American Airlines Files Reorganization Plan With Bankruptcy Court

US Airways began studying a potential merger with American Airlines several months before American filed for bankruptcy protection in late 2011, according to papers filed Monday by the two companies.

The documents give a blow-by-blow account of how the merger was negotiated, including the thorny issues of how to share ownership of the merged company and who would run it.

The companies also revived a proposed $20 million severance deal for Tom Horton, the CEO of American parent AMR Corp. A federal judge had declined to approve the payout, finding that it violated a 2005 bankruptcy law, but he had left open the possibility that a payment could be reconsidered later.

US Airways Group Inc., whose CEO, Doug Parker, will run the combined company, played up the importance of Monday's filings with the bankruptcy court in New York and the U.S. Securities and Exchange Commission.

"With these materials filed, we are one step closer to completing the merger, which we expect to occur in the third quarter of this year," US Airways officials said a memo to employees.

The bankruptcy court has already signaled approval for the merger, which would create the world's largest airline. The deal faces only a few more hurdles, including approval from the U.S. Justice Department and US Airways shareholders.

American Airlines: Turbulent Times

AMR will have 60 days to win support among creditors for its reorganization plan. Major creditors were closely involved in negotiations leading to the merger announcement in February, so it seems unlikely that they would derail the plan that will be considered by U.S. Bankruptcy Judge Sean Lane.

It's less clear whether antitrust regulators in the Justice Department will impose major conditions on the deal. Regulators approved other big airline mergers - Delta and Northwest, United and Continental, Southwest and AirTran - so industry analysts expect them to let this deal pass.

The Justice Department, however, could require the American-US Airways combination to give up takeoff and landing slots at Washington's busy Reagan National Airport, where it would be the dominant carrier, and possibly slots in New York too.

The company will be called American Airlines Group Inc. It is expected to operate more than 6,700 flights a day to 336 destinations in 56 countries and have about 100,000 employees. Based on current figures, American will emerge slightly bigger than United Airlines and Delta Air Lines in the number of miles flown by passengers, the usual standard for ranking carriers.

Parker will be chairman and CEO after Horton steps down as chairman in 2014. Parker would get $19.5 million if he is terminated by the new company for a reason other than misconduct, according to a separate filing Monday.

The merger is a coup for Parker, who just a decade ago was running a much smaller carrier called America West Airlines. He merged that airline with US Airways, and then relentlessly pursued a deal with AMR.

According to Monday's filings, US Airways executives briefed their board about a potential merger in April 2011 - seven months before American and AMR filed for bankruptcy protection. As has been previously reported, Parker and Horton even spoke about a deal during an industry event that year, but Horton initially dismissed the idea, saying American preferred to focus first on fixing its own business.

Parker persuaded American's unions and many AMR creditors that a merger would fare better than an independent American, however, and forced AMR into negotiations. Leaders of the two companies then haggled over ownership split and management titles. AMR creditors and unions will own 72 percent of the new company, and US Airways shareholders will get the other 28 percent.