Judge OKs American-US Airways Merger

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DALLAS – The merger of American Airlines and US Airways Group can proceed as scheduled with clearance today by a federal bankruptcy judge for the airlines’ federal antitrust settlement with the Department of Justice.

U.S. Bankruptcy Judge Sean Lane ruled that the Nov. 12 settlement between the airlines and the DOJ did not conflict with provisions of a reorganization plan for American Airlines that he had approved in September.

“The settlement is fair and equitable and in the best interests of the estate,” Lane said during Wednesday’s hearing at the federal courthouse in Manhattan.

Lane denied a request for a temporary restraining order to halt the merger until a private anti-trust lawsuit seeking to void the restructuring can be resolved.

The lawsuit filed by San Francisco attorneys Joseph Alioto and David Cook, representing 40 plaintiffs, contends the merger violates the Clayton Act, a federal antitrust statute.

Alioto argued in court on Monday that the merger would concentrate more than 80% of U.S. air traffic in only three carriers.

Lane said Wednesday the plaintiffs did not show irreparable harm and could obtain damages later if the challenge is successful. Stopping the merger now could harm American’s stockholders by lowering the value of the stock, he said.

The decisions remove the final legal obstacles to American’s exit from Chapter 11 bankruptcy after almost two years.

After Lane made his bench ruling, American filed notice with U.S. Bankruptcy Court for the Southern District of New York that the merger would take place Dec. 9.

The combination will create the largest airline in the world, American said, with $38 billion of annual revenue, more than 6,500 daily flights and some 100,000 employees.

The airlines said earlier this month that the stock of the new American Airlines Group Inc. will be listed on the NASDAQ as AAL. Shareholders of American and US Airways will receive equity interests in the new company.

The merger is the centerpiece of American’s reorganization plan that protects unsecured creditors, who can recoup their full investment. Equity holders will receive some payout depending on the trading value of American Airlines Group.

The restructuring plan has received the approval of creditors, shareholders, and the unions representing the airline’s pilots, flight attendants and mechanics.

Creditors, employees, and shareholders are expected to realize an estimated $13.7 billion in stock from the merger.

The reorganization plan and the settlement are supported by holders of American’s $3.3 billion of municipal bonds.

About $1.5 billion of the airline’s tax-exempt revenue bonds are unsecured claims, backed by the bankrupt airline’s repayment pledge.

The unsecured revenue bonds had been trading at full value after the merger plans were announced early this year but then took a hit when the antitrust challenge was filed. They have rallied and many are trading at a premium.

American has continued making payments on its secured debts. Trades of bonds backed by collateral or assets have mostly held steady.

American filed for bankruptcy protection Nov. 29, 2011. At that time the airline said it had assets of $24.7 billion and debts of $29.6 billion.

The settlement of the antitrust charge requires the two airlines to divest slots, gates, and ground facilities at seven airports across the country, including 104 flight slots at New York’s LaGuardia Airport and 34 slots at Washington’s Reagan National Airport.

Smaller airports may suffer from the mandated gate divestitures, Moody’s Investors Service said in a report earlier this month.

“This is credit negative for US airports, particularly for small and non-hub airports,” said Moody’s vice president Earl Heffintrayer, chief analyst on the report.

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