University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Chapter 11 Bankruptcy Case Studies College of Law Student Work 4-28-2017 How to Get Away with Merger: The American Airlines Bankruptcy Kelsey Cunningham Osborne Christopher K. Coleman Follow this and additional works at: https://trace.tennessee.edu/utk_studlawbankruptcy Part of the Bankruptcy Law Commons Recommended Citation Cunningham Osborne, Kelsey and Coleman, Christopher K., "How to Get Away with Merger: The American Airlines Bankruptcy" (2017). Chapter 11 Bankruptcy Case Studies. https://trace.tennessee.edu/utk_studlawbankruptcy/46 This Article is brought to you for free and open access by the College of Law Student Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chapter 11 Bankruptcy Case Studies by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. How To Get Away with Merger: The American Airlines Bankruptcy By: Kelsey Cunningham Osborne & Christopher K. Coleman Table of Contents Cast of Characters ...................................................................................................... 4 I. Introduction ............................................................................................................. 6 II. The Debtor’s Business .......................................................................................... 7 III. Events Leading to Filing for Chapter 11 ...................................................... 13 A. Historical Market Changes .............................................................................................13 B. Factors Affecting American Airlines’ Decision to File for Chapter 11 ...........................15 IV. Financing Issues ................................................................................................ 20 V. First Day Motions ................................................................................................ 22 A. Orders Facilitating Administration of the Estate ...........................................................22 B. Orders That Smooth Day-to-Day Operations..................................................................26 C. Orders Authorizing AMR to Honor Prepetition Obligations ..........................................27 VI. Appointment of Committees ............................................................................ 32 A. The Unsecured Creditors’ Committee .............................................................................32 B. The Ad Hoc Committee ....................................................................................................32 VII. Union Disputes and Rejection of Collective Bargaining Agreements . 36 A. Labor Costs, History, and Lead Up .................................................................................36 B. Section 1113 Proceedings ................................................................................................38 1. Section 1113 Requirements ......................................................................................38 2. AMR’s Specific Proposals .........................................................................................41 b. Association of Professional Flight Attendants .........................................................44 c. Transport Workers Union .........................................................................................46 3. Unions’ Objections ....................................................................................................48 b. Association of Professional Flight Attendants’ Objection ........................................51 c. Transport Workers Union’s Objection ......................................................................52 5. AMR’s Renewed Motion............................................................................................54 VIII. The Plan ............................................................................................................ 58 A. The Initial Plans ..............................................................................................................58 1. Objections .................................................................................................................58 2. Support .....................................................................................................................60 3. Amendments .............................................................................................................61 B. The Confirmation Hearing ..............................................................................................64 1. Objections .................................................................................................................66 C. The Final Plan .................................................................................................................72 1. Administrative Expenses and Priority Tax Claims .................................................73 2. Secured Claims ........................................................................................................73 3. Priority Non-Tax Claims ..........................................................................................74 4. General Unsecured Guaranteed Claims ..................................................................75 5. Other General Unsecured Claims ............................................................................76 6. Union Claims ...........................................................................................................76 7. Convenience Class Claims........................................................................................77 8. Equity Interests ........................................................................................................77 9. Other Equity Interests ..............................................................................................77 2 D. The Merger Agreement and The Plan .............................................................................78 E. Additional Provisions of the Plan ....................................................................................78 IX. The Merger .......................................................................................................... 82 A. Negotiations .....................................................................................................................83 B. Antitrust Issues ...............................................................................................................87 C. The Merger Agreement ....................................................................................................91 1. The Basic Structure ..................................................................................................91 2. Key Benefits ..............................................................................................................91 3. Significant Structural Details .................................................................................92 X. Conclusion ............................................................................................................. 94 3 Cast of Characters Ad Hoc Committee (“AHC”) – the Ad Hoc Committee was an unofficial committee composed of claimants against AMR Corporation and its subsidiaries. Allied Pilots Association (“APA”) – One of AMR’s three major labor unions. American Airlines Group, Inc. – American Airlines Group is the new company that resulted from the merger between US Airways and AMR. AMR Corporation – AMR Corporation was the parent company of American Airlines, along with several other subsidiaries, and the predecessor company to American Airlines Group Inc. Association of Professional Flight Attendants (“APFA”) – One of AMR’s three major labor unions. Clayton Plaintiffs – The Clayton Plaintiffs were a group of individuals that brought a private antitrust action against the proposed AMR-US Airways merger and objected to the confirmation of the plan. David J. Cook – Mr. Cook, an attorney with Cook Collection Attorneys, PLC, represented the Clayton Plaintiffs in their objections to the confirmation of the plan. Douglas Parker – Mr. Parker was the Chief Executive Officer of US Airways until the company merged with American Airlines. Following the merger, he became the Chief Executive Officer of American Airlines Group. Harvey Miller – Mr. Miller, an attorney with Weil, Gotshal, & Manges LLP, was the lead attorney representing AMR’s bankruptcy and restructuring process. Jack Butler – Mr. Butler, an attorney with Skadden, Arps, Slate, Meagher, & Flom LLP, represented the Unsecured Creditors’ Committee and played an essential role in the merger of American Airlines and US Airways. The Honorable Sean H. Lane – Judge Sean Lane was the bankruptcy judge in the Southern District of New York who presided over the AMR bankruptcy and restructuring process. 4 Thomas Horton – Mr. Horton became the Chief Executive Officer of AMR the day after his company filed for bankruptcy protection in November 2011. Following the merger, he became Chairman of the Board of Directors of American Airlines Group. Transport Workers Union (“TWU”) – One of AMR’s three major labor unions. TWU represented seven separate employee groups. Tracy Hope Davis – Ms. Davis was the United States Trustee for the Southern District of New York during the time of AMR’s Chapter