The judge presiding over American Airlines' bankruptcy asked tough questions about a proposed $20 million severance for executive Tom Horton and hinted he would not approve it.
"My idea would not be deny it but defer a decision," Judge Sean Lane said soon after the hearing into the proposed merger with US Airways kicked off in New York Wednesday morning.
Lane suggested the bonus plan for Horton and other top employees violates bankruptcy law and instead should be part of the airline's reorganization plan to be submitted later.
"I'm not trying to pile onto Mr. Horton, but it's an intellectual issue," the judge said. "If I pass it now, the argument is it's a done deal."
An attorney for the debtors, Stephen Karotkin, argued in favor of the severance and said the payments would come later from the assets of the combined airline -- not from the bankrupt company today.
"You can't cherrypick this agreement," Karotkin told the judge in a heated discussion. "You can either approve it or not."
Jack Butler, an attorney for creditors, also argued the severance plan should be approved.
"It is highly unfortunate the payments to Mr. Horton are being deemed or put in a bucket and called 'severance,'" he said. "They're actually much more than that."
"Severance is a part of it," he said. "It's not the majority of it."
The U.S. trustee, which represents the interests of taxpayers, had filed an objection to the severance payment, arguing it's too much under bankruptcy rules.
Earlier, Karotkin called the merger a "watershed event" that has "overwhelming support."
He said a combined airline would bring more value to everyone.
"Today at this hearing is a watershed event," Karotkin said. "The business reasons for the merger are compelling."
He also noted that nobody involved in the bankruptcy has objected.
Lane is also expected to hear a request from American Airlines to extend the deadline to present a final business plan before emerging from bankruptcy as a profitable company.
American now wants until May 29 to submit its exit proposal, which would put the airline on track to exit bankruptcy in late summer. The new airline would be based in Fort Worth.
Follow Scott Gordon's tweets on the hearing: @ScottGordonNBC5
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