By Nick Brown
NEW YORK Aug 23 American Airlines and its
creditors' committee on Friday urged a bankruptcy judge to
approve the airline's restructuring plan despite an antitrust
challenge from the Department of Justice.
In court papers filed in U.S. Bankruptcy Court in Manhattan,
American's bankrupt parent, AMR Corp, said failing to
approve the restructuring would add "a destabilizing factor" to
its proposal to merge with US Airways Group and pay back
AMR's creditors' committee, in a separate filing, said
refusal by Judge Sean Lane to give the plan his blessing could
threaten creditor support for the plan, which includes AMR's
unions and most of its creditors.
"While the DOJ enforcement action has unsettled creditor and
stockholder expectations, deferring entry of the confirmation
order ... would only exacerbate this uncertainty," the committee
The U.S. government also filed a brief on Friday, but did
not, as might have been expected, urge Lane to not approve the
restructuring plan. Instead the government, through U.S.
Attorney Preet Bharara, said it took "no position as to whether"
Lane should confirm the plan, but cited the "attendant risk that
a confirmed plan may not be able to become effective for a
considerable time, if at all."
AMR and US Airways agreed to merge in February in an $11
billion deal that would end AMR's bankruptcy and create the
world's largest airline. Experts had expected the deal to enjoy
a smooth ride through the regulatory process.
But on Aug. 13, two days before the restructuring plan was
to gain final court approval, the DOJ sought to block it, filing
a lawsuit in Washington, D.C., alleging a stifling of
competition that would harm consumers though higher fares.
Judge Lane, overseeing AMR's bankruptcy in New York, held
off confirming the plan in the face of the DOJ's lawsuit, giving
the parties until Friday to brief him on the best course of
AMR, in its court papers, stressed that the merger
agreement, which Lane already approved, contains "a mechanism"
to account for this very scenario. If the parties cannot obtain
regulatory approval, the deal would eventually be terminated,
Lane voiced hesitation to rubber-stamp a deal that might
later change due to a settlement with the DOJ. But AMR said
future changes to the plan, namely divestitures, are expressly
required to go back before Lane for approval.
The creditors' committee said Lane's job is to make sure the
plan meets standards under the bankruptcy law. Worrying about
antitrust concerns is the DOJ's job.
"They are separate processes, before different courts, and
on different schedules," the committee said.
If the Justice Department ultimately succeeds in blocking
the merger, it would put AMR's restructuring back at square one,
requiring it to forge new strategies for paying back creditors.
AMR shareholders, who stand to receive a 3.5 percent stake
in the new entity under the merger, would likely be wiped out
under any plan that excludes a merger, restructuring experts
AMR's unions also support a merger. The Transport Workers
Union, representing ground crew members, on Thursday filed court
papers urging Lane to approve the deal.
But not everyone is in favor of Lane signing off. A group of
plaintiffs in a separate antitrust lawsuit against US Airways
filed a brief on Thursday in AMR's bankruptcy, saying the judge
cannot under bankruptcy law confirm a plan that may prove not to
be feasible. AMR appears "unable to articulate a 'Plan B' which
would resolve" antitrust risks, the group said in its filing.
Regardless of Lane's decision, the issue will come down to
the sides' ability to resolve matters with the DOJ. Chapter 11
merger plans require both bankruptcy court approval and
regulatory approval, and one does not impact the other.
At a hearing last week, Lane did not seem opposed to the
restructuring plan on its face, his hesitation instead rooted in
concerns that the deal he was being asked to approve might look
different a few months down the road.
The DOJ antitrust suit will take months to resolve, and
possibly longer if it goes to trial.