American Airlines has defended a $19.9 million severance package for departing Chief Executive Tom Horton, who will step down after American’s bankrupt parent, AMR Corp , merges with US Airways .
In court papers filed Thursday in U.S. Bankruptcy Court in Manhattan, AMR said that the payment does not violate bankruptcy laws and will not cause harm to the firm’s creditors.
Last week, the U.S. Department of Justice’s bankruptcy watchdog, the U.S. Trustee Program, filed court papers challenging the payment. The watchdog said Horton’s severance payment defies bankruptcy laws that bar severance payments greater than 10 times the mean severance given to employees and that are not part of a program applicable to all workers.
The filing was the third time the U.S. Trustee for the New York region, Tracy Hope Davis, has tried to nix the nearly $20 million package.
The bankruptcy judge, Sean Lane, first tabled her objections before later overruling them. AMR agreed, however to update its restructuring plan with more detail on the severance, and Davis levied her latest objection Friday.
AMR argued Thursday that Davis has incorrectly interpreted the law and that Horton will not be “unjustly enriched” at the expense of creditors, shareholders, or employees.
Those parties have “benefited tremendously,” the filing said, from Horton’s work in guiding the company through the bankruptcy period.
AMR’s bankruptcy plan, which is founded on its proposed merger with smaller carrier US Airways, has garnered support from most of AMR’s creditors but still must be approved by bankruptcy judge Sean Lane.
Lane is expected to hear objections from a handful of creditors, including bondholders and airport operators, at a hearing on August 15.
A representative for the U.S. Trustee did not immediately respond to a request for comment.
Michael Trevino, a spokesman for American Airlines, said “AMR’s creditors and shareholders have voted overwhelmingly to accept” the bankruptcy plan, including that part applying to the severance.
AMR declared bankruptcy in 2011, and agreed to a merger plan with US Airways in February.
The case is In re: AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.
(Reporting By Erin Geiger Smith; editing by Andrew Hay)