A judge has rejected a proposed severance payment of nearly $20 million for Thomas Horton, the chief executive of American Airlines parent AMR Corp , saying the payout is not allowed under federal bankruptcy law.

Bankruptcy Judge Sean Lane in Manhattan made his ruling in a decision on Thursday. The judge on March 27 approved AMR's plan to merge with US Airways Group Inc , a step toward creating the world's largest airline.

(Reporting by Jonathan Stempel in New York; Additional reporting by Tanya Agrawal in Bangalore; Editing by Gerald E. McCormick)