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American Airlines’ Plan Wins Bankruptcy Judge’s Approval

American Airlines’ plan to exit bankruptcy protection by merging with US Airways Group Inc. (LCC) was approved by a judge who said a U.S. antitrust lawsuit seeking to block the deal was no reason to delay it.

The Chapter 11 reorganization plan by AMR Corp. (AAMRQ), the parent of American Airlines, can’t take effect until the combination gets regulatory clearance, U.S. Bankruptcy Judge Sean Lane said today in Manhattan before approving the deal.

“There can be no dispute that the plan is feasible if the merger succeeds,” Lane said. Lane, who challenged a $20 million severance under the turnaround plan for AMR Chief Executive Officer Tom Horton, said it’s not uncommon for plans to be accepted under a cloud of regulatory uncertainty.

The decision is a win for Fort Worth, Texas-based American, which had urged the judge to confirm the plan even with the trial of the U.S. antitrust lawsuit months away. The airline argued that failure to approve the proposal would be “destabilizing” for the company and create uncertainty.

The U.S. Justice Department sued American and US Airways in August, seeking a court order to block the merger. The government argues that the combination, which would create the world’s largest airline, would harm consumers.

Photographer: Mike Fuentes/Bloomberg

A US Airways Group Inc. airplane, center, sits flanked by AMR Corp.'s American Airlines' jets at a gate at Dallas Fort Worth Airport in Fort Worth, Texas. Close

A US Airways Group Inc. airplane, center, sits flanked by AMR Corp.'s American... Read More

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Photographer: Mike Fuentes/Bloomberg

A US Airways Group Inc. airplane, center, sits flanked by AMR Corp.'s American Airlines' jets at a gate at Dallas Fort Worth Airport in Fort Worth, Texas.

The government has argued that American can emerge from bankruptcy and compete on its own without the merger. U.S. District Judge Colleen Kollar-Kotelly in Washington has scheduled the antitrust case to go to trial beginning Nov. 25.

Merger Defense

American Airlines and US Airways defended their proposed merger in court filings Sept. 10. The deal would be good for passengers, giving them more choices and generating more than $500 million a year in benefits, they said.

Lane said today that the plan would be put at “unnecessary risk if confirmation is delayed” and divert AMR’s resources away from the antitrust case.

Stephen Karotkin, a lawyer for American, told Lane today that Horton’s $20 million severance would be removed from the plan after the judge said he was inclined to reject it.

Horton will ask American’s board at a Sept. 18 meeting to drop the payment from the plan to ensure it can be implemented, the carrier said in statement after the hearing. US Airways CEO Doug Parker would hold that title at the combined airline, while Horton would serve as chairman until the first annual meeting of the merged carrier.

Horton “feels that any delay or uncertainty places a further burden on those who have worked so hard to achieve one of the most successful restructurings in aviation history,” American said in a statement. Removing the severance “will allow the plan and merger agreement to move forward.”

U.S. Trustee

The U.S. Trustee, which monitors bankruptcy proceedings, had objected to the payment, saying the airline hadn’t shown that it complies with bankruptcy law.

The merger with Tempe, Arizona-based US Airways forms the basis of American’s proposal to emerge from bankruptcy protection after almost two years and pay creditors.

The agreement gives 28 percent of the stock of the combined company to US Airways shareholders, with the remaining 72 percent going AMR creditors, unions, certain employees and shareholders.

AMR rose 4 percent to $3.65 in over-the-counter trading. US Airways fell 0.5 percent to $17.63 in New York after earlier climbing as much as 1.3 percent on the news of the judge’s approval.

If the government succeeds in blocking the merger, American will have to develop a new plan to exit court protection.

‘Right Direction’

“The judge’s ruling today shows that American is heading in the right direction,” said Michael Trevino, a spokesman for the airline. “We are focused on the antitrust case and will show that our planned merger with US Airways is good for consumers and competition.”

In a related development today, a New York appeals court upheld a ruling that AMR wasn’t required to pay a make-whole amount to noteholders when it called bonds early to arrange $1.5 billion in aircraft refinancing.

AMR had sought court approval for the financing to take advantage of lower interest rates, saying it may save more than $200 million in interest expense. The airline said it would use proceeds to repay about $1.3 billion in debt backed by aircraft under three series of notes.

The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington). The bankruptcy case is In re AMR Corp., 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Erik Larson in U.S. Bankruptcy Court in New York at elarson4@bloomberg.net; David McLaughlin in Washington at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.

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