AMR Chapter 11 plan effective Dec. 9; merger with US Airways complete

By Caroline Salls

Pittsburgh, Dec. 9 - American Airlines Inc. parent AMR Corp. and US Airways Group, Inc. completed their merger on Monday to officially form American Airlines Group Inc., according to a news release.

According to documents filed with the U.S. Bankruptcy Court for the Southern District of New York, AMR's plan of reorganization also took effect on Monday. The plan was confirmed on Oct. 21.

The companies said in the release that the new American has a global network with nearly 6,700 daily flights to more than 330 destinations in more than 50 countries and more than 100,000 employees worldwide.

"We are taking the best of both US Airways and American Airlines to create a formidable competitor, better positioned to deliver for all of our stakeholders," American Airlines chief executive officer Doug Parker said in the release.

"We look forward to integrating our companies quickly and efficiently so the significant benefits of the merger can be realized."

Although American and US Airways came together as one company, the company said the process to achieve a single operating certificate is expected to take about 18 to 24 months. In the meantime, customers will continue to do business with the airline from which travel was purchased just as they did before the merger.

The company said customers will begin to see enhancements in early January, including the ability to earn and redeem miles when traveling on either American Airlines or US Airways, reciprocal American Admirals Club and US Airways Club benefits and reciprocal elite recognition.

American said alignment of pay, benefits, work rules and other guidelines for employees of both airlines will be phased in over time so that all changes can be carefully considered.

Represented employees will continue to work under their respective collective bargaining agreements, with the modifications provided under the negotiated memoranda of understanding for some. American's non-represented agents, representatives and planners will operate under their current terms and conditions of employment with merger-related adjustments.

According to the release, the transaction is expected to generate more than $1 billion in annual net synergies by 2015.

Creditor treatment

Treatment of creditors under the confirmed plan will include the following:

• Administrative expense claims, priority tax claims and priority non-tax claims will be paid in full in cash;

• Holders of secured claims will either be paid in full in cash, receive the proceeds of the sale of the collateral securing their claims or receive the collateral;

• Holders of general unsecured guaranteed claims will receive a number of shares of new mandatorily convertible preferred stock equal to the quotient of the claim's share of a double-dip full recovery amount divided by the per-share initial stated value;

• Holders of other general unsecured claims will receive its initial share of a number of shares of new mandatorily convertible preferred stock equal to the quotient of the total initial stated value, less the double-dip full recovery amount, divided by the per-share initial stated value, as well as its initial share of a number of shares of new common stock equal to a creditor new common stock allocation, less the number of shares of new common stock issued on conversion of all of the shares of the preferred stock, less a labor common stock allocation;

• Holders of AMR equity interests will receive a share of an initial old equity allocation and a market-based old equity allocation;

• AMR other equity interests, American Airlines equity interests and American Eagle equity interests will be reinstated for the benefit of the reorganized debtor holding those interests;

• Holders of American Airlines union claims will receive a share of new common stock in the reorganized company, with the Allied Pilots Association receiving 13.5% of the new common stock allocation, the Association of Professional Flight Attendants receiving 3% and the Transport Workers Union of America, AFL-CIO receiving 4.8%; and

• Holders of American Airlines and American Eagle convenience claims will be paid in full in cash, provided, however, that the total amount to be paid to convenience class claimants will be $25 million.

Stock distribution

As previously reported, the common and preferred stock of American Airlines Group will trade on the Nasdaq Global Select Market under the symbols AAL and AALCP, respectively.

American Airlines Group said it determined that holders of AMR common stock will receive an initial distribution of 0.0665 shares of new common stock for each share of AMR common stock in conjunction with the plan effective date.

Stockholders may in the future receive additional distributions based on the trading price of the combined company's common stock during the 120-day period after the effective date and the total amount of allowed claims.

Agreements and indentures

According to an 8-K filed Monday with the Securities and Exchange Commission, American Airlines Group and American Airlines, Inc. entered into a joinder to a $1.6 billion loan agreement among US Airways, Inc., US Airways Group and some affiliates and Citicorp North America, Inc.

The new company and American Airlines also entered into a second supplemental indenture governing US Airways Group's 6 1/8% senior notes due 2018 and 7.25% senior convertible notes due 2014.

New board

Immediately following the plan effective date, the board of directors of the new company will be comprised of James F. Albaugh, Jeffrey D. Benjamin, John T. Cahill, Michael J. Embler, Matthew J. Hart, Thomas W. Horton, Alberto Ibargüen, Richard C. Kraemer, Denise M. O'Leary, W. Douglas Parker, Ray M. Robinson and Richard P. Schifter.

Horton will serve as chairman of the board until the earliest of the first anniversary of the plan effective date, the day before the first annual stockholders' meeting following the effective date, which will not be held before May 1, and the election of a new chairman by the affirmative vote of at least 75% of the members of the board of directors.

In addition, Parker, Horton and Stephen L. Johnson were appointed as directors of substantially all of the company's subsidiaries following the completion of the merger.

Management changes

The company said in the 8-K that former AMR president and chief executive officer Horton, former executive vice president Daniel P. Garton, former senior vice president and chief financial officer Isabella D. Goren, former senior vice president, general counsel and chief compliance officer Gary F. Kennedy and former senior vice president of operations James B. Ream ceased to be executive officers of the company.

In recognition of Horton's role in the financial performance of the company during 2013, the completion of the financial restructuring and emergence from bankruptcy and the completion of the merger, the company entered into a transition agreement with Horton under which he will receive a $5.41 million cash payment, a $6.51 million alignment award and eligibility to receive a performance bonus targeted at $795,849, with a maximum opportunity equal to $1.27 million.

In addition, the company granted Horton a fully vested restricted stock unit award covering 170,722 shares of common stock, equal to the number of shares granted to US Airways Group's CEO for 2013.

Horton will now serve as chairman of the company, Parker will serve as CEO, J. Scott Kirby will serve as president, Derek J. Kerr will serve as executive vice president and CFO, Robert D. Isom Jr. will serve as chief operating officer and CEO of US Airways, Inc., Elise R. Eberwein will serve as executive vice president of people and communications, and Johnson will serve as executive vice president of corporate affairs.

AMR Corp., the Fort Worth-based parent of American Airlines, filed for bankruptcy on Nov. 29, 2011. Its Chapter 11 case number is 11-15463.

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