The proposed merger between American Airlines and US Airways has been given the green light by a bankruptcy court, although more approvals are still needed before the deal can be finalized.

After a hearing in New York, the Bankruptcy Court for the Southern District of New York approved the merger plan. The widely-expected decision is an important step in American’s emergence from bankruptcy protection. However, American still needs to gain court approval for its reorganization plan, and regulatory clearance is also needed for the US Airways merger.

The court also granted a request to extend the American’s exclusivity period for filing the reorganization plan until May 29. This is the last extension it is allowed. American expects to receive all the approvals it needs for reorganization and the merger by the third quarter of 2013.

Bankruptcy Court Judge Sean Lane declined to approve a payout worth nearly $20 million to American CEO Tom Horton, who will cede the CEO position at the merged carrier to US Airways head Doug Parker. The judge indicated there are timing and procedural concerns with the request, and said he would issue a more detailed finding soon. There is a possibility that Horton’s payout could still be considered as part of the reorganization plan.

In a joint statement following the bankruptcy court action, the two airlines say the approval “allows us to continue progressing forward with our planned merger.” The carriers also highlight Lane’s comments that he considers the merger an “excellent result” for stakeholders. The airlines say that the court has “deferred ruling on [Horton’s] compensation arrangement.”

American has previously stated that no further consents or approvals are required from labor unions. The airlines’ unions have generally been supportive of the merger proposal.