Judge explains why he rejected severance for AMR CEO

Posted Friday, Sep. 13, 2013  comments  Print Reprints

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U.S. Bankruptcy Judge Sean Lane explained his rationale for rejecting a $19.875 million severance package proposed for AMR Chief Executive Tom Horton, saying in a written decision Friday that sacrifices made by employees in bankruptcy should be taken into account.

In a 16-page ruling, Lane addressed AMR’s argument that Horton’s cash and stock payment would be made after the company emerged from bankruptcy as the newly merged American Airlines-US Airways, calling it “legal fiction.” He agreed with the U.S. trustee that the severance did not conform with U.S. Bankruptcy Code.

Lane wrote that while he sees the value of Horton’s management of AMR in bankruptcy, he does not agree that a retention payment should be made to keep Horton on the board after the merger.

At Thursday’s court hearing in New York, Lane approved the AMR restructuring plan, assuming that the carrier wins an antitrust trial and is allowed to merge with US Airways.

The carrier said Horton will ask AMR’s board members to remove his severance package from the restructuring plan when they meet Wednesday.

“Tom has consistently indicated his strong support for the plan and the merger, and he strongly feels that this amendment is the right thing to do to alleviate the uncertainty and doubt, to support the merger with US Airways and to complete one of the most successful restructurings in commercial aviation,” American spokesman Michael Trevino said.

The restructuring plan is contingent on the outcome of an antitrust lawsuit filed by the Justice Department. The government has argued that the merger is anti-competitive and would lead to higher fares and fees for consumers. A trial in federal district court is scheduled for Nov. 25.

In his ruling, Lane questioned why Horton should get $4.5 million more than the $15.3 million he would have received from AMR if the company were involved in a merger before its bankruptcy. Horton was named chief executive of AMR the day before it filed for bankruptcy protection.

“There have been significant sacrifices by the Debtors’ employees, most notably by its union members, that allowed the Plan to move forward,” the ruling said.

“These sacrifices should be considered in evaluating the reasonableness of this proposed payment, notwithstanding the very favorable recoveries provided by the Plan to creditors and equity holders.”

Andrea Ahles, 817-390-7631 Twitter: @Sky_Talk

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