By Nick Brown
NEW YORK Aug 29 A U.S. bankruptcy judge on
Thursday hinted he would approve AMR Corp's
bankruptcy exit plan despite the government's challenge to its
main component: AMR's planned megamerger with US Airways Group
At a hearing at U.S. Bankruptcy Court in Manhattan, Judge
Sean Lane held off on confirming the plan for American Airlines'
bankrupt parent, but said he found "arguments in favor of
confirmation to be fairly persuasive."
"I'd like some time to reflect on them," Lane said.
In a lawsuit filed on Aug. 13, the U.S. Department of
Justice sought to block the merger on antitrust grounds,
alleging it would create too much consolidation and lead to
higher fares for consumers.
At an initial hearing on Aug. 15, Lane voiced hesitation to
give his blessing to a plan that might change later, namely
through a settlement with the DOJ that could include
Lane ordered the parties to brief him on the best course of
action given the DOJ's concerns. The parties filed those briefs
last week, and returned to court on Thursday in hopes of getting
Lane to budge.
AMR and its creditors' committee argued that Lane's approval
of the plan would not conflict with the DOJ lawsuit, which would
need to be resolved before the plan could go into effect,
regardless of Lane's ruling.
Any divestitures or settlement terms with the DOJ would also
require Lane's approval, the parties argued.
Stephen Karotkin, a lawyer for AMR, said the company's key
creditors all favor the plan.
"A good barometer for a plan's feasibility is the vote of
creditors," Karotkin said at Thursday's hearing.
Mike Trevino, a spokesman for American Airlines, said the
company was "pleased" that the judge "found our arguments ...
persuasive," and reaffirmed the company will focus its attention
on the DOJ lawsuit and pushing for a November trial date.
If the Justice Department 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
say. Most of AMR's key creditors, including its unionized
workers, support the tie-up.
Only one constituency voiced opposition to confirmation: a
group of plaintiffs in a separate antitrust lawsuit against US
Airways. That group argued that the plan is not feasible because
of the litigation surrounding it.
The DOJ antitrust suit will take months to resolve, and
possibly longer if it goes to trial.
Shares of US Airways, which have fallen since the Justice
Department suit, were up 4.6 percent to $16.05. AMR Corp was up
8 percent to $3.30 in over-the-counter trading.
S&P Capital IQ raised its rating on US Airways to "strong
buy" from "buy", citing reports the two carriers and the Justice
Department were open to settling the government complaint
seeking to block the merger.
"We think the merger should not have been blocked, and
believe it is feasible that the divestiture of slots at Reagan
National will help reach a settlement," equity analyst Jim
Corridore said in a note to clients.