American Airlines is poised to become the world’s largest passenger airline. The carrier’s parent company, AMR Corp., initially resisted the merger with US Airways Group Inc.; leadership believed the company could sort its finances out without the help or hindrance of a business combination on the table. Whether carrot or stick, though, US Airways convinced AMR that the only way to survive was to join forces.
The finances needed to be dealt with, too, so the company set out on two paths that often intersect: Chapter 11 bankruptcy and merging. The bankruptcy took a giant step forward this week when the company finally filed its reorganization plan. The plan provides some interesting details about how the new company will operate after the merger goes through.
The plan must be approved by the creditors committee and the bankruptcy court before anything else happens. What struck some business analysts as interesting was that the bankruptcy court punted on its approval of the planned severance package for AMR’s chief executive: Rather than rejecting the severance outright, the court is allowing AMR to include the same terms in the exit plan so that creditors can decide.
According to the filings, creditors may have no obvious reason to reject the executive’s $19.9 million deal. All secured creditors will be paid in full under this plan. Unsecured creditors will receive preferred stock in lieu of cash. AMR’s shareholders will end up with an equity stake — 3.5 percent, worth as much as $400 million — in the “new” American Airlines.
Source: The New York Times, “AMR Submits Formal Plan to Exit Bankruptcy,” Reuters, April 15, 2013
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