NEW YORK AMR Corp's (AAMRQ.PK) bid to emerge from bankruptcy won approval from a U.S. bankruptcy judge on Thursday, but implementation still requires resolution of U.S. government moves to block its proposed merger with US Airways Group Inc LCC.N.
Judge Sean Lane approved the plan at a hearing in U.S. Bankruptcy Court in New York, but denied a clause that would pay Tom Horton, AMR's outgoing chief executive, $19.9 million in severance.
It was the American Airlines parent's third attempt to convince Lane to approve the deal in the face of opposition to the merger, which is the main component of the plan. At prior hearings, Lane had expressed uncertainty about approving a plan that might change.
But on Thursday, after nearly two weeks of consideration, Lane concluded his job was to determine whether the plan meets standards of feasibility under bankruptcy law, independent of the lawsuit.
"The question is whether it will succeed once consummated, not whether it will be consummated," Lane said. "Here, there can be no dispute that the plan is feasible, if allowed to proceed."
For AMR, the focus now shifts to resolving the Justice Department's lawsuit, filed on August 13. The department argues the merger will create too much consolidation and hurt consumers.
While Lane's ruling gives his blessing to AMR's restructuring efforts, any divestitures or other material changes to the plan that result from settlement talks with the Justice Department would have to go back to him for approval.
Mike Trevino, a spokesman for American, said in a statement that the ruling "shows that American is heading in the right direction" and that the company "will show that our planned merger with US Airways is good for consumers."
If the Justice Department succeeds in blocking the merger, AMR would have to forge new strategies for paying back creditors. AMR shareholders, who stand to receive a 3.5 percent stake in the merged entity, 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.
The antitrust lawsuit is likely to take months to resolve, and possibly longer if it goes to trial.
Lane said he would not approve the $19.9 million severance package for outgoing CEO Horton in the face of objections from the Justice Department's bankruptcy watchdog, which has argued the deal violates bankruptcy laws. The payment could still be approved by AMR's board of directors after the merger.
Horton was appointed CEO when the company filed bankruptcy, but lost the support of his labor force, with each of AMR's three major unions pledging support for the merger and the appointment of US Airways CEO Doug Parker as chief of the restructured carrier.
Stephen Karotkin, a lawyer for AMR, said Horton has agreed to strike the severance deal from the language of the plan in light of the court's ruling. Lane has consistently voiced skepticism on the severance, saying it should be a matter for AMR's board rather than a bankruptcy judge.
In a statement, American Airlines said Horton supports the merger, and "feels that any delay or uncertainty places a further burden on those who have worked so hard to achieve" it.
The bankruptcy is In re AMR Corp, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.
(Reporting by Nick Brown; Editing by Lisa Von Ahn, Chris Reese and Carol Bishopric)