By Nick Brown
Fri Aug 2, 2013 5:59pm EDT
Aug 2 (Reuters) - The U.S. Department of Justice is taking its third shot at nixing a proposed $19.9 million severance package for American Airlines Chief Executive Tom Horton, who will step down after American's bankrupt parent, AMR Corp , merges with US Airways.
In court papers filed on Friday in U.S. Bankruptcy Court in Manhattan, the U.S. Trustee Program, Justice's bankruptcy watchdog, said the severance package and other components of the plan violate bankruptcy laws.
AMR has filed a bankruptcy exit plan founded on its proposed merger with smaller carrier US Airways. While the plan has garnered support from most of AMR's creditors, it must still earn approval from the airline's bankruptcy judge, Sean Lane.
A handful of creditors, including bondholders and airport operators, have objected to the plan. Lane is expected to hear all objections and consider approval of the plan at a hearing on Aug. 15.
Tracy Hope Davis, the U.S. Trustee for the New York region, said Horton's parting gift defies bankruptcy laws that bar severance payments greater than 10 times the mean severance given to employees, and that are not part of a program applicable to all workers.
It is the third time Davis has called the payment into question. In March, when Judge Lane was considering approving the US Airways merger, Davis said AMR had not provided enough information about Horton's severance package.
Lane approved the merger, and the severance issue was effectively tabled until May, when Davis objected to an outline of AMR's bankruptcy exit plan on the same grounds.
Lane overruled the objection at the time, but AMR agreed to update its restructuring plan with more detail about the severance. Davis, still not satisfied, levied her latest objection on Friday.
The August 15 hearing is her last shot to convince the judge the severance package is unlawful before he issues a final ruling on whether the plan can go into effect.
Mike Trevino, a spokesman for American Airlines, said nothing in bankruptcy law prohibits Horton's pay package.
"AMR's creditors and shareholders have voted overwhelmingly to accept the plan which includes the" package, Trevino said, adding that AMR will file a formal response in court by Aug. 8.
AMR declared bankruptcy in 2011, and agreed to a merger plan with US Airways in February after initial resistance and hard-fought negotiations. Current AMR shareholders will get a 3.5 percent stake in the new airline, a rare example of a bankruptcy in which shareholders do not walk away empty-handed.
US Airways CEO Doug Parker would run the combined airline, but Horton would serve as non-executive chairman until the first annual shareholder meeting, probably in the spring of 2014, after which Parker would become chairman.
The case is In re: AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.
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