American Airlines defends $20-million severance pay to CEO

American Airlines is defending a plan to pay its departing chief executive a severance payout of nearly $20 million after the airline completes a merger with US Airways.

The parent company of American Airlines, AMR Corp., which filed for bankruptcy in 2011, recently submitted a request to a bankruptcy court to make the payment to its chief executive, Thomas Horton.

After the merger is completed, Horton will be replaced by US Airways Chief Executive Doug Parker and will take the post of board chairman for the new airline.

But the trustee overseeing the bankruptcy objected to the payout, saying that bankruptcy code requires the airline to first explain why it is making sweeping changes to its payment policies.

American Airlines argues that the bankruptcy code does not apply because the payout will be made by the new airline after it emerges from bankruptcy.

In a statement, American Airlines spokesman Mike Trevino said the payout is among “arrangements designed to motivate a strong management team during the integration process and will be paid by the new company, not the debtor in possession.”

He said American plans to file with the bankruptcy court a response to the trustee’s objections by Friday.

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