By Nick Brown and Billy Cheung
NEW YORK, June 4 American Airlines' bankrupt
parent received court permission on Tuesday to send its
restructuring plan to creditors for a vote, bringing its planned
$11 billion merger with US Airways Group a step closer
Judge Sean Lane approved an outline of AMR Corp's
plan at a hearing in U.S. Bankruptcy Court in Manhattan.
Creditors will use the outline to inform their decision on
whether to support the plan itself.
The basis of the plan is a merger with US Airways, which was
agreed in February after hard-fought negotiations and initial
resistance from AMR.
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. The company has
projected the value of the stake approaching the $400 million
The key objection to the plan outline had come from the U.S.
Trustee Program, the Department of Justice's bankruptcy
watchdog, over a roughly $20 million severance package for
outgoing AMR Chief Executive Tom Horton.
Tracy Hope Davis, the trustee for the New York region, last
month argued that the document did not contain enough detail on
the negotiations surrounding the severance, and that bankruptcy
law bars such payments except when they are generally applicable
to all employees.
Lane approved the plan outline over the objection, saying
Davis failed to show the plan was "patently unconfirmable."
Still, AMR agreed to update the document with more information
about the Horton deal.
AMR filed for bankruptcy in 2011, the last major U.S.
carrier to go through the process after its competitors
underwent restructurings in the last decade. It initially
opposed a merger, but agreed to explore one under pressure from
creditors and unions.
Its unsecured creditors' committee set the tone for the
case, demanding that AMR resolve years of bitter labor talks
with its unions. The company eventually reached cost-saving
labor contracts with its pilots', flight attendants' and ground
workers' unions, but the process left the labor force at odds
with AMR management, and unions lobbied heavily for a US Airways
AMR was "pleased" that the court approved its plan outline,
a spokesman said on Tuesday.
"Our plan of reorganization will maximize recoveries for all
of our economic stakeholders and provide the foundation for a
stronger future for our people and our customers," spokesman
Michael Trevino said in a statement.
Under the plan, secured creditors would be paid in full,
while unsecured creditors would receive shares of preferred
stock. The company's 7.5 percent bonds, which are secured by
some of AMR's trans-Atlantic and trans-Pacific routes, will
either be reinstated or paid off entirely. The plan already has
the support of holders of $1.6 billion in unsecured claims.
The combined carrier would keep the American name and would
be based in AMR's hometown of Fort Worth, Texas. AMR creditors
would receive 72 percent of the new equity, with US Airways'
current shareholders getting the other 28 percent.
A voting deadline for creditors has not been set. Creditors
opposed to the plan can file objections with the court, and the
plan must ultimately go before Judge Lane for a final approval.
Objection deadlines and hearing dates have not been set.
US Airways Chief Executive Officer 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.
Horton's severance has been a controversial issue from the
beginning, drawing criticism from some AMR pilots. Judge Lane
had declined to approve the proposal when AMR presented its
merger plan in April, ruling that it was not permitted under
federal bankruptcy law. By incorporating it instead into its
restructuring plan, AMR makes the payment subject to creditor
The case is In re: AMR Corp et al, U.S. Bankruptcy Court,
Southern District of New York, No. 11-15463.