U.S. bankruptcy judge Sean Lane issued his written ruling on why he denied AMR chief executive Tom Horton's $19.875 million severance package as part of the company's restructuring plan.
On Thursday, Lane approved the restructuring plan of American Airlines' parent company which includes a merger with US Airways. He also sided with the U.S. bankruptcy trustee who had objected to Horton's severance payment saying it did not conform with the bankruptcy code.
In his written ruling, Lane said he sees the value of Horton's management of AMR while it was in bankruptcy but does not agree that a retention payment should be made to keep Horton on the board after the merger.
The filing went on to say:
"In fact, the Debtors entered into a pre-petition agreement with Mr. Horton whereby he was to receive a maximum of $15.3 million dollars if the company was involved in a merger. See Trustee Objection at 14-15. It is unclear why Mr. Horton should receive $4.5 million more now than was contemplated when he took the reins of the Debtors on the eve of the Chapter 11 filing less than two years ago, presumably negotiating that prior agreement with these bankruptcy cases in mind. Moreover, in considering the facts of this case, there have been significant sacrifices by the Debtors’ employees, most notably by its union members, that allowed the Plan to move forward. These sacrifices should be considered in evaluating the reasonableness of this proposed payment, notwithstanding the very favorable recoveries provided by the Plan to creditors and equity holders."
Click here to view the complete filing.
UPDATE: American Airlines spokesman Michael Trevino issued this statement about the judge's written ruling.
"As previously stated, at next week’s AMR Board meeting, Tom Horton will recommend that the Board amend the Plan and Merger Agreement – specifically, to remove his personal compensation. Tom has consistently indicated his strong support for the Plan and the Merger, and he strongly feels that this amendment is the right thing to do – to alleviate the uncertainty and doubt, to support the merger with US Airways, and to complete one of the most successful restructurings in commercial aviation. The compensation agreement was supported by AMR's Board of Directors and the Unsecured Creditors’ Committee, which consulted compensation professionals in its review. The compensation agreement also reflected Tom's continued role as chairman of the Board of the new American Airlines Group during the transition period following the completion of the merger."