Judge Confirms AMR Plan to Merge With US Airways
NEW YORK--A judge on Thursday confirmed AMR Corp.'s plan to exit bankruptcy through an historic merger with US Airways Group Inc. (LCC), leaving the U.S. Justice Department's lawsuit to stop the merger as the only roadblock left for the deal.
Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan's approval means that if AMR and US Airways either win the antitrust suit or settle with the government, the merger plan can go into effect.
"The broad support of this plan could be put at unnecessary risk if confirmation is delayed," Judge Lane said, citing that most parties involved in the case support the merger.
The judge did reject a proposed $19.9 million severance payment to outgoing AMR Chief Executive Tom Horton, calling it an "impermissible" provision to the plan. U.S. Trustee Tracy Hope Davis, a federal bankruptcy watchdog, had objected to the payment.
A lawyer for AMR later relayed a message to Judge Lane that Mr. Horton will recommend to the AMR board of directors that his payment be removed from the proposal.
"I very much appreciate hearing that, thank you," Judge Lane said. Mr. Horton could still get the severance payment, but it would have to be approved by the board of directors after the merger is completed.
At a hearing in mid-August, just days after the suit was filed, the judge had requested briefs addressing whether it was appropriate to approve the bankruptcy plan in light of the antitrust suit.
Then, at a hearing late last month, he said he was leaning toward approving the proposal even amid the Justice Department suit, which was filed Aug. 13.
The Justice Department took no position on whether Judge Lane should approve the plan, a fact the judge said influenced his decision.
The Justice Department says the merger, which would create the world's largest airline, would stifle airline competition and create higher fares and fees for customers, as well as fewer flying options.
The antitrust trial will begin Nov. 25. One of the conditions of the plan is that either airline can terminate the merger if regulatory approval isn't given by Dec. 17, although the airlines have said they may push that date back, according to people familiar with the matter.
In its current form, AMR's bankruptcy-exit plan would repay bondholders in full and give the company's existing shareholders at least 3.5% of the combined airline, a rare outcome in Chapter 11 cases.
In all, the proposal would give 72% of the combined airline to AMR shareholders, unsecured creditors, labor unions and some employees. The rest would go to US Airways' shareholders.
AMR filed for bankruptcy protection in November 2011, citing the need to cut operational and labor costs. The company negotiated deep concessions from its main labor unions after a lengthy trial, cutting about $1 billion in annual labor costs.
AMR initially planned to exit bankruptcy as an independent airline, but the company eventually succumbed to the advances of suitor US Airways. The two parties agreed to a merger as part of AMR's plan to exit bankruptcy with regulatory approval one of the conditions required for the plan to become effective.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
Susan Carey contributed to this article.
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