DALLAS (AP) -- A federal official opposes a severance payment of nearly $20 million that the CEO of American Airlines' parent company would get as part of a merger with US Airways.
The U.S. trustee says American and parent AMR Corp. fail to explain how severance and retention payments for management employees are allowed under a 2005 change in the bankruptcy laws.
Trustee Tracy Hope Davis says Congress intended to limit severance and retention payments to insiders in bankruptcy cases unless the bonuses are justified or severance payments are available to all full-time employees and aren't more than 10 times greater than payments to non-management workers.
Davis lodged her objections in a filing Friday with the federal judge overseeing AMR's bankruptcy case. The U.S. trustee is an official of the Justice Department responsible for overseeing bankruptcy cases.
AMR spokesman Andrew Backover said that agreements in the merger "reasonably and appropriately compensate our employees" and are "in line with industry precedents." In previous airline mergers, the CEO who did not get to run the company received large severance packages — the United CEO got a deal worth nearly $40 million, and the Northwest CEO got about $26.6 million, according to published reports.
Backover added that the AMR employee payouts were approved by compensation consultants hired by the committee of AMR's unsecured creditors, which includes labor unions, banks and Boeing Co.
AMR announced last month that it plans to merge with US Airways. The combined company would keep the American Airlines name but be run by US Airways CEO Doug Parker. The merger deal calls for AMR CEO Tom Horton to serve as chairman for less than a year and get $19.9 million in severance, half in cash and half in the new company's stock.
Unions representing American Airlines employees had not raised objections to Horton's severance payment, saying that they preferred to focus on fixing the company with new management.
U.S. Bankruptcy Judge Sean Lane in New York has scheduled a March 27 hearing to consider the merger proposal, which would also have to be approved by federal antitrust regulators and shareholders of both airlines.
AMR filed for bankruptcy protection in November 2011 after losing billions in the past decade. It is expected to emerge from Chapter 11 later this year.