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A judge has rejected a proposed severance package of nearly $20 million for Thomas Horton, the chief executive of American Airlines parent company AMR Corp, saying the payout wasn’t allowed under federal bankruptcy law.
Bankruptcy Judge Sean Lane in Manhattan issued his ruling on Thursday. The judge had approved AMR’s plan to merge with US Airways Group Inc on March 27, a step toward creating the world’s largest airline.
The combined company is to be run by US Airways Chief Executive Doug Parker, with Horton serving as chairman. Parker would add that role after the first annual shareholder meeting.
AMR and US Airways did not immediately respond to requests for comment on Friday.
The severance package of about $19.9 million was divided equally between cash and stock, and was part of the companies’ merger agreement in February.
It drew opposition from U.S. Trustee Tracy Hope Davis, a Department of Justice official monitoring AMR’s bankruptcy.
She said the payment was too large relative to severance for non-management employees, and improper because it was not part of a severance program generally available to full-time workers.
In his decision, Lane rejected AMR’s argument that these restrictions did not apply because the payout would not occur until after the merger closed, and would be paid by the newly combined company rather than AMR’s bankruptcy estate.
Lane also said AMR’s request that he defer to its “business judgment” in authorizing the payout was “exactly what Congress sought to prevent” in adopting limits on severance awards by companies in bankruptcy.
The case is In re: AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.
(Reporting by Jonathan Stempel in New York; Additional reporting by Tanya Agrawal in Bangalore; Editing by Gerald E. McCormick and Bernadette Baum)
From Skift: Here’s the judge’s decision