By Nick Brown

(Reuters) - A plan by American Airlines' parent to exit bankruptcy and merge with US Airways Group is coming under fire from the U.S. Department of Justice over nearly $20 million in severance pay earmarked for outgoing boss Tom Horton.

In court papers filed on Friday in U.S. Bankruptcy Court in Manhattan, U.S. Trustee Tracy Hope Davis, the department's official charged with regulating bankruptcy cases in the New York region, said the severance deal for AMR Corp's chief executive violates bankruptcy law.

She asked the court not to approve the outline of the plan that must also be approved by AMR creditors.

The initial merger agreement called for $19.9 million in severance payments for Horton, but when Judge Sean Lane approved the merger at a hearing in March, he refused to green-light the severance package, saying it was a matter that should be left for AMR's Chapter 11 exit plan. Davis at the time had opposed the severance on grounds similar to those she cited on Friday.

AMR filed its exit plan last month, laying out how it would effect the merger, pay back its creditors and exit bankruptcy.

As expected, it also built Horton's severance deal into the plan. In Friday's filing, Davis argued that in bankruptcy severance is only acceptable when it is part of a program applicable to all employees and is not more than 10 times the average severance given to non-management employees. Horton's package meets neither criteria, Davis said.

The severance has been a controversial issue from the get-go, drawing criticism from some AMR pilots. Horton was not liked by AMR's unions, which were forced to accept reductions in benefits as part of the bankruptcy and merger deal.

An AMR spokesman said he did not expect the objection to delay the court approval process.

"Consistent with what American indicated previously, the company expects that Mr. Horton's compensation arrangement will be addressed at the plan confirmation hearing," spokesman Sean Collins told Reuters.

Davis also objected to a component of the plan that would provide top-priority payments of attorneys' fees and other expenses to many of AMR's creditors. She added that AMR gave insufficient information about many facets of its plan, including settlements between various classes of unsecured claimholders.

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 its unsecured creditors' committee and unions.

US Airways CEO 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.

AMR shareholders would receive a 3.5 percent equity stake in the new company, which would make it one of the few major bankruptcies in which equity holders earn some recovery. An attorney for AMR's creditors committee has said the stake could be valued at between $350 million and $400 million.

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; Editing by Phil Berlowitz)

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NEW YORK (AP) — Sen. Charles Schumer urged regulators to "use extreme caution" when reviewing the proposed acquisition of No. 3 cell carrier Sprint Nextel by Japan's Softbank, saying the Japanese company's use of Chinese networking equipment could open up U.S. networks to snooping and hacking.

The New York Democrat sent letters Friday to the Treasury Department and Federal Communications Commission, both of which are reviewing Softbank Corp.'s offer to buy 70 percent of Sprint Nextel Corp. for $20.1 billion.

"I have real concerns that this deal, if approved, could make American industry and government agencies far more susceptible to cyber attacks from China and the People's Liberation Army," Schumer said in a statement.

Satellite TV broadcaster Dish Network Corp. has a competing, $25.5 billion offer for all of Sprint, and has raised the security issue as one reason Sprint shareholders should prefer its bid.

Softbank has offered to remove the Chinese-made equipment that's already in Sprint's network to assuage security concerns.

The Pentagon said this month that China appeared to be engaged in cyberspying against the U.S. government, the first time it has made such an assertion in its annual report on Chinese military power. Chinese authorities dismiss the allegations. There have been no reports of Chinese-made networking equipment helping the hackers.

China's Huawei Technologies has in recent years become one of the world's largest makers of telecommunications equipment. Its products are widely deployed except in the U.S., where security concerns have kept it out of the running for most contracts.

Huawei wasn't mentioned by Schumer or Softbank by name. Bill Plummer, a Washington-based spokesman for Huawei, said Schumer's concerns are misdirected. He noted that most non-Chinese companies buy Chinese components, have their equipment built in China and employ Chinese engineers. Huawei is singled out for scrutiny, he suggested, because it's Chinese-led.

"No matter who wins the bid for Sprint, the future network will be sourced, in part, from China, just as are the networks of AT&T and Verizon and every other carrier," Plummer said. "Suggestions that networks and data will somehow be made safer by blackballing vendors based on geography of headquarters are either misinformed or dissembling."

Jessica Straus, senior manager of government relations at Dish, previously served as finance director for Friends of Schumer, the senator's campaign organization. Dish spokesman Bob Toevs dismissed that connection as a "sideshow that fails to address the serious national security concerns raised by SoftBank-Sprint."

Softbank hopes to close the Sprint deal on July 1, but needs approval from the FCC and the Treasury Department's Committee on Foreign Investment in the United States.

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By Ilaina Jonas

NEW YORK (Reuters) - General Growth Properties Inc has paired with Brookfield Office Properties in a bid for one of the most sought after Manhattan office buildings on the market, making what could be the mall owner's entry into the urban street retail real estate market, according to sources familiar with the deal.

Bids for 650 Madison Avenue could exceed $1.3 billion, according to sources who were not authorized to speak publicly. The decision on the winning bid is expected next week, said one source.

(Reporting by Ilaina Jonas)

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