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Judge Delays Decision On Approving American Airlines’ Reorganization Plan To Exit Bankruptcy

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DALLAS (CBS 11 NEWS) - After an extended court hearing, a bankruptcy judge in New York delayed his decision on approving American Airlines’ reorganization plan to exit bankruptcy.

Judge Sean Lane had been widely expected to sign off on the Fort Worth-based airline’s plan until two days ago.

That’s when the U.S. Justice Department and six states, including Texas, filed a lawsuit aimed at blocking the proposed merger between American and US Airways.

Analysts say the delayed decision on the reorganization plan may be more of a psychological blow to American and its thousands of employees than a legal one.

Randy Ray is a Dallas attorney who specializes in mergers and acquisitions, and he downplays the delay.

Ray says, “It obviously doesn’t send the signal they want in terms of moving things forward, but substantively, I don’t know what difference it makes.”

That’s because American Airlines’ reorganization plan depends solely on its proposed $14 billion dollar merger with US Airways.

The Justice Department argues if the two airlines become one, it will reduce competition and raise airfares and fees for consumers.

Both American and US Airways say combining forces is the only way they can effectively compete against the much larger Delta and United.

The government previously allowed them to merge with other airlines.

So now, both American and US Airways say they plan to fight the government in court.

But without resolving their differences, the airlines can’t merge, and American won’t be able to exit bankruptcy.

And Ray says that will take time — something he says American hopes will go by quickly.  “If you determine that it’s not and the likelihood of a lengthy legal is in the offing, do you determine you can’t keep your bankruptcy in limbo that long and you have to re-group.”

In a statement late Thursday afternoon, American Airlines spokesman Mike Trevino said, “While we await the court’s decision on our Plan of Reorganization, we will continue to proceed with the legal process to challenge the DOJ complaint in federal court.  As we continue to build an airline that is profitable and successful, we will continue planning for our proposed merger with US Airways with teams of talented people committed to the long-term success of the new American.”

The Transport Workers Union, which represents thousands of employees at both American and US Airways, issued a statement asking the bankruptcy judge to approve American’s reorganization plan, calling the proposed merger, “the best course of action.”

During the hearing Thursday, the judge also heard arguments over the proposed $20 million dollar severance for American CEO Tom Horton.

After the merger, he will become the new chairman of the board temporarily.

The US Trustee’s office says the severance doesn’t comply with bankruptcy codes, and says the new board should determine how much Horton should be paid.

Attorneys for American Airlines, US Airways, and others disagreed saying Horton’s proposed severance was reasonable.

 

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