Judge to Rule Soon on DOJ Deal with AMR, US Air

NEW YORK--A judge on Monday said he'd decide within the next few days on whether to approve the antitrust settlement between the Justice Department and merging airlines AMR Corp. (AAMRQ) and US Airways Group Inc. (LCC).

The blessing of Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan would be the last major hurdle for the merger, which under current market prices gives stakeholders more than $13.1 billion in value, AMR lawyer Stephen Karotkin said in court Monday.

Mr. Karotkin, of Weil Gotshal & Manges, called the bankruptcy of American Airlines' parent company "perhaps the most successful Chapter 11 airline case in recent history, if not ever."

Judge Lane appears likely to approve the settlement, but said he wants to take some time to rule, and will do so by Wednesday.

The judge heard more than an hour of objections from a lawyer representing airline customers, who thinks the merger would hurt airline competition. The judge also will consider an attempt by the lawyer, Joseph M. Alioto, to get a restraining order to block the merger. Judge Lane appeared skeptical of Mr. Alioto's arguments, frequently telling him that for all his talk, he was presenting no evidence of how customers may be harmed.

In September, the judge approved AMR's plan to exit bankruptcy through the merger with US Airways. However, the proposal was contingent upon regulatory approval, so the airlines had to wait to either win the antitrust lawsuit or settle with the Justice Department, which sued in August.

The department's antitrust division had said the deal would stifle competition and hurt customers, and the two sides prepared for a trial that would have begun Monday. But earlier this month the two sides settled, with US Air and AMR agreeing to give up space at major airports in the U.S., most notably reducing their combined daily departures at Reagan National Airport near Washington D.C. by about 15% and at La Guardia Airport in New York by about 7%.

The carriers also pledged to retain the big hubs that underlie their combined network and to continue service to certain smaller cities.

From a legal perspective, Judge Lane will be making three decisions: whether to approve the settlement, whether the merger can be consummated, and whether to grant Mr. Alioto's restraining order request.

The judge must decide whether the settlement materially changes the specifics of the plan he approved in September. The airlines and creditors say it doesn't.

The merger in its current form would repay AMR bondholders in full and give the company's existing shareholders at least 3.5% of the combined airline, a rare outcome in Chapter 11 cases.

In all, the proposal would give 72% of the combined airline to AMR shareholders, unsecured creditors, labor unions and some employees. The rest would go to US Air's shareholders.

AMR filed for bankruptcy protection in November 2011, citing the need to cut operational and labor costs. The company negotiated deep concessions from its main labor unions after a lengthy trial, cutting about $1 billion in annual labor costs.

AMR initially planned to exit bankruptcy as an independent airline, but the company eventually succumbed to the advances of suitor US Airways. The Justice Department suit threw both the merger and AMR's near future into uncertainty, but the settlement means the deal could close as early as next month, as long as Judge Lane approves the settlement.

If approved, the combined company will be called American Airlines Group Inc.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to )

Write to Joseph Checkler at [e-mail]

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