American’s $3.25 Billion in Bankruptcy Loans Win Approval
AMR, the parent of American Airlines, sought the financing to take advantage of low interest rates, fund costs tied to its reorganization and repay debt.
The loans, approved yesterday at a hearing in Manhattan by U.S. Bankruptcy Judge Sean Lane, will be American’s “primary source” of financing for emerging from bankruptcy, said Richard Hahn, an attorney for the Fort Worth, Texas-based company.
American filed for bankruptcy in 2011 and plans to merge with US Airways to create the world’s largest airline. American is set to complete its bankruptcy reorganization through the merger with Tempe, Arizona-based US Airways later this year.
The financing will be backed by airport gates, takeoff and landing slots, and routes between the U.S. and South America. Banks including Barclays Plc (BARC), Citigroup Inc. (C), Deutsche Bank AG (DBK) and Goldman Sachs Group Inc. have made lending commitments, according to court papers.
American yesterday also reached a settlement with the U.S. Federal Aviation Administration to resolve $162 million in claims asserted by the agency against the airline. Under the deal, the FAA will receive $25 million in allowed claims in the bankruptcy case, according to a court filing.
The government’s claims stem from enforcement actions that alleged violations of federal aviation law, FAA regulations and federal hazardous material regulations, American said. The majority of the alleged violations occurred between March 2008 and the end of 2009, according to the filing.
The FAA previously said it had identified 36 separate instances in which American violated safety rules, including failure to perform repairs and mechanics mistakenly putting jets back into service with inoperable equipment.
American had to cancel more than 3,300 flights over five days in April 2008, stranding 360,000 passengers while wiring inspections were conducted and repairs were made on MD-80 aircraft that made up almost half its fleet.
The FAA declined to comment beyond information contained in the agreement, said Lynn Lunsford, a spokesman for the agency.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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