Bankruptcy judge puts off decision on AMR reorganization plan

Posted Thursday, Aug. 29, 2013  comments  Print Reprints

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A federal judge signaled Thursday that he is leaning toward approving American Airlines’ emergence from bankruptcy protection even as the company’s planned merger with US Airways remains up in the air.

“I’m finding the arguments in favor of confirmation fairly persuasive,” Judge Sean Lane said from the bench. He could sign off on the restructuring plan at the next hearing on Sept. 12 or in a written decision before then.

Such a decision would leave only one obstacle, but it’s a big one: the federal government’s effort to block the merger, which is the centerpiece of the restructuring plan.

A lawsuit filed this month by the Justice Department, six states (including Texas) and the District of Columbia argues that combining Fort Worth-based American and US Airways, based in Tempe, Ariz., would leave four airlines controlling more than 80 percent of U.S. air traffic and drive up prices.

That case could take months to resolve unless the airlines and government reach a settlement. The two sides are scheduled to meet in court in Washington, D.C., today to consider a trial date. The airline would like the case set for Nov. 12 while the government wants to wait until March.

Lawyers for American’s parent company, AMR Corp., and its creditors told the bankruptcy judge that the antitrust suit should not have any bearing on his decision. They noted that his approval of the restructuring plan — one backed by American’s shareholders — is already subject to regulatory approval.

Stephen Karotkin, a lawyer with Weil, Gotshal & Manges who represents American, said the airline’s creditors and shareholders all stand behind the restructuring plan.

Not approving it now, Karotkin said, would inject an “unwarranted element of uncertainty” into American’s fate. Even if the merger fails, he said, it is “inconceivable” that the airline would face liquidation or need further court-approved restructuring.

In a federal court filing Thursday, attorneys for the airlines and the government said they have met to discuss the antitrust case but are far apart on the trial schedule, the number of experts to be called and whether the creditors committee should be allowed to view confidential court documents.

For example, the government wants to conduct 50 depositions per side while American wants to limit the number to 10 per side.

Both sides said they would like to settle out of court. American said it tried to settle antitrust issues before the suit was filed and met with the Justice Department staff and economists six times starting in February.

However, government attorneys said they have yet to receive a proposal from American that “addresses the competitive harms posed by the merger.”

There ought to be a “realistic possibility” of a settlement, the carriers said in a joint filing with the government Wednesday.

One issue of concern has been the dominant position that the newly merged carrier would have at Ronald Reagan Washington National Airport.

The Justice Department said the combined airline would have 69 percent of the takeoffs and landings at Reagan National. And in analyzing the effects of the proposed merger, it looked — for the first time — beyond nonstop routes, saying connecting flights between 1,043 city pairs would no longer have an acceptable level of competition.

Some of those routes see few passengers. For instance, five people a day, on average, fly between Little Rock and Harrisburg, Pa., and another five fly in the other direction, according to government data.

As U.S. regulators spent the better part of six months reviewing the deal, the carriers devised a plan to allay some antitrust concerns: an offer to cede flight slots at Reagan National. But the airlines’ overtures weren’t enough, said three people with knowledge of the matter who asked not to be identified because the discussions were private.

One element of a settlement would almost certainly have to be loosening the airlines’ grip at National. JetBlue Airways and Southwest Airlines have said American and US Airways should be forced to give up some slots, a step ordered in other mergers.

The Justice Department also raised concerns about US Airways dropping its deeply discounted Advantage Fares.

“It’s got to be real, and it’s got to be pretty deep,” said Michael Boyd, an industry consultant in Evergreen, Colo. “If not, game over.”

Bond analyst Vicki Bryan of Gimme Credit said she believes that a settlement may occur before a trial and would likely include the divestiture of certain routes and landing slots to appease government concerns.

“Despite all the grandstanding, we remain skeptical that Justice actually can win its case in court with persuasive evidence that the merger is anticompetitive and harmful to consumers,” Bryan wrote in a research note issued Thursday.

“This would explain Justice’s stall tactics now and set the stage for it to snag a huge political ‘win’ with an out-of-court settlement later by claiming success in bringing the greedy airlines into tow via tough negotiations to get concessions it most likely could have achieved already some months ago with logical additions and subtractions to the proposed combined network and services.”

Staff writer Andrea Ahles contributed to this report, which includes material from The Associated Press and Bloomberg News.

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