American reorganisation decision delayed by bankruptcy court

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A US bankruptcy court judge deferred making a decision on American Airlines' reorganisation plan until at least 29 August, as the court awaits briefs on the impact of a US government challenge to the carrier's proposed merger with US Airways.

Judge Sean Lane set a deadline of 23 August for the briefs from Forth Worth-based American and the carrier's unsecured creditors committee, as well as any other interested parties, during a hearing in New York today. He adds that the date is flexible if any party needs more time.

"Everyone can weigh in, including US government," he says, noting that no representative of the US Department of Justice (DOJ) was present in court today.

The DOJ, as well as attorney generals from six states, filed a suit challenging the proposed merger in the US District Court for the District of Columbia on 13 August. Both the agency, as well as American and US Airways intend to take the case to court.

Lane said earlier in the day that he has "lingering doubts" on confirming a reorganisation plan centred on a merger that is being challenged by the government in court.

"While we await the court's decision on our plan of reorganisation, we will continue to proceed with the legal process to challenge the DOJ complaint in federal court," says American. "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."

Today's hearing was supposed to be a ceremonial final hoop for American in its almost two-year Chapter 11 reorganisation, with a quick confirmation of a plan that was overwhelmingly supported by creditors.

Lane also delayed ruling on a controversial $20 million severance package for American chairman and chief executive Tom Horton, after listening to extensive arguments from the US Trustee, the airline, the unsecured creditors committee and lawyers for the indentured trustees in the case.

The US Trustee claims that the proposed severance package violates section 503C of the US bankruptcy code. The statute limits severance payments to executives as part of chapter 11 reorganisations.

"Why should Mr Horton receive $5 million to $14 million more in bankruptcy in a severance payment than before [the airline] filed," says Susan Golden, a lawyer for the US Trustee.

She adds: "He is going to become chairman of the board. [It's] for the new board to decide how much they want to pay their chairman."

American, the unsecured creditors committee and the lawyers for the indentured trustees are pushing for confirmation of the plan with Horton's payout.

"It was the [unsecured creditors] committee's professionals that put the number on the table," says Jack Butler, a partner at Skadden representing the committee, in support of the payout. "In fact, it was slightly reduced when American's board looked at it."

The indentured trustees' lawyers argued that the recoveries and settlement negotiated in the reorganisation plan were carefully negotiated and any change in Horton's payout - or delay in confirmation of the plan - could place them in jeopardy.