AMR can send restructuring plan to creditors for a vote: judge

American Airlines' bankrupt parent received court permission on Tuesday to send its restructuring plan to creditors for a vote, bringing its planned $11 billion merger with US Airways Group a step closer to reality.

Judge Sean Lane approved an outline of AMR Corp's plan at a hearing in U.S. Bankruptcy Court in Manhattan. Creditors will use the outline to inform their decision on whether to support the plan itself.

The basis of the plan is a merger with US Airways, which was agreed in February after hard-fought negotiations and initial resistance from AMR.

Current AMR shareholders will get a 3.5 percent stake in the new airline, a rare example of a bankruptcy in which shareholders do not walk away empty-handed. The company has projected the value of the stake approaching the $400 million range.

The key objection to the plan outline had come from the U.S. Trustee Program, the Department of Justice's bankruptcy watchdog, over a roughly $20 million severance package for outgoing AMR Chief Executive Tom Horton.

Tracy Hope Davis, the trustee for the New York region, last month argued that the document did not contain enough detail on the negotiations surrounding the severance, and that bankruptcy law bars such payments except when they are generally applicable to all employees.

Lane approved the plan outline over the objection, saying Davis failed to show the plan was "patently unconfirmable." Still, AMR agreed to update the document with more information about the Horton deal.

AMR filed for bankruptcy in 2011, the last major U.S. carrier to go through the process after its competitors underwent restructurings in the last decade. It initially opposed a merger, but agreed to explore one under pressure from creditors and unions.

Its unsecured creditors' committee set the tone for the case, demanding that AMR resolve years of bitter labor talks with its unions. The company eventually reached cost-saving labor contracts with its pilots', flight attendants' and ground workers' unions, but the process left the labor force at odds with AMR management, and unions lobbied heavily for a US Airways merger.

AMR was "pleased" that the court approved its plan outline, a spokesman said on Tuesday.

"Our plan of reorganization will maximize recoveries for all of our economic stakeholders and provide the foundation for a stronger future for our people and our customers," spokesman Michael Trevino said in a statement.

Under the plan, secured creditors would be paid in full, while unsecured creditors would receive shares of preferred stock. The company's 7.5 percent bonds, which are secured by some of AMR's trans-Atlantic and trans-Pacific routes, will either be reinstated or paid off entirely. The plan already has the support of holders of $1.6 billion in unsecured claims.

The combined carrier would keep the American name and would be based in AMR's hometown of Fort Worth, Texas. AMR creditors would receive 72 percent of the new equity, with US Airways' current shareholders getting the other 28 percent.

A voting deadline for creditors has not been set. Creditors opposed to the plan can file objections with the court, and the plan must ultimately go before Judge Lane for a final approval. Objection deadlines and hearing dates have not been set.

US Airways Chief Executive Officer Doug Parker would run the combined airline, but Horton would serve as non-executive chairman until the first annual shareholder meeting, probably in the spring of 2014, after which Parker would become chairman.

Horton's severance has been a controversial issue from the beginning, drawing criticism from some AMR pilots. Judge Lane had declined to approve the proposal when AMR presented its merger plan in April, ruling that it was not permitted under federal bankruptcy law. By incorporating it instead into its restructuring plan, AMR makes the payment subject to creditor approval.

The case is In re: AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

(Reporting by Nick Brown and Billy Cheung; Editing by John Wallace, Phil Berlowitz and Carol Bishopric)