Justice Department and six states, including Texas, sue to block US Airways-American Airlines merger

[Karee 4,191]

Justice Department and six states, including Texas, sue to block US Airways-American Airlines merger; carriers vow to fight

American Airlines' Tom Horton, left, and US Airways CEO Doug Parker following the announcing the two airlines' merger in the Terminal D Admiral's Club at Dallas-Fort Worth International Airport on February 14. (Tom Fox/Staff photographer)

The U.S. Department of Justice has filed a lawsuit Tuesday to block the planned merger of US Airways and American Airlines. Six states have joined Justice, including Texas, as has the District of Columbia.

The lawsuit was filed in U.S. District Court in the District of Columbia. It alleges violations of federal antitrust laws.

The two carriers defiantly announced soon afterward “We will vigorously defend the merger in court.”

Said the Justice Department in its filing:

Millions of passengers depend on the airline industry to travel quickly, efficiently, and safely between various cities in the United States and throughout the world. Since 1978, the nation has relied on competition among airlines to promote affordability, innovation, and service and quality improvements.

In recent years, however, the major airlines have, in tandem, raised fares, imposed new and higher fees, and reduced service. Competition has diminished and consumers have paid a heavy price.

This merger—by creating the world’s largest airline— would, in the words of US Airways’ management, “finish[ ] industry evolution.” It would reduce the number of major domestic airlines from five to four, and the number of “legacy” airlines—today, Delta, United, American, and US Airways—from four to three. In so doing, it threatens substantial harm to consumers.

Because of the size of the airline industry, if this merger were approved, even a small increase in the price of airline tickets, checked bags, or flight change fees would cause hundreds of millions of dollars of harm to American consumers annually.

The two states that hold the headquarters of American Airlines and US Airways – Texas and Arizona – are joning Florida, Pennsylvania, Tennessee, Virginia, the District of Columbia and the U.S. Department of Justice in seeking to block the two carriers’ merger.

Pennsylvania also has a US Airways hub in Philadelphia, while Florida holds American Airlines’ Miami hub. Virginia is home to Ronald Reagan Washington National Airport, where US Airways had more than 55 percent of the takeoff and landing rights.

Here’s what Abbott’s office said in its announcement:

Today’s legal action was prompted by the State’s concerns about the potential for reduced airline service to several of Texas’ smaller airports that are currently served exclusively by American Airlines and American Eagle flights. In recent years, U.S. Airways has pursued a “capacity discipline” strategy, a business model that relies upon substantial reductions in both service and capacity – a phenomenon that has followed each significant legacy airline merger in recent years. If this strategy is continued when U.S. Airways’ executives take over leadership at the new American Airlines, some areas in rural Texas could see their travel options reduced as a result of the merger.

American Airlines and U.S. Airways compete directly on thousands of heavily traveled nonstop and connecting routes, including nearly 200 routes beginning or ending in Texas cities. According to the State’s antitrust complaint, the proposed merger would result in decreased competition, higher airfares and fees, reduced service and downgraded amenities. The dollar impact nationwide could exceed $100 million a year.

The merger would make a combined U.S. Airways/American Airlines the largest worldwide carrier and reduce the number of the larger “legacy” airlines from four to three – U.S. Airways/American, United/Continental and Delta/Northwest – and the number of major airlines from five to four. If the merger were approved, the three remaining legacy airlines combined with Southwest Airlines would account for more than 80 percent of domestic travel.

The Justice Department previously had approved three previous mergers of major carriers: Delta Air Lines and Northwest Airlines in 2008, United Airlines and Continental Airlines in 2010 and Southwest Airlines and AirTran Airways in 2011.

The Delta merger moved American Airlines to No. 2 in size, and the United merger pushed it to No. 3 — the size that Delta and United each had been when they proposed their mergers with smaller rivals.

But the American-US Airways apparently was one merger too far for the Justice Department.

The last time the Justice Department planned a lawsuit to stop a merger of major air carriers, it came after US Airways and United announced a proposed marriage in May 2000. It took until July 2001 for Justice antitrust lawyers to review and then file suit to block the combination.

“Airline travel is vital to millions of American consumers who fly regularly for either business or pleasure,” Attorney General Eric Holder said in the department’s announcement.

“By challenging this merger, the Department of Justice is saying that the American people deserve better,” Holder said. “This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices. Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace.”

The action comes just two days before AMR and American Airlines head to U.S. Bankruptcy Court in New York City to ask Bankruptcy Judge Sean Lane to confirm their plan of reorganization.

The deal had already cleared two hurdles. US Airways shareholders voted July 12 to approve the merger. And unsecured creditors of American, AMR and American Eagle and AMR shareholders overwhelmingly approved the plan of reorganization in voting that ended July 29.

In addition, the European Commission last week approved the merger after wangling one concession: the surrender of some operating rights so some rival could begin Philadelphia-London Heathrow service.

But the Department of Justice has been silent publicly since the chairmen and chief executives of the two carriers, Tom Horton of American and Doug Parker of US Airways, announced the deal early on the morning of Feb. 14.

Their boards had approved the merger late the day before. At the time, it was valued at $11 billion, based on US Airways’ stock price and the fact that US Airways shareholders would own 28 percent of the new American Airlines Group.

US Airways shares were down about 8 percent around 10 a.m. AMR shares, trading as AAMRQ, dropped nearly 30 percent.

US Airways-American Airlines Complaint by Robert Wilonsky

Source:

http://aviationblog.dallasnews.com/2013/08/justice-department-files-suit-to-block-the-us-airways-american-airlines-merger.html/

[Darnell 8,479]

Is interesting the feds waited this long, not filing on 15 FEB 2013.

Slacktards.

[TBoneTX 46,188]

The wrong airline typically seems to buy the right airline.

TWA bought Ozark.

American bought TWA.

Useless (USAir) bought Piedmont.

And, most recently and tragically, United bought Continental. Merger, my hindquarters.