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Court backs American-US Airways merger
Updated On: Mar 28, 2013

By Scott Mayerowitz-The Associated Press-

The Associated Press The Associated Press The Associated Press  

NEW YORK -- American Airlines won Bankruptcy Court approval Wednesday to combine with US Airways and form the world's biggest airline.

"The merger is an excellent result. I don't think anybody disputes that," Judge Sean Lane said before issuing his decision.

But the judge declined to sign off on a proposed $20 million severance package for Tom Horton, now the CEO of American's parent, Fort Worth-based AMR Corp.

The merger approval is a milestone for American, which filed for Chapter 11 bankruptcy protection in November 2011 after long resisting using the bankruptcy process to cut labor and other costs. The merger still needs approval from Justice Department antitrust regulators and US Airways shareholders. It is expected to close by the fall.

Lane was expected to approve the merger agreement. But it was a bit of a surprise that he issued his ruling from the bench after hearing arguments from attorneys for the carriers, American's creditors and the U.S. bankruptcy trustee.

The judge plans to issue a written decision at a later date detailing his reasoning.

The combined airline will have 6,700 daily flights and annual revenue of roughly $40 billion. The new American Airlines will fly slightly more passengers than United Airlines, the current No. 1.

It will be run by Doug Parker, CEO of US Airways Group Inc., who began pursuing a merger shortly after American entered bankruptcy protection.

"Judge Lane's approval of the merger agreement today allows us to continue progressing forward with our planned merger and we are gratified to know that he considers the merger an 'excellent result' for stakeholders," the carriers said in a joint statement issued Wednesday evening.

The airlines noted that Lane merely deferred his ruling on Horton's compensation.

Horton's $19.9 million severance, to be paid half in stock and half in cash after the merger closes, was opposed by the government's bankruptcy watchdog, the U.S. trustee, who said the payment violates bankruptcy laws.

"The same bankruptcy code that allows a company to restructure debts, and reduce employee pay and benefits, also restricts payments to senior executives and insiders," Cliff White, director of the Executive Office for U.S. Trustees, said in a statement after the hearing.

Lane agreed that the timing seems to violate bankruptcy law.

"Approving it today is just not appropriate," Lane said.

Unions representing American's pilots and flight attendants reiterated their support for the merger Wednesday but declined to address Lane's decision on Horton's compensation.

Horton has spent nearly his entire career at American, becoming CEO when the company filed for bankruptcy.

He will cede the CEO position to Parker when the deal closes and has agreed to leave the company's board within a year of the closing date.

In 2011, Horton was paid a salary of $618,135. He also got stock awards and options that were valued that year at nearly $2.7 million. The company argued that those could be nearly worthless after the bankruptcy reorganization.

Figures for 2012 aren't available.

The proposed severance package includes cash and stock as well as a lifetime of free first-class tickets on American for Horton and his wife.

Horton could still receive the payout.

American's lawyers offered a possible solution during the hearing: American and US Airways would amend their merger agreement to say that Horton's severance would be subject to ratification by the new airline's board after the merger closes.

Jack Butler, a lawyer with Skadden, Arps, Slate, Meagher & Flom, said he expects Horton to eventually get his payout.

Butler's firm represents American's creditors, who support the merger.

"Tom has never made this case about himself, and I don't expect him to start now," Butler said.

In most bankruptcy cases, creditors lose part of the money they are owed.

Thanks in part to the merger, creditors in this case will get back what they are owed.

Onetime shareholders of AMR Corp. are slated to get 3.5 percent of the new airline.

Separately, Lane approved a motion to extend American's exclusive period for filing a reorganization plan until May 29, the last such extension allowed under law.

Creditors then have a 60-day waiting period to object to the plan before Lane can sign off on American's emergence from bankruptcy protection

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