Justice Dept. Suit Signals End of Airline Consolidation, AA-US Airways Merger Said to Hurt Consumers

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American CEO Tom Horton

American CEO Tom Horton

It is these past mergers, however, that regulators pointed to, saying that they had effectively undermined the case for the current combination, having resulted in higher fares, despite greater profitability and stability in the industry.  Should the AA-US merger be consummated, there would then be three major carriers with unprecedented market clout.

On Tuesday, in U.S. District Court in Washington, the DOJ said that the pending American-US Airways deal would simply go too far and hurt competition because, after the merger, it would leave four airlines controlling more than 80% of the U.S. market.

Timing is an art.

When it comes to a merger, what has happened in the past, namely that four combinations took place in the past decade, has zero relevance on what will pass anti-trust muster today. Each deal has its own set of circumstances and the current market assessment and post-merger implications will always be different.

American and US Airways came late to the merger party, just as American was the last to file for bankruptcy and by that time there was nothing left but crumbs.

Following the announcement, AMR, American’s parent, and US Airways issued a joint statement saying that the two intended to “mount a vigorous and strong defense” to the DOJ’s effort to block the merger.

“Blocking this pro-competitive merger,” the statement went on to say, will deny the public “access to a broader airline network” that also gives them more choices.

If the two airlines do indeed mount a vigorous defense, the cost will not only be in legal fees but in having a distracted management that is focused on the lawsuit and not on running an airline.  The result could be two significantly weakened airlines in an industry where survival is key.  The government is walking a fine line here as losing an airline (and there were pundits at the time of the merger announcement who said that US Airways, the weaker and smaller partner in the deal, needed the merger to stay alive) would be bad for business and the economy.

A settlement isn’t completely out of the question, but it’s clearly not what Justice Department antitrust chief Bill Baer is looking for.  On Tuesday, he said that if the parties wished to propose a way to settle the lawsuit, the government was willing to listen, cautioning that “We think the right solution here is a full-stop injunction” to block the proposed merger.

While four mergers were indeed approved in the past decade, Baer cautioned that his department did in fact look “very seriously” at the 2006 hostile bid for Delta by US Airways before it was abandoned.

With respect to the past decade, Baer said that a lot had been learned from their investigation about what had resulted from prior mergers and acquisitions.  “As we look at the market today, it’s not functioning as competitively as it ought to be,” Baer said on a conference call.

Baer indicated that his staff was prepared to spend months if not longer in court.  “We don’t file lawsuits unless we’re prepared to vigorously defend them, and that’s what we’re doing right now.”

The case will be overseen by U.S. District Judge Colleen Kollar-Kotelly, who, in 2001, was assigned to oversee the penalty phase of the government’s antitrust case against Microsoft.

The airwaves were filled with interviews with antitrust experts, all of whom seemed to be in agreement that the suit indicates the government’s intention to block the deal, not merely negotiate concessions prior to a potential future approval.

Earlier this month, European Commission antitrust regulators approved the combination, requiring only that the combined airline relinquish a pair of takeoff and landing slots at London’s Heathrow Airport.

Tuesday’s antitrust suit signals that change is in the air.

“We learned what happened to competition in prior acquisitions,” Baer said. “We filed the lawsuit because we determined [that this] merger would leave three legacy airlines and reduce competition.”

(Photo: Accura Media Group)

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