CHICAGO A federal bankruptcy court judge Thursday confirmed American Airlines’ reorganization plan, but its exit from Chapter 11 depends on its resolution of the federal government’s antitrust challenge to its merger with US Airways Group.
“This is yet another important milestone in completing one of the most successful turnarounds in commercial aviation,” said American spokesman Mike Trevino. “We are focused on the antitrust case and will show that our planned merger with US Airways is good for consumers and competition.”
U.S. Bankruptcy Court Judge Sean H. Lane announced his decision at a scheduled hearing in his Manhattan court room Thursday.
He sided with the airline’s arguments that the antitrust complaint the U.S. Justice Department filed in August did not pose a legal reason to block the reorganization plan, which is backed by holders of $3.3 billion of American Airlines-backed municipal bonds as investors stand to fully recoup their investment.
“The real issue here is whether the Department of Justice lawsuit acts as a separate issue. The court determines it does not for several reasons,” Lane was quoted in numerous reports as saying. “These are separate processes before different courts and on different schedules.
“The fact that all the stakeholders support the plan is proof that it is feasible,” Lane said, agreeing with supporters’ arguments that a delay could jeopardize broad stakeholder support.
The decision was not unexpected as Lane had said recently he was leaning in favor of confirmation after hearing arguments and reading briefs on the debate. The judge’s decision allows the airlines to concentrate on resolving the antitrust lawsuit either at trial or through a settlement. A trial date has been set for Nov. 25 in the U.S. District Court for the District of Columbia.
American’s parent AMR Corp. would need bankruptcy court approval for any amendments to its business plan if a compromise is struck with the government. The airline could also be forced to start from scratch on a reorganization plan if it’s unable to resolve the lawsuit. The airline initially resisted overtures to merge after it entered Chapter 11 in November 2011 but faced pressure from creditors who believed it offered the best recovery rates.
The plan was assembled assuming approval for the $11 billion merger and most expected the bankruptcy court would confirm the reorganization, but the antitrust lawsuit created uncertainty after it was filed Aug. 13 by the DOJ and attorneys general from seven states.
The reorganization plan offers a full recovery for unsecured holdings including municipal holdings. The airline also opted against challenging the status of leases tied to its secured municipal bonds as airlines attempted in past bankruptcies with mixed results.
If the airline is forced to emerge from Chapter 11 on its own, recovery rates could change significantly.
The airline’s $1.5 billion of unsecured bonds had mostly traded at near to full value, and even a premium in some cases, after the merger was announced early this year. Some then dipped to between 75 cents to the low 90s after the government sued to block the merger. Some have since nearly recovered from the drop.
In court filings, the two airlines attacked the federal government’s arguments that the merger on grounds it would hurt consumers by reducing competition on some routes and raising fares.
American believes the merger would “generate enormous direct consumer benefit, most significantly by creating a unified network affording a vastly expanded array of flight options for travelers,” its filing reads. It also argues the merger is needed to remain competitive with other top carriers.
The airlines are reportedly expected to ask their boards to extend the deadline for closing the deal. The current deadline is Dec. 17.