Judge declines to approve AMR restructuring

NEW YORK Thu Aug 15, 2013 6:06pm EDT

1 of 2. A US Airways plane and an American Airlines plane share a terminal at Ronald Reagan National Airport in Washington April 23, 2012.

Credit: Reuters/Kevin Lamarque

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NEW YORK (Reuters) - A bankruptcy judge on Thursday held off approval of a restructuring plan for American Airlines, citing a U.S. government challenge this week to the airline's proposed merger with US Airways Group Inc LCC.N.

American's parent company, AMR Corp (AAMRQ.PK), worked out the $11 billion merger with US Airways as part of a plan to exit bankruptcy, where it has been since 2011.

Judge Sean Lane had been expected to approve the plan at a hearing on Thursday. But, two days before the hearing, the U.S. Justice Department sued to block the merger, saying it would lead to higher fares and hurt consumers.

Instead of approving the plan, Lane gave AMR and its creditors until August 23 to submit briefs on how he should proceed.

Lane said he needed more information about the appropriateness of approving the restructuring plan in light of the antitrust challenge.

AMR and US Airways, which have said they will fight the antitrust lawsuit, and their lawyers argued on Thursday that Lane should still approve the bankruptcy plan.

A lawyer for US Airways, Daniel Wall, said the Justice Department's timing, just two days before the final hearing, was "audacious."

"Don't allow the bankruptcy issues, which are complicated enough on their own, to be held hostage to very late-filed antitrust issues," Wall told the judge.

But Lane cited "lingering doubts" about the benefits of approving a bankruptcy plan before the antitrust issue is resolved. "What would be the point of entering a confirmation order ... if, in fact, there's a lot more work to be done?" he said.

Under the restructuring plan, a reorganization cannot go ahead without antitrust approval for the merger, which could take months.

If the Justice Department ultimately succeeds in blocking the merger, it would put AMR's restructuring back at square one, requiring it to forge new strategies for paying back creditors.

AMR shareholders, who stand to receive a 3.5 percent stake in the new entity under the merger, would likely be wiped out under any plan that excludes a merger, restructuring experts have said.

Lane said he had strongly considered canceling Thursday's hearing but decided to give parties an open forum to discuss the antitrust challenge.

The bankruptcy plan has the support of nearly all of AMR's key creditors, and Lane had already signed off on the merger and an initial outline of the restructuring plan that incorporates it.

Absent the antitrust challenge, Thursday's hearing would have been the final step in AMR's exiting bankruptcy and implementing its merger.

(Reporting by Nick Brown; Editing by Steve Orlofsky)

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Comments (4)
Reitree wrote:
I wonder if Judge Lane has decided to give into Americans demands of eliminating Health Insurance Benefits for over 40,000 retirees and their families as a condition of Bankruptcy Re-organization and merging with U.S.Air to become, as they claim the biggest and best Airline.
The reason being it is unaffordable. However they can afford to payout a bonus to the former American CEO, Tim Horton, $20 million for leading American into bankruptcy. What a great reward for all the retirees for working hard their entire lives for this company.
Only in America!!!! Perhaps the Justice Dept. is on to something!!

Aug 15, 2013 1:55pm EDT  --  Report as abuse
Wulff wrote:
Since our wonderful gov’t has opted to bar the merger, I believe the only correct path for this airline is liquidation. Make the idiots answer for their actions on all fronts.

Aug 15, 2013 9:10pm EDT  --  Report as abuse
tominscotts wrote:
DOJ is correct in their assessment of this merger. U S Airways can barely operate their own airline (on time, flight delays and flight cancellation problems due to faulty aircraft) never mind running a larger one. A merger approval would give them a license to steal from the public. Don’t believe Doug Parker for one second when he says it will be better for everyone. Everyone except the public and airline employees. The airlines are the greediest, worst run business in the world and only Doug Parker and the stockholders will win in a merger.

Aug 15, 2013 11:22pm EDT  --  Report as abuse
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