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The federal judge who ruled against a $20 million severance payment to the CEO of American Airlines said Friday that parent AMR Corp. and US Airways can pay the executive after their merger, but not before.
AMR wanted CEO Tom Horton’s payment to be approved as part of the company’s plan to restructure under bankruptcy protection. It said the money was critical to ensure that Horton helps on the post-merger transition.
Judge Sean Lane in New York approved AMR’s exit from bankruptcy if it can resolve an antitrust lawsuit filed by the U.S. Justice Department, but not Horton’s payment. Lane announced the ruling in court Thursday and gave details in a written ruling Friday.
“The Court does not question the value of Mr. Horton’s assistance in orchestrating a smooth transition after (AMR and American Airlines) emerge from bankruptcy,” Lane wrote. “But if the merged entity wants to ensure Mr. Horton’s presence, it is free to pay him without the oversight of the Bankruptcy Court or the confines of the Bankruptcy Code.”
Asked if AMR would seek to obtain Horton’s payment after a merger and creation of a new company, spokesman Mike Trevino said, “We can’t speculate on what the new entity — that doesn’t even exist — will do.” US Airways declined to comment.
Under the merger deal, US Airways CEO Doug Parker would run the combined company and Horton would leave after a short stint as chairman.
The U.S. Trustee, an office within the Justice Department, had opposed the payment, saying that federal law bans severance payments to executives of companies in bankruptcy if they are more than 10 times the size of payments to non-executive employees.
AMR had also argued that Horton’s payment was similar to severance deals for executives who left their jobs after previous mergers involving other airlines. But Lane said those cases didn’t matter because they didn’t occur during bankruptcy cases.
The U.S. Trustee also opposed paying lawyers for the committee representing AMR’s unsecured creditors, including American Airlines’ labor unions, Boeing Co., Hewlett-Packard Co. and several banks. But Lane allowed the committee to pay its lawyers with money from AMR because, he wrote, the fees were reasonable and the committee played a key role in winning support for the bankruptcy plan, which is centered around the merger.
The only obstacle still blocking the merger is the lawsuit by the Justice Department, which argues that the deal would limit competition and drive up consumer prices. A trial is scheduled to begin Nov. 25 in federal court in Washington, D.C.
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