Why Is American’s Outgoing Chief Smiling?

It’s no secret that American CEO and chairman Tom Horton was no great fan of the merger scenario proposed by his counterpart at US Airways, Doug Parker, in the early days of American’s bankruptcy.

Thanks but no thanks, he said publicly. And word was his behind-the-scenes responses to US Airways’ overtures were far more forceful and decidedly less diplomatic.

Horton’s rage can only have intensified as Parker pressed his case with the media and cut deals with American’s unions and creditors.

Fast-forward to a Texas news conference on February 14. Tom Horton and Doug Parker are announcing what has come to seem inevitable: The two airlines will indeed merge. Or, more accurately, US Airways is taking over American.

Parker, ever effusive, is doing most of the talking. But Horton is a willing participant, lauding the supposed benefits of combining the two airlines, smiling, jokingly enjoining Parker to “not screw this up.”

The $20 Million Smile

After losing his airline and, ultimately, his job to a smaller rival, what could Tom Horton possibly have to smile about?

The reason for Horton’s relative equanimity emerged later that same day in an SEC filing, which among other matters outlined his going-away present:

Effective upon the closing of the Merger, Mr. Horton will receive a severance payment equal to $9,937,500 in cash and $ 9,937,500 in shares of New American Common Stock. In addition, Mr. Horton will continue to receive lifetime flight and other travel benefits commensurate with those to which he is currently entitled, an office and office support for a period of two years after the closing of the Merger.

Why so much? The filing continues:

In determining the form and amount of compensation, the AMR Board of Directors agreed that the amount to be paid is reasonable and appropriate given, among other things, Mr. Horton’s long service to the company, the success of the restructuring, and the value created for the company’s financial stakeholders.

Long Service?

Horton took over as CEO at American the day before the company filed for bankruptcy protection in November 2011. If the deal closes in the 3rd quarter of 2013, as American and US Airways have claimed to be a realistic time frame, Horton will have been on the job for around two years.

So time-wise, the bonus amounts to about $10 million per year.

Successful Restructuring?

Although there remains work to be done, Horton certainly has put American on the road to a successful restructuring, with a new fare structure, new aircraft in the pipeline, and a new corporate identity.

But can any restructuring that results in a company’s being taken over by an unwelcome suitor be deemed truly successful?

Horton allowed US Airways’ Doug Parker to outmaneuver him, making the case for a merger directly to American’s unions and creditors at a time when Horton and the American top-management team were publicly disparaging a tie-up with US Airways.

His failure to win over his own employees was one of the key points of leverage used by Parker’s team to force American into the merger.

In the end, success is in the eyes of the beholder, and American’s board is obviously pleased with the outcome.

But travelers, many of whom view US Airways as an inferior airline, feel differently. And American’s workforce may eventually find that Parker is not the labor-friendly manager he made himself out to be when seeking union support.

Value Created for Financial Stakeholders?

The key here is “financial stakeholers.” American’s creditors make out reasonably well under terms of the agreement. And the combined companies should be well positioned to operate profitably once their operations have been integrated.

Once again, American’s board seems oblivious to the needs and concerns of the stakeholders who will ultimately determine the new company’s success, its customers.

Reader Reality Check

Tom Horton has good reason to smile.

Are you smiling?

This article originally appeared on FrequentFlier.com.