Judge doesn't approve $20 million severance for American Airlines CEO

Posted Friday, Apr. 12, 2013  comments  Print Reprints

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U.S. Bankruptcy Judge Sean Lane said bankruptcy laws prohibit the court from approving a $20 million severance package for AMR Chief Executive Tom Horton that was negotiated as part of a merger agreement between American Airlines and US Airways.

Lane, who declined to approve the exit payments at a March 27 hearing, said in a written decision filed late Thursday that it's premature to consider the severance package before American Airlines' parent company files a reorganization plan.

"It is unclear what purpose would be served by the court's approval of the severance if [the merged carrier] could later veto the severance through a vote of its board. Indeed, under this proposed amendment, there is little reason for the Court to be involved at all," Lane wrote.

In his ruling, Lane reiterated his approval of the merger agreement, except for Horton's severance. The U.S. bankruptcy trustee had filed an objection to Horton's compensation, saying it does not conform to bankruptcy law.

In 2005, Congress amended the bankruptcy code to include limits on executive severance. Payments are allowed as long as the amount is not greater than 10 times that offered to nonmanagement employees during the calendar year.

The Fort Worth-based carrier argued during the hearing that the newly merged American-US Airways would make Horton's severance payment, not AMR. But Lane called that argument "legal fiction," since the severance payment is related to Horton's performance at American and not at a merged airline that doesn't exist yet.

"The Court's written approval of the merger agreement allows us to continue progressing forward with our planned merger with US Airways," American spokesman Mike Trevino said.

"It's American Airlines' current intention to address Mr. Horton's compensation arrangement in the plan of reorganization."

Horton is slated to become chairman of the combined company. Under the proposed severance, he would receive $9.94 million in cash and $9.94 million in stock when the merger closes.

AMR has until May 29 to file its reorganization plan with the court. The deal still needs approval from government regulators and US Airways shareholders.

The pilots and flight attendants unions restated their focus on completing the merger and working with the new management team. US Airways Chief Executive Doug Parker would lead the new carrier.

"Our focus is on the future, on working with a new management team for the new airline," said Gregg Overman, spokesman for the Allied Pilots Association. "The severance has garnered widespread opposition, including from our membership, and we understand that unlike the judge's decision, which is based on legal grounds, the opposition we have seen from our membership is on moral grounds."

Industry analyst Bob Herbst, who founded AirlineFinancials.com, said Horton will most likely receive his severance package, which includes lifetime first-class travel privileges, as part of the reorganization plan.

"Every American employee is probably thrilled to death in believing that Horton is not going to get his $20 million payoff, but unfortunately he will probably get it when this is all said and done," Herbst said.

Andrea Ahles, 817-390-7631

Twitter: @Sky_Talk

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