AMR Files Bankruptcy-Exit Plan Based on US Airways Merger

AMR Corp., the parent of American Airlines, filed a plan to exit bankruptcy protection that hinges on creating the world’s largest airline through a merger with US Airways Group Inc.

American, based in Fort Worth, Texas, won approval last month to proceed with the combination, which would be completed when the airline emerges from court protection. The airline wants U.S. Bankruptcy Judge Sean Lane in Manhattan to consider approval of the plan at an Aug. 15 hearing.

“After evaluating the potential strategic alternatives, it appeared that a business combination with US Airways was the only viable option for American to consider” versus emerging from bankruptcy as a standalone company, American said in the filing yesterday.

American filed for bankruptcy in New York in November 2011 and announced the deal with US Airways in February, concluding a quest by US Airways Chief Executive Officer Doug Parker for a tie-up. Parker began pursuing American shortly after it sought bankruptcy court protection, wooing creditors and American unions for support.

The deal with Tempe, Arizona-based US Airways would cap a wave of consolidation in the industry and push American past United Continental Holdings Inc. and Delta Air Lines Inc. to be the world’s largest carrier.

Chairman, CEO

The combined company will operate under the American Airlines name. Parker will become CEO, while AMR CEO Tom Horton, whose $19.9 million severance was rejected by Lane after opposition from the U.S. government, will be chairman.

American will ask Lane to reconsider Horton’s severance package when he considers the bankruptcy plan, saying approval of the compensation is a condition of the merger.

The bankruptcy plan, which sets out how much AMR creditors will recover on their claims, requires creditor support. American has said creditors holding $1.2 billion in unsecured claims have agreed to back the plan and merger.

Under the proposal, US Airways shareholders will receive 28 percent of the combined company, while the remaining 72 percent will go to AMR’s unsecured creditors, labor unions, shareholders and certain employees.

American unsecured creditors holding $2.6 billion in claims and creditors with $6.8 billion in claims backed by aircraft will receive a full recovery, according to court papers. AMR shareholders will receive a 3.5 percent stake in the combined company with the potential for additional shares.

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

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