AMR’s Merger With US Airways Approved by Judge in N.Y.

American Airlines parent AMR Corp. won approval for its merger with US Airways Group Inc. from a judge who also rejected a $20 million severance deal for Chief Executive Officer Tom Horton.

U.S. Bankruptcy Judge Sean Lane in Manhattan approved the merger at a hearing yesterday while denying approval for Horton’s severance following opposition from the U.S. government, which called the pay a “golden parachute.”

“The merger is a terrific result,” said Lane, who will issue a written decision explaining his reasoning. Approving Horton’s severance now “is just not appropriate.”

Approval of the agreement moves Fort Worth, Texas-based American a step closer to finishing its reorganization and exiting bankruptcy protection. The carrier filed for bankruptcy in November 2011 and announced its merger with US Airways in February.

The tie-up with US Airways will create the world’s largest carrier and will be completed through a bankruptcy reorganization plan for American. That plan requires creditor support and separate approval from Lane. The court hearing to approve the bankruptcy plan should occur in about six months, said Stephen Karotkin, an attorney for American.

Combined Company

The combined company will operate under the American Airlines name. US Airways Chief Executive Officer Doug Parker will be CEO of the merged company, while AMR’s CEO, Horton, will become chairman.

Horton’s $19.9 million severance, which was to be paid half in stock and half in cash after the merger is completed, was opposed by the U.S. government’s bankruptcy watchdog, the U.S. Trustee, which said the payment violates bankruptcy laws.

“The same bankruptcy code that allows a company to restructure debts, and reduce employee pay and benefits, also restricts payments to senior executives and insiders,” Cliff White, director of the Executive Office for U.S. Trustees, said in a statement after the hearing.

During the hearing, Lane asked why approval of the severance shouldn’t be put off until later in the bankruptcy proceeding when American seeks court approval for its reorganization plan.

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

Board Ratification

American defended the package, saying it is conditioned on the merger closing and will be paid by the combined company and not AMR. Karotkin, AMR’s attorney, said the airline was willing to amend the agreement with Horton so that the payment is subject to ratification by the board of directors of the new company.

“Judge Lane’s approval of the merger agreement today allows us to continue progressing forward with our planned merger,” the two airlines said in a joint statement. “We are gratified to know that he considers the merger an ‘excellent result’ for stakeholders.”

Jack Butler, an attorney at Skadden, Arps, Slate, Meagher & Flom LLP, who represents unsecured creditors in the bankruptcy, said after the hearing that the companies will review Lane’s written decision and then determine how to proceed with Horton’s severance agreement.

American and Tempe, Arizona-based US Airways will “continue to move enthusiastically down the merger path,” he said.

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

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