AMR’s Bankruptcy Move Stirs Controversy

In 2011, AMR’s stock was trading for less than $1. Now in March 2013, stock value is hovering around $3.88. While bankruptcy has a negative connotation in the minds of many Americans, AMR’s Chapter 11 bankruptcy filing has proven to be a good thing for investors. With the freedom to reorganize and merge with US Air, AMR’s decision to file for Chapter 11 bankruptcy appears to be a solid one.

Employee Compensation

When news broke mid-March that AMR CEO Tom Horton would be receiving a $19.9 million severance package as American Airlines and US Airwaves merge, a whirlwind of controversy rose around the situation. Critics state that because AMR filed for Chapter 11 and is in financial distress, such opulent salaries and severance packages don’t hold merit. The move has gained the attention of at least one critical federal official.

However, despite the Chapter 11 bankruptcy, an AMR spokesman has stated that the compensation packages after the merger are not unusual considering the industry precedents. Furthermore, a change in bankruptcy laws in 2005 should allow severance and retention payments for top management.

The controversy will climax on March 27, as a United States Bankruptcy court judge will decide the fate of CEO Tom Horton’s exit package as well as other AMR severance packages. American Airlines stands firm that what they did is legal and within the boundaries of industry precedence.

Regardless of the final ruling, shareholders continue to be pleased with the Chapter 11 bankruptcy filing and the AMR merger. Horton will remain a nonexecutive chairman throughout 2014, when the merger closes. Under Chapter 11, AMR is reorganizing their debts through the merger to continue to conduct business with US Airways.