AMR Waits for Judge's Ruling on US Airways Merger Accord

American Airlines parent AMR Corp. (AAMRQ) will have to wait a while longer to learn whether a bankruptcy judge will approve its settlement with the U.S. Justice Department of a lawsuit over the carrier’s proposed merger with US Airways Group Inc. (LCC)

U.S. Bankruptcy Judge Sean Lane declined to rule on the settlement from the bench after a hearing today in Manhattan. After hours of argument over a group’s request to block the regulatory accord, the judge said he would have a decision by Nov. 27, at the latest.

“This hearing represents the culmination of perhaps the most successful Chapter 11 case for an airline in recent history,” Stephen Karotkin, a lawyer for AMR, told the judge.

Under the Nov. 12 accord, the Justice Department agreed to drop its antitrust challenge if the carriers gave up some airport slots.

American Airlines will form the world’s biggest airline if the merger with Tempe, Arizona-based US Airways is completed. The federal district judge presiding over the antitrust case in Washington must also approve the proposed settlement after accepting comments from the public through Feb. 7.

The deal with US Airways is the linchpin of Fort Worth, Texas-based American’s bid to emerge from bankruptcy after almost two years and repay creditors. Lane approved American’s reorganization plan in September, while barring it from taking effect until the underlying merger won regulatory clearance.

Landing Slots

To resolve regulators’ concerns that the deal would give the merged airline too much clout at Washington’s Ronald Reagan National Airport and boost prices, American and US Airways agreed to divest 52 pairs of takeoff and landing slots there. The combined carrier will also give up 34 slots at New York’s LaGuardia Airport and make smaller concessions at five other airports.

The Justice Department filed an antitrust lawsuit to block the merger of American and US Airways in August, arguing it would raise prices and harm consumers. American could emerge from bankruptcy and compete on its own without the merger, the U.S. said.

American Airlines and US Airways said the deal would be good for passengers, giving them more choices and generating more than $500 million a year in benefits.

‘Remarkable Achievement’

AMR’s total value for its stakeholders under the reorganization plan is about $13.1 billion based on current trading, representing an increase of $2.7 billion since Aug. 7, when a valuation was last completed, Karotkin, told Lane today. He called the value created for creditors a “remarkable achievement.”

After the merger, US Airways Chief Executive Officer Doug Parker will hold that title at the combined airline, while AMR CEO Tom Horton would serve as chairman until the first annual meeting of the merged carrier.

In September, Lane challenged a $20 million severance payment under the turnaround plan for Horton, prompting Karotkin, to say the payout would be dropped to win approval.

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.

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

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.