American and US Airways Merger Approved

The world’s largest airline is about to be born.

Reuters reports that on Wednesday, U.S. Bankruptcy Judge Sean Lane approved AMR Corp’s plan to merge with US Airways Group LCC, a merger that has been expected for some time now.

AMR, the parent of American Airlines has been in bankruptcy since 2011. The company must still create a restructuring plan, including the merger that meets court and creditor approval.

The plan may also include details about a severance package for Tom Horton, AMR’s outgoing CEO. Judge Lane refused to approve the planned $19.9 million package AMR had put together for Horton, saying he wasn’t sure if the package required his approval.

The restructuring plan, which all debtors in bankruptcy must propose, will lay out how creditors are paid, and will require creditor approval.

Both AMR and US Airways signaled their delight at the news of Lane's approval of the merger with a joint statement.

"We are gratified to know that he considers the merger an 'excellent result' for stakeholders," the statement said.

AMR was the last major U.S. carrier to go through bankruptcy, after several of its competitors underwent the process in the last decade.

The company first opposed merging while still in bankruptcy, but relented due to pressure from creditors.

US Airways Chief Executive Doug Parker worked hard to hammer out a deal with AMR unions last April, well before formal merger talks were underway. This may have been a deciding factor in AMR’s eventual agreement given the volatility of the company’s relations with its union membership.

AMR shareholders will receive a 3.5 percent equity stake in the new firm, an unusual move in bankruptcies. Typically, equity holders in such arrangements do not earn recovery.

Parker will be CEO of the new carrier which will join United Continental UAL, Delta Air Lines DAL and Southwest Airlines LUV as the leader of a group of airlines responsible for 83 percent of U.S. flights last year.

Wednesday, Parker told CNBC that airfares at the new American Airlines won't go up because of the merger.

Said Parker, "We're putting these two airlines together and not reducing supply … What's going to happen to prices? I don't know. This merger's not going to have an impact."

Horton will serve chairman of the new company through the first annual meeting of shareholders and then exit. The merger is expected to close in the third quarter.

Meanwhile, shares of US Airways are up a little over two percent in late morning trading on news of the merger approval. LCC stock is going for $16.98, up $.34 on the day.