Bankruptcy Court Signs Off On US Airways/American Merger, But Not On $20 Million Payout To Outgoing CEO

Tom Horton is waiting for someone to approve his $19.9 million severance.

Tom Horton is waiting for someone to approve his $19.9 million severance.

Yet another hurdle in the race to the altar for American Airlines and US Airways has been cleared, with the bankruptcy court giving its blessing on the matter, but reserving judgment on a proposed $19.9 million payout to outgoing CEO Tom Horton.

According to the Wall Street Journal, the judge overseeing American’s bankruptcy proceedings said yesterday that while it’s now okay for the beleaguered carrier to let its creditors vote on the merger, it would be “inappropriate” for the court to sign off the sizable severance package that Horton would receive for handing over the reins of the merged companies to US Airways CEO Dough Parker.

The judge’s decision comes about a week after the trustee in the bankruptcy case expressed skepticism over Horton’s huge package, telling the airline that, under bankruptcy law, severance packages can not be handed out “without factual and circumstantial justification.”

And the trustee isn’t alone. The Justice Dept. has objected to Horton’s severance, referring to it as an “end run around” laws intended to curb payouts and bonuses to companies under Chapter 11 bankruptcy protection. Under the law, the severance would need to be less than 10 times the average severance paid to non-management employees during the same calendar year.

Lawyers for American say that stipulation of the Bankruptcy Code doesn’t apply because the severance wouldn’t be paid by American, but by the new, merged, no-longer-bankrupt airline.

“We do not believe a company can evade congressional requirements in the Bankruptcy Code simply by delaying payment of a $20 million severance until the day after confirmation” said the director of the DOJ’s U.S. Trustee Program, which monitors bankruptcy proceedings.

The judge’s hesitance doesn’t mean Horton won’t get his money. It just means that the matter of his payout won’t delay letting the creditors vote on the merger.