Judge Says AMR Can Terminate Leases on 9 Planes So It Can Buy Them

Date : 06/20/2012 @ 12:37PM
Source : Dow Jones News
Stock : US Airways Grp. New US Airways Grp., Inc. (LCC)
Quote : 22.55  0.0 (0.00%) @ 2:05AM

Judge Says AMR Can Terminate Leases on 9 Planes So It Can Buy Them

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   By Joseph Checkler 

NEW YORK--A judge on Wednesday said AMR Corp. (AAMRQ) can terminate the leases on nine of the planes it flies and then buy them, as the American Airlines parent continues its crusade to cut costs during Chapter 11 bankruptcy.

Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan approved AMR's transaction with a unit of U.S. Bancorp (USB), which acts as trustee for the loans secured by the aircraft. Financial terms, including the purchase price, were not disclosed.

HNB Investment Corp., which took part in the original leveraged-lease transactions for the nine planes, had previously objected to the deal, saying it violated the terms of the original transaction.

In aircraft leveraged-lease transactions, a lessor puts up some of the money for the plane but then borrows the rest. In this case, HNB was the lender, making it a so-called "owner participant," rather than a "loan participant" like U.S. Bank.

HNB was set to fight the deal, and a full-blown hearing to determine the value of the aircraft loomed. But after negotiations, HNB dropped its objection, with AMR agreeing to add wording to the agreement to release HNB from claims being filed against it related to the aircraft, as well as wording that allows HNB to file a claim in the case related to tax exposures. AMR also said it agreed to make similar transactions with another 10 of the planes it flies, and that paperwork on those sales would be filed later with the court.

Judge Lane on Wednesday also approved AMR's bid to assume leases of certain storage space, ticket kiosks, hangar space and other areas at several U.S. airports.

AMR filed for bankruptcy late last year with the goal of cutting billions in both labor and operating costs.

Last month, the company and the unions representing its pilots, flight attendants and mechanics wrapped up a trial over whether AMR can terminate those workers' collective bargaining agreements while in bankruptcy.

AMR had said that it wants consensual agreements with the unions but that it had to terminate the contracts and go through with the court trial in case no deals are reached. Lane said last month that he will rule by June 22 on whether the contracts can be canceled, which would allow AMR to make unilateral changes to the agreements with the unions.

The company is seeking $1.25 billion in labor cost cuts, with $990 million related to the unions. The unions have said they favor a merger with suitor US Airways Group Inc. (LCC), which has offered what workers have deemed better terms than American.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow him on Twitter at @JoeCheckler

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