Federal Judge Rejects US Airways' $20M Severance Package To American Airline's CEO Tim Horton

The federal government has denied Tom Horton, the outgoing American Airlines' CEO the nearly $20 million severance package he was offered by US Airways as part of the merger/takeover deal.

According to the Associated Press, Sean Lane, who is a federal bankruptcy judge,denied the $19.9 million cash and stock severance package on Thursday, claiming, " the proposed payment for Horton exceeded limits that Congress set for bankruptcy cases in 2005."

The Dallas Morning News has the report from American's home-base, stating:

"The decision isn't expected to sidetrack the merger, but it will force the companies and the unsecured creditors committee to revisit what compensation it can give Horton, who will step down as CEO and become non-executive chairman of the merged companies."

The tricky part of this decision is that American Airlines' parent company, ARM, states that those rules shouldn't apply to them because Horton's severance would actually come not from AMR, but from a new post-bankruptcy company created as a result of the merger with US Airways.

However, Judge Lane stated that argument is "somewhat of a legal fiction," according to the Associated Press. "Lane pointed out that Horton's severance would be for his work at AMR, not at the new post-bankruptcy company that will take on the subtly new name of "American Airlines Group."

Lane also rebuffed AMR's argument that Horton's severance would be in line with those of previous big airline mergers. "Lane said the earlier deals-Delta's purchase of Northwest and United's merger with Continental-didn't occur under bankruptcy and its limits on insider severance payments," reported the Associated Press.

AMR, American and various subsidiaries filed for bankruptcy protection on Nov. 29, 2011 and even though airline officials were reorganizing AMR's finances including deep cost-cutting in labor and other areas, US Airways chairman and CEO Doug Parker led an effort to have the two carriers merge and thanks to an $11 billion offer, the takeover is assumed to be completed in the next couple of weeks.