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Published: Wednesday, 3/27/2013

Bankruptcy judge approves American-US Airways merger

ASSOCIATED PRESS

NEW YORK — A federal bankruptcy judge signed off today on the $11 billion merger of American Airlines and US Airways.

The widely-expected decision by Judge Sean H. Lane helps clear the way for the two carriers to form the world's biggest airline, with 6,700 daily flights and annual revenue of roughly $40 billion.

“The merger is an excellent result. I don't think anybody disputes that,” Judge Lane said during a court hearing. American has been operating under bankruptcy protection since November, 2011.

The merger, first announced on Feb. 14, still needs approval from the Department of Justice and US Airways shareholders. It is expected to close by the fall.

Judge Lane's decision was complicated by objections to the timing of a $20 million severance package for outgoing American CEO Tom Horton. Mr. Horton has agreed to step down as CEO and leave the company within a year of the merger's closing. The U.S. trustee objected to Mr. Horton's severance, saying it is in excess of limits set under the bankruptcy code.

Judge Lane decided not to approve that payment as part of his decision and plans to issue a written decision at a later date detailing his reasoning.

“Approving it today is just not appropriate,” Judge Lane said.

Mr. Horton spent nearly his entire career at American, becoming CEO when the company filed for bankruptcy on Nov. 29, 2011. Once the deal closes, US Airways CEO Doug Parker will run the combined airline. Mr. Horton will step down as CEO and then leave the company's board within a year. The agreement calls for him to receive $19.9 million in cash and stock as well as a lifetime of free first-class tickets on American for himself and his wife.

“This was not something decided upon to line the pockets” of American's executives, said Stephen Karotkin, a lawyer with Weil, Gotshal & Manges, which represents American.

Judge Lane didn't object to the actual severance payment but agreed with the trustee that the timing of it seemed to violate prohibitions in the bankruptcy law.

“I am bound by the way Congress drafted the statute,” Judge Lane said, adding that he was worried about setting a bad precedent that lawyers in future cases will try to capitalize upon.

“There are many, many smart lawyers out there,” Judge Lane added. “It's not hard to imagine.”



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