American Airlines

US Justice Department determined to block American Airlines-US Airways merger

US Justice Department determined to block formation of the world's biggest airline

PUBLISHED : Wednesday, 14 August, 2013, 11:52am
UPDATED : Thursday, 15 August, 2013, 4:21am

American Airlines and US Airways could be in for a long and bruising courtroom battle against seasoned lawyers if they choose to fight the US Justice Department's objection to their merger.

Several experts in antitrust law said the Justice Department's aggressive stance in a suit it filed in the US District Court in Washington signalled an intention to block the deal, not just a ploy to get concessions before possible future approval.

If the department persuades a judge to agree, it will have scuttled an US$11 billion deal intended to create the world's largest airline. The government argued that the merger would reduce competition for commercial air travel throughout the US and cause passengers to pay higher fares and receive less service.

The department's antitrust division has been picking and winning some big fights in recent years. Last month it won a trial over e-book price-fixing against Apple. In 2011, it blocked a proposed US$39 billion merger between AT&T and T-Mobile USA.

One sign government lawyers were set on blocking the deal could be found in an appendix to its lawsuit, said Mark Ostrau, a Californian antitrust lawyer.

The appendix lists 1,043 airline routes between cities where, according to the Justice Department, the combined company would have a presumptively illegal monopoly or near monopoly.

The routes between two cities - for example, Charlotte and Dallas - are known in the industry as "city pairs". There may be too many troublesome pairs for American's parent, AMR Corp, and US Airways to resolve in a settlement, and that is something government lawyers must have known when they put the list in their suit, Ostrau said.

"If you wanted something to resolve, you would not have listed more than 1,000 problematic city pairs," he said.

AMR and US Airways said they would launch a "vigorous and strong defence" and called the Justice Department "wrong in its assessment of our merger".

"Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices," they said.

Assistant attorney general Bill Baer, of the Justice Department's antitrust division, on Tuesday outlined broad objections to the deal based on competition in the industry generally.

"We learned during our investigation about what happened to competition from prior acquisitions, and as we look at the market today, it's not functioning as competitively as it ought to be," he said.

He wanted nothing short of a "full-stop injunction" - meaning a court order preventing the merger - even if it means his staff spending months in court.


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