A federal judge approved American Airlines’ bankruptcy plan on Thursday but ruled that the decision was contingent on the Justice Department approving the carrier’s merger with US Airways.
Judge Sean H. Lane of the United States Bankruptcy Court in Manhattan confirmed American’s proposal to exit restructuring proceedings nearly two years after the carrier filed for bankruptcy. As part of the plan, American agreed this year to merge with US Airways, a move that received the backing of creditors as well as its three main labor groups.
But the merger was challenged by antitrust regulators who filed a lawsuit in August to block it on the grounds that it would harm competition and passengers. The airlines have vowed to fight the challenge and a trial is scheduled for November before a separate federal court in Washington.
Thursday’s ruling was supposed to cap a two-year process since American sought court protection to reorganize its business, cut costs and rewrite labor agreements in November 2011. American had initially vowed to emerge as an independent airline, but eventually succumbed to the efforts by US Airways to merge.
Both carriers have argued that they needed to combine their networks to be able to better compete with Delta Air Lines and United Airlines, both bigger airlines that completed mergers of their own in recent years.
The elaborate plan was thrown off in August when antitrust regulators unexpectedly challenged the merger.
It was the first time regulators sought to block an airline merger since 2001. In recent years, the domestic airline industry has been transformed by large-scale mergers that have allowed carriers to streamline operations, abandon unprofitable hubs and rationalize their networks. Consumer advocates have argued that the mergers had allowed the airlines to charge higher fares and fees.
The bankruptcy judge ruled against one provision of the airline’s restructuring, a controversial plan to award American Airlines’ chairman, Tom Horton, a $20 million severance after he leaves after a short stint as the chairman of the combined company. The judge said that was not compatible with bankruptcy law although nothing stopped the airline from awarding the payoff once the merger was done.
This was the third time the airlines had requested the judge to rule on the exit from bankruptcy despite of the regulatory challenge. Judge Lane noted that, regardless of the legal proceedings, the restructuring plan was viable since it received the broad backing of the creditors, shareholders, as well as unions representing pilots, flight attendants and mechanics.
The court’s involvement may not be over yet. A settlement with the Justice Department that requires a divestiture of routes or airport slots by the airlines would have to be reviewed by the bankruptcy court. And if antitrust authorities prevailed in blocking the merger, American would have to submit a new restructuring plan before the bankruptcy court.
