Aug 2 The U.S. Department of Justice is taking
its third shot at nixing a proposed $19.9 million severance
package for American Airlines Chief Executive Tom Horton, who
will step down after American's bankrupt parent, AMR Corp
, merges with US Airways.
In court papers filed on Friday in U.S. Bankruptcy Court in
Manhattan, the U.S. Trustee Program, Justice's bankruptcy
watchdog, said the severance package and other components of the
plan violate bankruptcy laws.
AMR has filed a bankruptcy exit plan founded on its proposed
merger with smaller carrier US Airways. While the plan has
garnered support from most of AMR's creditors, it must still
earn approval from the airline's bankruptcy judge, Sean Lane.
A handful of creditors, including bondholders and airport
operators, have objected to the plan. Lane is expected to hear
all objections and consider approval of the plan at a hearing on
Tracy Hope Davis, the U.S. Trustee for the New York region,
said Horton's parting gift defies bankruptcy laws that bar
severance payments greater than 10 times the mean severance
given to employees, and that are not part of a program
applicable to all workers.
It is the third time Davis has called the payment into
question. In March, when Judge Lane was considering approving
the US Airways merger, Davis said AMR had not provided enough
information about Horton's severance package.
Lane approved the merger, and the severance issue was
effectively tabled until May, when Davis objected to an outline
of AMR's bankruptcy exit plan on the same grounds.
Lane overruled the objection at the time, but AMR agreed to
update its restructuring plan with more detail about the
severance. Davis, still not satisfied, levied her latest
objection on Friday.
The August 15 hearing is her last shot to convince the judge
the severance package is unlawful before he issues a final
ruling on whether the plan can go into effect.
Mike Trevino, a spokesman for American Airlines, said
nothing in bankruptcy law prohibits Horton's pay package.
"AMR's creditors and shareholders have voted overwhelmingly
to accept the plan which includes the" package, Trevino said,
adding that AMR will file a formal response in court by Aug. 8.
AMR declared bankruptcy in 2011, and agreed to a merger plan
with US Airways in February after initial resistance and
hard-fought negotiations. Current AMR shareholders will get a
3.5 percent stake in the new airline, a rare example of a
bankruptcy in which shareholders do not walk away empty-handed.
US Airways CEO Doug Parker would run the combined airline,
but Horton would serve as non-executive chairman until the first
annual shareholder meeting, probably in the spring of 2014,
after which Parker would become chairman.
The case is In re: AMR Corp et al, U.S. Bankruptcy Court,
Southern District of New York, No. 11-15463.