Judge Approves AA-US Merger, Denies $20 Million Severance

The judge overseeing American Airlines bankruptcy case approved the airline’s planned merger with US Airways but balked at the $19.9 million severance package for Tom Horton, American’s CEO.

“This merger is truly a tremendous result,” said Judge Sean H. Lane, but the U.S. Bankruptcy Court judge added that his “only hangup” was with the severance payment to Mr. Horton.  Under the proposed terms of the merger, which is to carry American out of bankruptcy, Mr. Horton would receive the money after he steps down as the merged carrier’s chairman in early 2014.  “I think it’s inappropriate to approve it,” he said.

The court’s approval of the merger is an important milestone for the airline.  American’s parent company AMR Corp. sought bankruptcy protection on November 29, 2011 with a goal of lowering its operating and labor costs.

The hearing on Wednesday focused largely on the severance payment to Mr. Horton.  The court-appointed trustee, Tracy Hope Davis, whose role is to serve as a watchdog in such cases, had questioned the plan although she dropped her objection to raises and bonuses that had been promised to other key executive employees at the airline.  AMR has taken the position that the payment wasn’t subject to the Bankruptcy Code as it would be made after the carrier had emerged from Chapter 11.  Today’s comments by Judge Lane do not necessarily mean that Mr. Horton will not receive the payment, however. The judge plans to issue a written ruling on this matter in the future.

The merger of American Airlines with US Airways will create the world’s largest airline.  In February, it was  announced that the name American Airlines Group name would replace AMR Corp. once the merger closes.

(Photo: Accura Media Group)