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Originally published March 27, 2013 at 3:34 PM | Page modified March 28, 2013 at 9:25 AM

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Judge approves American-US Airways merger

Bankruptcy court OKs merger, but not $20 million severance package for outgoing CEO; more steps remain.

AP Airlines Writer

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NEW YORK — American Airlines won bankruptcy court approval Wednesday to combine with US Airways and form the world’s biggest airline.

“The merger is an excellent result. I don’t think anybody disputes that,” Judge Sean H. Lane said before issuing his decision.

The combined airline will have 6,700 daily flights and annual revenue of roughly $40 billion. The new American Airlines will fly slightly more passengers than United, the current No. 1. It will be run by Doug Parker, the CEO of US Airways Group Inc., who began pursuing a merger shortly after American filed for bankruptcy protection in November 2011.

Lane declined, however, to approve a proposed $20 million severance package for outgoing American CEO Tom Horton. The U.S. trustee had objected to the package and, while he didn’t question the amount, Lane agreed that the timing of it seemed to violate prohibitions in the bankruptcy law.

“Approving it today is just not appropriate,” Lane said. The judge plans to issue a written decision at a later date detailing his reasoning.

Horton has spent nearly his entire career at American, becoming CEO when the company filed for bankruptcy. Horton will cede the CEO position to Parker when the deal closes, and has agreed to leave the company’s board within a year of the closing date.

The proposed severance package includes $19.9 million in cash and stock as well as a lifetime of free first-class tickets on American for Horton and his wife.

Jack Butler, a lawyer with Skadden, Arps, Slate, Meagher & Flom, said he expects Horton to eventually get his payout. Butler’s firm represents American’s creditors, who backed the merger and the payout for Horton.

Separately, Lane approved a motion to extend American’s exclusive period for filing a reorganization plan until May 29, the last such extension allowed under law. There is then a 60-day waiting period for creditors to object to the plan before Lane can sign off on American’s emergence from bankruptcy protection.

The merger also needs approval from Department of Justice antitrust regulators and US Airways shareholders. It is expected to close by the fall.

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