Tom Horton: A bankruptcy judge noted the CEO's contract already promises as much as $15.3 million in the case of a merger.
The American Airlines bankruptcy judge issued a written opinion Friday stating that he took the financial sacrifices made by union members into account when rejecting a $20 million severance deal for CEO Tom Horton.
U.S. Bankruptcy Judge Sean Lane on Thursday threw out Horton's proposed severance, which the executive was slated to get after stepping down as CEO.
As part of that proceeding in New York, Lane approved a bankruptcy reorganization plan submitted by parent AMR Corp., putting the company one step closer to emerging from court protection.
Lane said he rejected claims by AMR and Horton that the CEO was entitled to compensation of nearly $20 million because he was instrumental in the seemingly positive outcome of the bankruptcy process, even though creditors are promised a 100 percent repayment through stock in a yet-to-be-formed company.
"Moreover, in considering the facts of this case, there have been significant sacrifices by the Debtors' employees, most notably by its union members, that allowed the Plan to move forward," Lane wrote.
During Thursday's hearing, AMR agreed to withdraw Horton's severance from the bankruptcy reorganization plan.
But Lane did note that Horton's contract already promises Horton as much as $15.3 million if AMR merges with another airline. Lane said that on top of that payment, there is no reason that the CEO is entitled to another $4.5 million.
Horton was appointed CEO of AMR on Nov. 29, 2011, the day the airline company filed bankruptcy. The $19.875 million severance, half in stock and half in cash, was negotiated as part of a merger agreement with US Airways.
The payout, Lane said, specifically violates a section of the bankruptcy code that Congress changed in 2005 to prevent excessive payouts to executives and insiders to stick around during the bankruptcy process.
"Indeed, despite some suggestions at the confirmation Hearing to the contrary, there can be no credible dispute that the Horton Severance Payment is a severance payment," Lane wrote.
But he said the payout was unreasonable by others standards of the federal bankruptcy code, as well.
Pilot, flight attendant and maintenance employees at American Airlines had their pensions frozen as part of the bankruptcy negotiation process - a move the airline said would make the company competitive in the future.
American employs 6,300 people in Tulsa, most of them working at the company's primary overhaul and repair base at Tulsa International Airport.
Even with Lane giving his blessing to the bankruptcy reorganization plan, it won't go into effect unless American Airlines and US Airways can settle an antitrust lawsuit filed by the U.S. Department of Justice seeking to block their merger.
That case is scheduled to go to trial in November.
Kyle Arnold 918-581-8380
kyle.arnold@tulsaworld.com
Original Print Headline: Judge: CEO not entitled to $20M in AMR plan
