Attorney Was AMR Deal Key

By MIKE SPECTOR AND SUSAN CAREY
Two of the world's largest airlines are rushing to finalize a $10 billion-plus merger. One of the biggest reasons: Jack Butler.

Mr. Butler, a 56-year-old bankruptcy lawyer, was instrumental in getting American Airlines' parent AMR Corp. AAMRQ +2.46%to the negotiating table with US Airways Group Inc. LCC +3.78%by prodding and coaxing Tom Horton, AMR's chief executive, and his advisers. He also has pestered American's unions and US Airways pilots and executives for over a year.

As the lead lawyer for the creditors committee watching over American's bankruptcy case, he begged to differ when the airline said it planned to emerge from Chapter 11 before considering mergers.

Mr. Butler declined to comment on the details of the merger negotiations, which The Wall Street Journal reported Wednesday were in their final stages. This account of his role in American's restructuring is based on interviews with more than a dozen people close to Mr. Butler and the events of the airline's bankruptcy case.

Mr. Butler last February invited a cadre of American executives led by Mr. Horton, as well as the company's lawyers and bankers, to his New York office at law firm Skadden, Arps, Slate, Meagher & Flom LLP.
American's bankers from Rothschild Group arrived at a conference room in the Condé Nast building 38 floors above Times Square with a bottle of the investment bank's namesake Bordeaux as a goodwill gesture.

As they gazed at the Empire State Building, Mr. Horton told Mr. Butler and others that the airline already had evaluated mergers and expressed skepticism about teaming up with US Airways, especially when American was at its weakest.
Mr. Butler, with others, objected. The unionized workers on Mr. Butler's committee—not to mention bondholders and suppliers—wanted alternatives to American's plan to stay independent so they could realize the best payout, he explained. Mr. Horton demurred but then relented months later amid continued pressure. A Rothschild banker later expressed regret to creditor advisers about bringing the wine. A person close to Mr. Horton said he was always open to exploring mergers once American finished redoing labor contracts and took other restructuring measures.

Companies under bankruptcy protection like to think they have wide latitude to control their reorganizations, especially because the law often prevents creditors from offering competing plans. But Mr. Butler's relentless activism in the American case is a reminder that bondholders, employees and suppliers have the last legal word on what happens in a Chapter 11 case and can exert their will to influence the outcome.

The bespectacled Mr. Butler, a father of four with a powerful build and slicked-back white hair, was an unlikely choice to represent American's creditors committee. He has mused to colleagues that he has terminated more pensions than any other lawyer in the U.S. Indeed, Mr. Butler advised Delphi Corp. DLPH -0.75%and US Airways when they unloaded $6.2 billion and $2.5 billion, respectively, on the federal Pension Benefit Guaranty Corp., now his client as an AMR committee member.

A native of a Detroit suburb, he graduated from the University of Michigan's law school in 1980. He arrived at Skadden in 1990 and soon took on megabankruptcy cases.

In American's case, Mr. Butler shunned deference from the outset. He filed an unusual "mission statement" that declared, among other things, that the creditors committee's "oversight responsibilities are highlighted and particularly essential" since the airline didn't have a bankruptcy loan requiring it to meet certain milestones.

Mr. Butler has "been successful because…he's always very involved in the details," said David Resnick, a former Rothschild banker who represented American before becoming president of investment firm Third Avenue Management LLC last year. He said Mr. Butler can get "too engaged by the facts" but usually sees the big picture in the end.

Others are blunter. "It's sort of Jack's way or the highway," said Rick Chesley, a bankruptcy lawyer at DLA Piper who has squared off against Mr. Butler in other cases. Mr. Butler is "extremely well prepared" and "he wants to win at all costs."

A person close to Mr. Butler acknowledged the lawyer has a forceful personality and a penchant for details but said he takes principled decisions that drive people to reach deals.

A stickler for rules who sometimes becomes red-faced during negotiations, Mr. Butler officiated at high-school and small-college football games for 25 years. With American, he started throwing penalty flags early in the case.

That irked rival Harvey Miller, the 79-year-old Weil, Gotshal & Manges LLP bankruptcy lawyer representing American. During a court hearing in December 2011, Mr. Miller told the airline's judge that he and the company felt "bushwhacked" by the unusual mission statement Mr. Butler filed and called parts of it "inflammatory" and "erroneous." Mr. Butler didn't respond to the concerns.

During the February dinner, other creditor advisers aided Mr. Butler. Jay Goffman, another Skadden partner, said creditors wouldn't ignore merger possibilities. Afterward, Moelis & Co. banker Bill Derrough suggested a "protocol" that would require American to explore "strategic alternatives." Mr. Butler later negotiated the document.

At the same time, Mr. Butler, along with American, wanted the airline to have a robust stand-alone restructuring plan that creditors could weigh against a merger so each plan would compete to offer creditors the best deal.

That plan depended on American getting a new contract with its pilots. In late August, American's unionized pilots rejected a new contract offer containing meager pay raises, higher health-care costs and more time in the cockpit—despite a promise for a 13.5% ownership stake in a reorganized airline. Mr. Butler tried to restart talks, rankling some at American. The pilots later negotiated a new deal.

Mr. Butler then traveled more than 7,000 miles in a weeklong period in late November and early December to San Diego, New York and Dallas to try to persuade pilots to approve it and finish American's stand-alone restructuring.

At a pilot's home in San Diego, he relinquished his jacket and tie, rolled up his sleeves and fielded questions from pilots for two hours while joining them in a lunch of ribs, soda and beer. He reminded the pilots that he helped safeguard their potential ownership interest in American.

He told the roughly 50 assembled pilots it was "remarkable" that other creditors approved their getting such upside in a potentially rejuvenated airline. There wouldn't be a third bite at the apple, he warned.

The pilots approved the new contract Dec. 7.

Mr. Butler next turned to organizing executives and pilots at American and US Airways to negotiate how to integrate employees should the two airlines merge. He succeeded. In January, he flew to Phoenix to have lunch with US Airways Chief Executive Doug Parker to discuss the merger and whether American's Mr. Horton could have a role. Mr. Parker is expected to be chief executive of the merged airline, with Mr. Horton becoming nonexecutive chairman for a finite period, according to people familiar with recent discussions.

Write to Mike Spector at mike.spector@wsj.com

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