World’s Largest Airline Formed by American Airlines-US Airways Merger

A judge approved AMR Corp’s plan to merge with US Airways Group.

American Airlines was allowed on Wednesday to combine with US Airways, a step toward creating the world’s largest airline. Photo: Mike O’Hara/Flickr

American Airlines and US Airways are a step closer to creating world’s largest airline as judge rejects $19.9m severance package for outgoing CEO, The Guardian reports.

AMR, parent of American Airlines, is obliged to provide a formal restructuring plan incorporating the merger that meets all the court requirements and creditor approval before the airline can emerge from bankruptcy.

American Airlines unveiled its plans to combine with US Airways last month. In a crowded courtroom on Wednesday, judge Sean Lane refused to approve a planned $19.9m severance package for Tom Horton, AMR’s outgoing chief executive.

“The merger is an excellent result. I don’t think anybody disputes that,” the judge said before voicing his decision.

He went on, adding that he was uncertain as to whether the severance package requires his approval at all, or whether “the matter is more appropriate for inclusion in AMR’s formal restructuring plan.”

Jack Butler, a lawyer for AMR’s creditors’ committee, said to reporters that it was too early to tell how the parties will deal with the severance issue.

“The companies said they were prepared to amend the merger agreement in any respect, and I expect that there will be an amendment,” Butler said after the hearing.

In a statement, AMR and US Airways welcomed Lane’s approval of their plans: “We are gratified to know that he considers the merger an ‘excellent result’ for stakeholders.”

The new airline will have 6,700 daily flights and annual revenue of roughly $40 billion, counted  Vancouver Sun. The new American Airlines will fly slightly more passengers than United, the current No. 1.

The head of the world’s largest carrier will be Doug Parker, the CEO of US Airways Group Inc., who began pursuing a merger shortly after American entered bankruptcy protection.

AMR Corp filed for bankruptcy citing “untenable labor costs” after failed attempts to agree on cost savings from its unionized workforce.

As reports suggest, AMR had been the last one from US’ largest carriers to go through bankruptcy, after its competitors underwent the same process in the last decade.

Wednesday’s decision marked a key moment in the company’s 16-month odyssey through reorganization under chapter 11 of the bankruptcy code.

Stephen Karotkin, a lawyer for the carrier, called Wednesday’s hearing a “watershed event” that moves the company a step closer to improving of its situation.

“US Airways chief executive Doug Parker wooed AMR aggressively, taking advantage of AMR’s labor relations problems to appeal to its unions,” The Guardian writes.

“US Airways hammered out a tentative deal with the unions last April, before formal merger talks between the two companies’ management teams had gone into full swing.”

AMR’s current shareholders now believe to receive up to 3.5% of equity stake in the new company, which would make it one of the few major bankruptcies in which equity holders earn some recovery.

“The Skadden legal team advising the creditors’ committee also played a central part in negotiating the new management structure, including the details of Horton’s severance package,” Reuters reports.

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