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AMR, US Airways Merger Hits Hurdle in Court on Horton Pay

American Airlines Chief Executive Officer Tom Horton’s $20 million severance is holding up the airline’s bid to win court approval for its merger with US Airways Group Inc.

U.S. Bankruptcy Judge Sean Lane in Manhattan today questioned American’s request now for approval of the severance package, which has drawn opposition from the U.S. government’s bankruptcy watchdog.

Lane asked at a court hearing why the severance approval shouldn’t be put off until later, when American parent AMR Corp. seeks court approval for its bankruptcy reorganization plan.

“Why can’t it and why shouldn’t it be in the plan as opposed to here?” the judge said.

American, based in Fort Worth, Texas, is in court to ask Lane to approve its planned merger with US Airways. The merger won’t be completed until AMR’s bankruptcy plan is approved, which should occur in about six months, Stephen Karotkin, an attorney for the company, said in court.

US Airways CEO Doug Parker will run the new company and Horton will become chairman. Horton’s $19.9 million severance, which would be paid half in cash and half in stock of the combined company, is part of American’s request for approval of the merger.

The U.S. Trustee, which monitors bankruptcy proceedings, calls the severance a “golden parachute” and argues it violates bankruptcy laws. American defends the package, saying it is conditioned on the merger closing and will be paid by the new company and not AMR.

The case is in re AMR Corp., 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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