The trustee overseeing American Airlines' bankruptcy has asked the carrier to justify its offer of $19.9 million in severance pay to Chief Executive Tom Horton, part of compensation linked to its merger with US Airways Group LCC.N.
Trustee Tracy Hope Davis said in a filing on Friday to the U.S. Bankruptcy Court in New York that American had not explained why that level of severance pay and "sweeping changes" to various employee pay programs were permissible under the bankruptcy code.
The merger of American parent AMR Corp AAMRQ.PK and US Airways, announced on February 14 and subject to various approvals, would create the world's largest air carrier.
Horton, who became American chairman and CEO at the time of the carrier's Chapter 11 filing in November 2011, is due to serve as chairman of the new American Airlines Group Inc until the first annual meeting of shareholders in 2014. US Airways CEO Doug Parker will be CEO of the merged company.
American spokesman Andy Backover said in a statement the carrier did not believe the objection filed by the U.S. Trustee's office had merit. The matter is scheduled to be considered by the U.S. Bankruptcy Court on March 27.
The company said the proposed employee arrangements were found to be reasonable by pay consultants retained by its unsecured creditors committee.
It added that the payments would "motivate a strong management team during the integration process" to make the merger a success.
The merger is expected to close in the third quarter.
(Reporting by Karen Jacobs in Atlanta; Editing by Stephen Coates)