AMR Bankruptcy Plan Goes to Judge After U.S. Merger Suit
By David McLaughlin - Aug 15, 2013 12:01 AM ET
AMR Corp.’s plan to exit bankruptcy protection by merging its American Airlines (AAMRQ) withUS Airways Group Inc. (LCC) is scheduled to go before a judge two days after the U.S. sued to block the deal as a threat to consumers.
Lawyers for AMR are due to appear in U.S. Bankruptcy Court in Manhattan today to seek approval of a reorganization plan that hinges on combining the two airlines into the world’s largest carrier. The Justice Department sued both companies Aug. 13 to prevent the transaction, saying its anticompetitive effects would lead to higher airfares.
Before the suit, American hoped the hearing before U.S. Bankruptcy Judge Sean Lane would be the “final episode” in its Chapter 11 reorganization, Joe Sims, an attorney for the airline, said on a conference call with reporters yesterday.
“It’s not going be now, so they will deal with that,” said Sims, of the Jones Day law firm. “They’ll adjust and continue as they have been.”
Sean Collins, a spokesman for Fort Worth, Texas-based AMR, wouldn’t say yesterday whether the company would ask Lane to approve the plan or call off the hearing for now.
Lane, who has already given the US Airways deal his approval, could decide to postpone the proceeding, or he could approve the bankruptcy-exit plan contingent on American’s securing the government’s blessing, according to Jay Sakalo, a bankruptcy attorney at Bilzin Sumberg Baena Price & Axelrod LLP in Miami.
American will be able to continue operating in bankruptcy while it fights the U.S. lawsuit, said Sakalo, who isn’t involved in the case.
“A few more months probably doesn’t have a critical effect on the company,” he said in an interview yesterday. “A few more months, though, that are followed by no viable alternative if the merger isn’t approved — that could have a very significant impact on the business.”
AMR filed for bankruptcy in November 2011 and reached the deal with US Airways in February. The merger is the basis of a proposal to pay creditors and emerge from court protection.
AMR creditors and shareholders support the reorganization, according to balloting results announced Aug. 1. The merger would provide unsecured creditors a full recovery and new stock for shareholders. The airlines were awaiting regulatory approval and Lane’s signoff before closing the deal.
In its antitrust complaint, the Justice Department said AMR “is fully capable of emerging from bankruptcy proceedings on its own with a competitive cost structure, profitable existing business, and plans for growth.”
During yesterday’s conference call, attorneys for the two airlines defended the deal as good for consumers. They said they will fight the lawsuit and seek a trial by the end of the year.
“We’re litigating this case, period,” said Paul Denis, an attorney for Tempe, Arizona-based US Airways at Dechert LLP.
If the merger falls apart, American and its creditors will develop a new plan, which will stretch the case into next year, Jack Butler, an attorney for creditors, said in an interview.
“We go back to square one, and we start over again,” Butler of Skadden, Arps, Slate, Meagher & Flom LLP told Sara Eisen and Erik Schatzker on Bloomberg Television’s “Market Makers” yesterday. “We sort out what makes the most sense and what maximizes value for creditors and what’s good for the airline going forward, and that is a process that will go into 2014.”
The bankruptcy case is In re AMR Corp., 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington).
To contact the reporters on this story: David McLaughlin in New York email@example.com
To contact the editor responsible for this story: Andrew Dunn at firstname.lastname@example.org