A judge on Wednesday approved AMR's plan to merge with US Airways, a step toward creating the world's largest airline.AMR, parent of American Airlines and in bankruptcy since November 2011, must still construct a formal restructuring plan incorporating the merger that meets court and creditor approval before the airline can emerge from bankruptcy.American Airlines announced the plan to combine with US Airways last month, a deal that also requires regulatory approval.In a crowded Manhattan courtroom on Wednesday, US Bankruptcy Judge Sean Lane declined to approve, for now, a planned USD$19.9 million severance package for Tom Horton, AMR's outgoing chief executive.Lane said he was not sure whether the severance package requires his approval, or whether the matter is more appropriate for inclusion in AMR's formal restructuring plan.That plan, which all debtors in bankruptcy must propose, will lay out how creditors will be paid back, and will require creditor approval.The fate of the severance payment is unclear. The version of the merger agreement that earned the judge's approval may have to be amended to remove it.In a joint statement, AMR and US Airways welcomed Lane's approval of their planned combination."We are gratified to know that he considers the merger an 'excellent result' for stakeholders," they said.Jack Butler, a lawyer for AMR's creditors' committee, said after the hearing that it was too early to tell how the parties will deal with the severance issue."The companies said they were prepared to amend the merger agreement in any respect, and I expect that there will be an amendment," Butler said.'WATERSHED EVENT'AMR filed for bankruptcy, citing untenable staff costs after years of futile attempts to negotiate cost savings from its union workforce.It had been the last major US carrier to go through bankruptcy, after its competitors underwent the same process in the last decade.Stephen Karotkin, a lawyer for AMR, called the hearing a "watershed event" that moves AMR a step closer to exiting 16 months of Chapter 11 bankruptcy.AMR at first opposed merging while still in bankruptcy, but relented to pressure from its creditors' committee.US Airways chief executive Doug Parker wooed AMR aggressively, taking advantage of AMR's labour relations problems to appeal to its unions.US Airways hammered out a tentative deal with the unions last April, before formal merger talks between the two companies' management teams got into full swing.The creditors' committee eventually convinced AMR to adopt a protocol to evaluate a merger, and played a large role in analysing the net savings and benefits from a merger.AMR shareholders are expected to receive a 3.5 percent equity stake in the new firm, which would make it one of the few major bankruptcies in which equity holders earn some recovery.Parker will serve as chief executive of the combined carrier, while Horton, who became AMR's CEO when it filed for bankruptcy, will serve as chairman until the first annual meeting of shareholders. After that Parker will take on the chairman role. The merger is expected to close in the third quarter. Source: Reuters
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