Judge clears way for airline merger

American Airlines has won bankruptcy court approval to merge 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.%VIRTUAL-SkimlinksPromo%
But the judge declined to sign off on a proposed 20 million-dollar (£13m) severance package for Tom Horton, currently chief executive of American's parent AMR Corporation.

The approval is an important milestone for American, which filed for bankruptcy in November 2011 after having long resisted using the bankruptcy process to cut labour 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 autumn.

The combined airline will have 6,700 daily flights and annual revenue of about 40 billion dollars (£26.4bn). The new American Airlines will fly slightly more passengers than United, the current number one, and will be run by Doug Parker, CEO of US Airways Group, who began pursuing a merger shortly after American entered bankruptcy protection.

The US trustee, a government bankruptcy watchdog, had objected to the severance package for Mr Horton. While he did not question the amount, Judge Lane agreed that the timing of it seemed to breach bankruptcy law.

"Approving it today is just not appropriate," he said. The judge plans to issue a written decision at a later date explaining his reasoning.

Mr Horton has spent nearly his entire career at American, becoming CEO when the company filed for bankruptcy. He will cede the CEO position to Mr Parker when the deal closes and has agreed to leave the company's board within a year of the closing date.

In 2011 Mr Horton was paid a salary of 618,135 dollars (£409,000). He also received stock awards and options that were valued that year at nearly 2.7 million dollars (£1.8m), but the company argued those could be nearly worthless after the bankruptcy reorganisation. Figures for 2012 were not yet available. The proposed severance package includes 19.9 million dollars (£13m) in cash and stock as well as a lifetime of free first-class tickets on American for Mr Horton and his wife.

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