Bloomberg News

American Airlines’ Hiring of Bankruptcy Advisers Put on Hold

February 01, 2012

(Updates with court hearing in second paragraph.)

Jan. 27 (Bloomberg) -- American Airlines parent AMR Corp.’s effort to hire a group of legal and financial advisers for its bankruptcy was put on hold amid objections from unions and the U.S. government.

U.S. Bankruptcy Judge Sean Lane in Manhattan today said he would approve retaining advisers including Rothschild Inc. and Perella Weinberg Partners LP only on a temporary basis, pending agreement from the U.S. Trustee. Fort Worth, Texas-based AMR said it planned to return to court later to seek final approval to hire the firms.

The U.S. Trustee, which monitors bankruptcy proceedings for the U.S. Justice Department, has objected to AMR’s plans to hire about a dozen firms to provide legal, labor, financial and other advice as it reorganizes. The U.S. Trustee claimed that AMR hasn’t shown it needs all the advisers, that there was a high potential for duplicate services and that some of them had possible conflicts of interest.

Employees at American Airlines and its American Eagle regional carrier objected to some firms, including Bain & Co. as strategic consultants for Eagle and SkyWorks Capital LLC as an aircraft restructuring adviser.

‘Some Issues’

The committee representing unsecured creditors also has “some issues” with the professional applications that it hopes to resolve with AMR, Jack Butler, an attorney for the panel said at the hearing.

Interim approval for the firms gives them the ability to seek court approval for monthly or hourly compensation, AMR’s bankruptcy attorney Harvey Miller said. It doesn’t cover other success and restructuring fees.

Rothschild’s compensation includes a so-called completion fee of $15 million in addition to a $200,000 monthly fee. AMR is scheduled to return to court next month for final approval of the advisers, according to court papers.

“They have no protection as to compensation,” Miller said at the hearing, referring to the advisers.

AMR, parent of the third-biggest U.S. airline, filed for bankruptcy protection on Nov. 29, saying it needed to reduce costs and restructure debts to compete with other carriers that used bankruptcy to shed pensions and retiree benefits and secure new labor agreements.

The company is financing its own operations during reorganization instead of bringing in an outside lender. AMR is using $4.1 billion in cash and short-term investments it held when it sought court protection.

AMR already has become the focus of possible takeover bids, with US Airways Group Inc. saying it has hired legal and financial advisers to assess a possible merger. Delta Air Lines Inc. and TPG Capital also are evaluating options for AMR, people familiar with the matter have said. Delta has Blackstone Group LP, two people have said.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: John Pickering, Andrew Dunn

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Ed Dufner at edufner@bloomberg.net


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