found the arguments in favor of confirmation of American's plan to exit bankruptcy persuasive.

American spokesman Mike Trevino called the development an "important milestone" in the airline's turnaround.

Two weeks ago, when he set Thursday's hearing date, Lane said he was leaning toward approving the merger that would create the world's largest airline.

Now, the remaining issue is an antitrust lawsuit filed Aug. 13 by the Justice Department, six state attorneys general (including Pennsylvania's) and the District of Columbia, seeking to block the proposed merger.

Lane said Thursday that the bankruptcy confirmation and the Department of Justice case "can proceed concurrently, rather than wait."

"The broad support for this plan could be put at risk if the confirmation is delayed," Lane said at the outset of the hearing.

Lawyers for American parent AMR Corp., its unsecured creditors committee, and American's labor unions had urged the judge to confirm the plan, ending American's nearly two years under bankruptcy protection.

The merger with US Airways, Philadelphia's dominant airline, is a key part of the plan.

The antitrust case will go to trial Nov. 25.

If the merger is disallowed on antitrust grounds or a settlement changes the terms, American's plan to exit Chapter 11 bankruptcy would go back to Lane.

"No merger will occur unless and until there is regulatory approval," Lane said.

Lawyers for American and US Airways have vowed to fight the DOJ lawsuit, and argued it should not prevent Lane from approving AMR's restructuring plan.

Lane struck down the severance award for Horton, who would serve as chairman of the new airline, to be called American, before he leaves the company next summer.

The U.S. Trustee's Office had contended the payment violates bankruptcy law limits designed to prevent executives from getting big payouts not available to regular employees.

AMR attorney Stephen Karotkin told the judge, "Mr. Horton has asked me to tell you he will promptly ask the AMR board of directors to remove his compensation agreement and allow the plan to proceed."

The Justice Department has argued that the merger would reduce competition and increase fares and fees, and that the combined carrier would have a monopoly on too many flights at certain airports, in particular at Washington Reagan National Airport, where the new American would control 69 percent of the slots, which are takeoff and landing rights.

Joshua L. Schank, president and CEO of the Eno Center for Transportation, a Washington think tank, wrote in a newsletter Tuesday that U.S. airline passengers enjoy "historically low" airfares and airlines operate "on thin profit margins compared to other industries."

"It is hard to imagine that after this merger, the big four remaining airlines would suddenly be able to raise fares and dramatically increase those profit margins. It is possible that some specific markets could face a lack of competition, but why not deal with those on a case-by-case basis?" Schank wrote.

At the conclusion of Thursday's hearing, Laura Glading, a member of the union representing American flight attendants and a member if the creditors committee, said: "One small victory - one more to go. Now we take on the DOJ and show that they got it wrong."


Bankruptcy judge OKd American Airlines' reorganization plan.

The $20 million severance package for American's top executive was struck down.

The focus now shifts to the Department of Justice's lawsuit seeking to block American's merger with US Airways, the dominant airline in Philadelphia.

The trial date for that suit is Nov. 25.

Contact Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

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