U.S. Bankruptcy Judge Sean Lane outlined his reasons for not approving AMR chief executive Tom Horton's $20 million severance package as part of the merger agreement in a written decision filed on Thursday night.
Lane, who did not approve or reject the compensation agreement at a March 27 hearing, wrote that it was premature for the court to consider the severance package without a reorganization plan for American Airlines' parent company.
AMR has until May 29 to file its reorganization plan with the court. The Fort Worth-based carrier also argued during the hearing that Horton's severance payment would be made by the newly-merged American-US Airways and not by AMR.
"Once created, Newco can make a severance payment to Mr. Horton without any approval from this Court. Although the Court is constrained by Section 503’s requirements in considering the proposed severance now, Newco will not have such restrictions and instead will answer only to its shareholders. It is unclear what purpose would be served by the Court’s approval of the severance if Newco could later veto the severance through a vote of its board. Indeed, under this proposed amendment, there is little reason for the Court to be involved at all," Lane wrote.
In his ruling, Lane approved the merger agreement with the exception of Horton's severance package.
"The Court's written approval of the merger agreement allows us to continue progressing forward with our planned merger with US Airways," said American spokesman Mike Trevino. "It’s American Airlines' current intention to address Mr. Horton's compensation arrangement in the plan of reorganization."