Judge approves American-US Airways merger

NEW YORK – American Airlines won bankruptcy court approval Wednesday to combine with US Airways and form the world's biggest airline.

"The merger is an excellent result. I don't think anybody disputes that," Judge Sean Lane said before issuing his decision.

But the judge declined to sign off on a proposed $20 million severance package for Tom Horton, currently the CEO of American's parent AMR Corp.

The approval is an important milestone for American, which filed for Chapter 11 in November 2011 after having long resisted using the bankruptcy process to cut labor and other costs. The merger still needs approval from Department of Justice antitrust regulators and US Airways shareholders. It is expected to close by the fall.

The combined airline will be run by Doug Parker, the CEO of US Airways Group Inc., who began pursuing a merger shortly after American entered bankruptcy protection.

The U.S. trustee, a federal bankruptcy watchdog, had objected to the severance package for Horton. While he didn't question the amount, Lane agreed that the timing of it seemed to violate prohibitions in the bankruptcy law.

"Approving it today is just not appropriate," Lane said. The judge plans to issue a written decision detailing his reasoning later.

In 2011, Horton was paid a salary of $618,135. He also got stock awards and options that were valued that year at nearly $2.7 million, but the company argued those could be nearly worthless after the bankruptcy reorganization.

The proposed severance package includes $19.9 million in cash and stock and a lifetime of free first-class tickets on American.

Horton could still receive the payout. American's lawyers offered a possible solution during the hearing: American and US Airways would amend their merger agreement to say that Horton's severance would be subject to ratification of the board of directors of the new airline, after the merger closes.

Jack Butler, a lawyer with Skadden, Arps, Slate, Meagher & Flom, said he expects Horton to eventually get his payout. Butler's firm represents American's creditors, who support the merger.