American Airlines restructuring plan stalls

A US bankruptcy judge has held off approval of a restructuring plan for American Airlines, citing a US government challenge this week to the airline's proposed merger with US Airways Group.

American’s parent company, AMR Corp, worked out the $11 billion merger with US Airways as part of a plan to exit bankruptcy, where it has been since 2011.

Judge Sean Lane had been expected to approve the plan at a hearing yesterday. But, two days before the hearing, the US Justice Department sued to block the merger, saying it would lead to higher fares and hurt consumers.

Instead of approving the plan, Judge Lane gave AMR and its creditors until August 23rd to submit briefs on how he should proceed.

Judge Lane said he needed more information about the appropriateness of approving the restructuring plan in light of the antitrust challenge.

AMR and US Airways, which have said they will fight the antitrust lawsuit, and their lawyers argued that Judge Lane should still approve the bankruptcy plan.

A lawyer for US Airways, Daniel Wall, said the Justice Department’s timing, just two days before the final hearing, was “audacious.”

“Don’t allow the bankruptcy issues, which are complicated enough on their own, to be held hostage to very late-filed antitrust issues,” Mr Wall told the judge.

But Judge Lane cited “lingering doubts” about the benefits of approving a bankruptcy plan before the antitrust issue is resolved. “What would be the point of entering a confirmation order ... if, in fact, there’s a lot more work to be done?” he said.

Under the restructuring plan, a reorganisation cannot go ahead without antitrust approval for the merger, which could take months.

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 per cent stake in the new entity under the merger, would likely be wiped out under any plan that excludes a merger, restructuring experts have said.

Judge Lane said he had strongly considered cancelling the hearing but decided to give parties an open forum to discuss the antitrust challenge.

The bankruptcy plan has the support of nearly all of AMR’s key creditors, and Judge Lane had already signed off on the merger and an initial outline of the restructuring plan that incorporates it.

Absent the antitrust challenge, the hearing would have been the final step in AMR’s exiting bankruptcy and implementing its merger. (Reuters)