Justice Department opposes AMR's $20 million severance for CEO Horton

Fri May 24, 2013 4:33pm EDT
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By Nick Brown

(Reuters) - A plan by American Airlines' parent to exit bankruptcy and merge with US Airways Group LCC.N is coming under fire from the U.S. Department of Justice over nearly $20 million in severance pay earmarked for outgoing boss Tom Horton.

In court papers filed on Friday in U.S. Bankruptcy Court in Manhattan, U.S. Trustee Tracy Hope Davis, the department's official charged with regulating bankruptcy cases in the New York region, said the severance deal for AMR Corp's AAMRQ.PK chief executive violates bankruptcy law.

She asked the court not to approve the outline of the plan that must also be approved by AMR creditors.

The initial merger agreement called for $19.9 million in severance payments for Horton, but when Judge Sean Lane approved the merger at a hearing in March, he refused to green-light the severance package, saying it was a matter that should be left for AMR's Chapter 11 exit plan. Davis at the time had opposed the severance on grounds similar to those she cited on Friday.

AMR filed its exit plan last month, laying out how it would effect the merger, pay back its creditors and exit bankruptcy.

As expected, it also built Horton's severance deal into the plan. In Friday's filing, Davis argued that in bankruptcy severance is only acceptable when it is part of a program applicable to all employees and is not more than 10 times the average severance given to non-management employees. Horton's package meets neither criteria, Davis said.

The severance has been a controversial issue from the get-go, drawing criticism from some AMR pilots. Horton was not liked by AMR's unions, which were forced to accept reductions in benefits as part of the bankruptcy and merger deal.

An AMR spokesman said he did not expect the objection to delay the court approval process.   Continued...

American Airlines Chairman, President and CEO Tom Horton announces the planned merger of AMR Corp, the parent of American Airlines, with U.S. REUTERS/Mike Stone