Lawsuit shakes airlines merger
U.S., six states say plan will increase flying fees
DALLAS – American Airlines and US Airways expected to spend this week cruising toward completion of a merger that would create the world’s biggest airline.
Instead, they were stunned Tuesday when the federal government and six states sued to block the deal, saying it would hurt competition and cost consumers hundreds of millions of dollars a year in higher fares and extra fees. Antitrust regulators had done little to interfere with three other big airline mergers in the past five years, so they were not expected to stand in the way of American and US Airways. But this deal would leave four airlines controlling more than 80 percent of the U.S. air-travel market.
“By further reducing the number of legacy airlines and aligning the economic incentives of those that remain, the merger of US Airways and American would make it easier for the remaining airlines to cooperate, rather than compete, on price and service,” the lawsuit said.
The Justice Department turned the words of US Airways leaders against them. The 56-page complaint filed in federal district court in Washington, D.C., was peppered with quotes from internal emails, investor presentations and public comments in which top executives noted that previous mergers had helped lead to higher fares and fees.
Shares of both companies plunged, and executives vowed to challenge the lawsuit.
Paul Denis, an antitrust lawyer hired by US Airways, said Tuesday would be the Justice Department’s “best day” in the matter.
“They got to hold their press conference. Now they’ve got to try their case in court,” he said.
AMR has been operating under bankruptcy protection since November 2011. It has cut labor costs, renegotiated aircraft and other leases and earned $220 million profit in the second quarter, its first profit in the April-to-June period in six years. It is forging ahead with an order for hundreds of new airplanes.
The company had expected this week’s highlight to be a Thursday hearing in which a federal bankruptcy court judge would approve its reorganization plan, including the merger. That would be one of the final steps before AMR could exit Chapter 11 protection by late September.
The hearing is likely to go ahead, and the judge could approve AMR’s turnaround plan on the condition that the Justice Department’s opposition is resolved. But AMR probably won’t come out of bankruptcy for at least a few more months while it fights the lawsuit, officials at the companies said.
American and US Airways had been so confident of a quick merger that they had already named executives for the combined company, which was to be based at AMR’s headquarters in Fort Worth and called American Airlines Group Inc. Executives at Tempe, Ariz.-based US Airways have been house-hunting in the Dallas-Fort Worth area.
It’s possible that the lawsuit will never go to trial. Analysts said the Justice Department could be seeking more time and leverage to squeeze concessions from the companies, such as giving up some takeoff and landing slots at Reagan National Airport, which would create room for new competitors at the busy airport across the Potomac River from Washington.