AMR Seeks Plan Approval in Shadow of U.S. Merger Suit

AMR Corp. urged a judge to approve its plan to exit bankruptcy protection by merging its American Airlines with US Airways Group Inc. two days after the U.S. sued to block the combination as a threat to consumers.

U.S. Bankruptcy Judge Sean Lane in Manhattan yesterday held a hearing on American’s request for approval of the reorganization plan and asked lawyers to submit briefs on the impact of the Justice Department’s antitrust lawsuit.

The Justice Department sued both airline companies Aug. 13 to prevent the transaction, which would create the world’s largest carrier, saying its anticompetitive effects would lead to higher airfares.

AMR lawyer Stephen Karotkin told Lane that the U.S. lawsuit isn’t an impediment to approval of the plan though it prevents the plan from closing.

“Obviously, your honor, we are disappointed with the complaint that was recently filed by the Department of Justice,” he said, and the two airlines “intend to mount a vigorous defense.”

‘Final Episode’

Before the suit, American hoped yesterday’s hearing would be the “final episode” in its reorganization, Joe Sims, an attorney for the airline, said on an Aug. 14 conference call with reporters.

“It’s not going be now, so they will deal with that,” said Sims, of the Jones Day law firm. “They’ll adjust and continue as they have been.”

Lane, who has already given the US Airways deal his approval, could approve the plan contingent on American’s securing the government’s blessing, according to Jay Sakalo, a bankruptcy attorney at Bilzin Sumberg Baena Price & Axelrod LLP in Miami.

American will be able to continue operating in bankruptcy while it fights the U.S. lawsuit, said Sakalo, who isn’t involved in the case.

“A few more months probably doesn’t have a critical effect on the company,” he said in an Aug. 14 interview. “A few more months, though, that are followed by no viable alternative if the merger isn’t approved -- that could have a very significant impact on the business.”

Move Ahead

At the start of the hearing, Lane said he considered adjourning it before deciding to move ahead because calling it off might have led to “unhelpful confusion or uncertainty.”

Lane asked for briefs on the impact of the U.S. antitrust case on the standards for approving the plan and the appropriateness of ruling on the plan before the U.S. case is resolved. He said any party can file a brief, including the Justice Department.

AMR filed for bankruptcy in November 2011 and reached the deal with US Airways in February. The merger is the basis of a proposal to pay creditors and emerge from court protection.

AMR creditors and shareholders support the reorganization, according to balloting results announced Aug. 1. The merger would provide unsecured creditors a full recovery and new stock for shareholders. The airlines were awaiting regulatory approval and Lane’s signoff before closing the deal.

Seeking Trial

In its antitrust complaint, the Justice Department said AMR “is fully capable of emerging from bankruptcy proceedings on its own with a competitive cost structure, profitable existing business, and plans for growth.”

During an Aug. 14 conference call, attorneys for the two airlines defended the deal as good for consumers. They said they will fight the lawsuit and seek a trial by the end of the year.

“We’re litigating this case, period,” said Paul Denis, an attorney for Tempe, Arizona-based US Airways at Dechert LLP.

If the merger falls apart, American and its creditors will develop a new plan, which will stretch the case into next year, Jack Butler, an attorney for creditors, said in an interview.

“We go back to square one, and we start over again,” Butler of Skadden, Arps, Slate, Meagher & Flom LLP told Sara Eisen and Erik Schatzker on Bloomberg Television’s “Market Makers” Aug. 14. “We sort out what makes the most sense and what maximizes value for creditors and what’s good for the airline going forward, and that is a process that will go into 2014.”

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).


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