By Paul Stinson
AUSTIN, Texas--Chapter 11 debtor American Airlines filed a reorganization plan April 15 in the U.S. Bankruptcy Court for the Southern District of New York, outlining how the company would repay creditors with stock from the new -and renamed- American Airlines Group formed once the proposed $11 billion merger is complete (In re AMR Corp., Bankr. S.D.N.Y., No. 11-15463-SHL, plan filed4/15/13).
Contained in a pair of documents totaling nearly 800 pages, the plan details an approach that would provide “full recovery by creditors” while returning American Airlines to profitability as it finalizes the merger with U.S. Airways Group, according to documents filed in federal court.
The disclosure statement accompanying the plan must be approved by the bankruptcy court before AMR can begin to solicit acceptances from its creditors--a majority must vote to accept the plan before the judge can commence with a final hearing and approve the plan.
The plan of reorganization includes the nearly $20 million in severance pay equal to approximately $9.9 million in cash and that same amount in shares of American Airlines Group common stock that Chief Executive Officer Thomas W. Horton was promised in the merger deal but that Judge Lane disallowed April 11 (25 BBLR 526, 4/18/13).
The proposed merger is subject to regulatory approvals and approval by U.S. Airways shareholders, completion of which is expected in the third quarter of 2013.
Additionally, AMR Corp. filed a 562-page proxy statement the same day with the Securities and Exchange Commission, summarizing the reorganization plan while spelling out details of the merger and data pertaining to executive compensation in 2012.
Contained within American's reorganization plan filed with the court are measures giving substantial equity stakes to union employees of American Airlines.
As noted in an April 24 Q-and-A posting on the website of the Allied Pilots Association (APA)--which represents the pilots of American Airlines--pilots would receive a 13.5 percent equity stake, the Transport Workers Union (TWU)--representing maintenance workers--would get 4.8 percent, while flight attendants under the Association of Professional Flight Attendants (APFA) would be given a 3 percent stake. Non-union labor including agents, representatives and planners would receive a 2.3 percent stake.
Stockholders of U.S. Airways will receive one share of common stock of the combined airline for each share of U.S. Airways common stock then held, accounting for 28 percent of the combined company's common stock, according to a Feb. 14 statement issued by American Airlines detailing the merger terms.
The remaining 72 percent diluted equity ownership of the combined airline will be issuable to AMR stakeholders and its debtor subsidiaries that filed for Chapter 11 protection, American's labor unions, and current AMR employees.
The development follows a successful bid by the company to have the deadline for filing its bankruptcy reorganization plan extended from April 15 to May 29 following a request on March 13 for more time (25 BBLR 456, 4/4/13).
As noted by the Allied Pilots Association, creditors will have 60 days to object to the reorganization plan filed by the company before the judge can offer approval and permit the company to exit Chapter 11 bankruptcy.
Relating to the Feb. 22 filing of a Merger Support Motion with the bankruptcy court in which the company sought entry of the Merger Support Order, AMR Corp. observed in its proxy statement that they were still awaiting the judge's order approving the merger, remarking that they did not expect to come away entirely satisfied, based on an earlier March 27 hearing and the April 11 ruling rejecting the severance package proposed for the top official at American Airlines.
Based on the hearing and ruling, “AMR and U.S. Airways Group anticipate that the bankruptcy court will enter an order that fails to meet all of the requirements of the merger agreement,” the prospectus said. “AMR and U.S. Airways Group are discussing how to address this anticipated issue.”
If the support order is not entered on or before May 14, the statement notes “the Merger Agreement may be terminated in accordance with its termination provisions.” In the absence of such an order, the company explained, “the Merger Agreement is not binding on or enforceable against AMR, U.S. Airways Group, or AMR Merger Sub.”
Announcing a first-quarter profit for the company to financial analysts and investors April 23, U.S. Airways Group CEO Doug Parker struck an optimistic chord about the planned joining of forces.
“Looking forward, our integration planning work with American is going well and we continue to expect that the merger will close in the third quarter of this year,” he said.
Reporting the first quarter ending March 31, the Tempe, Ariz.-based company reported net profit “excluding net special items” at a “record $55 million.”
Also contained within the April 15 SEC filing, U.S. Airways Group disclosed that Chairman and Chief Executive W. Douglas Parker had earnings of about $5.5 million in 2012 of which $2.2 million was categorized as “Non-Equity Incentive Plan Compensation.”
The filing listed American Airlines' Chief Executive Officer Thomas W. Horton as having received 2012 compensation of $1.75 million--of which nearly $1.1 million was listed as “change in pension value and nonqualified deferred compensation earnings.”
According to the document, Horton received a base salary of $618,135 with no bonus, while also noting that the top official at the airline had “declined to accept an increase in his compensation.”
The plan of reorganization includes the nearly $20 million in severance pay equal to approximately $9.9 million in cash and that same amount in shares of American Airlines Group common stock that Horton was promised in the merger deal but that Judge Lane disallowed April 11 (25 BBLR 526, 4/18/13).
The reorganization plan is available at: http://www.bloomberglaw.com/public/document/AMR_Corporation_Docket_No_111bk15463_Bankr_SDNY_Nov_29_2011_Court/6
The disclosure statement is available at: http://www.bloomberglaw.com/public/document/AMR_Corporation_Docket_No_111bk15463_Bankr_SDNY_Nov_29_2011_Court/7
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