* Judge does not approve $19.9 mln severance package for CEO
* Approval brings AMR one step closer to exiting Chapter 11
* Deal still needs regulatory approval
By Nick Brown
NEW YORK, March 27 A judge on Wednesday approved
AMR Corp's plan to merge with US Airways Group
, a step toward creating the world's largest airline.
AMR, parent of American Airlines and in bankruptcy since
November 2011, must still construct a formal restructuring plan
incorporating the merger that meets court and creditor approval
before the airline can emerge from bankruptcy.
American Airlines announced the plan to combine with US
Airways last month, a deal that also requires regulatory
In a crowded Manhattan courtroom on Wednesday, U.S.
Bankruptcy Judge Sean Lane declined to approve, for now, a
planned $19.9 million severance package for Tom Horton, AMR's
outgoing chief executive.
Lane said he was not sure whether the severance package
requires his approval, or whether the matter is more appropriate
for inclusion in AMR's formal restructuring plan.
That plan, which all debtors in bankruptcy must propose,
will lay out how creditors will get paid back, and will require
The fate of the severance payment is unclear. The version of
the merger agreement that earned the judge's approval may have
to be amended to remove it.
In a joint statement, AMR and US Airways welcomed Lane's
approval of their planned combination.
"We are gratified to know that he considers the merger an
'excellent result' for stakeholders," they said.
Jack Butler, a lawyer for AMR's creditors' committee, said
after the hearing that it was too early to tell how the parties
will deal with the severance issue.
"The companies said they were prepared to amend the merger
agreement in any respect, and I expect that there will be an
amendment," Butler said.
AMR filed for bankruptcy, citing untenable labor costs after
years of futile attempts to negotiate cost savings from its
It had been the last major U.S. carrier to go through
bankruptcy, after its competitors underwent the same process in
the last decade.
Stephen Karotkin, a lawyer for AMR, called the hearing a
"watershed event" that moves AMR a step closer to exiting 16
months of Chapter 11 bankruptcy.
AMR at first opposed merging while still in bankruptcy, but
relented to pressure from its creditors' committee, represented
by Butler and Jay Goffman, both lawyers at Skadden Arps Slate
Meagher & Flom.
US Airways Chief Executive Doug Parker wooed AMR
aggressively, taking advantage of AMR's labor relations problems
to appeal to its unions.
US Airways hammered out a tentative deal with the unions
last April, before formal merger talks between the two
companies' management teams had gone into full swing.
The creditors' committee eventually convinced AMR to adopt a
protocol to evaluate a merger, and played a large role in
analyzing the net savings and benefits from a merger.
AMR shareholders are expected to receive a 3.5 percent
equity stake in the new firm, which would make it one of the few
major bankruptcies in which equity holders earn some recovery.
The Skadden legal team advising the creditors' committee
also played a central part in negotiating the new management
structure, including the details of Horton's severance package.
Parker will serve as CEO of the combined carrier, while
Horton, who became AMR's CEO when it filed for bankruptcy, will
serve as chairman through the first annual meeting of
shareholders. After that Parker will take on the chairman role.
The merger is expected to close in the third quarter.
The case is In re AMR Corp et al, U.S. Bankruptcy Court,
Southern District of New York, No. 11-15463.