DALLAS (CBSDFW.COM) – The U.S. Justice Department wants to ground the proposed $14 billion dollar merger between Fort
Worth-based American Airlines and US Airways.
The government filed a lawsuit to block the two airlines from becoming one.
The department’s antitrust division says if both airlines combined, it would hurt consumers by raising airfares and reducing competition.
The Justice Department was joined by the Texas Attorney General and attorneys general from other states.
American and US Airways vow to fight the Justice Department in court, and say they will mount a vigorous defense of their proposed merger.
They had hoped to join forces next month.
But now the CEO’s of both airlines told their employees the Justice Department’s lawsuit will delay the merger by several months until the end of the year.
Bernard Weinstein is an economics professor at SMU. “I think it came out of the blue. I was certainly surprised, and I would imagine the two airlines were even more surprised.”
He says the timing of the Justice Department’s lawsuit is stunning because it comes just two days before a judge is expected to approve American’s exit from bankruptcy.
American says it’s still planning to proceed with Thursday’s hearing in New York bankruptcy court.
The Justice Department doesn’t have the final say over a merger, but the lawsuit is a hurdle.
Weinstein says, “The Justice Department can stop it temporarily from merging. They do have that power.”
The Justice Department says a merger would reduce competition and raise airfares.
It’s concerned that after a merger, US Airways’ “Advantage Fares”, an aggressive discounted fare would likely end.
As an example, the government cited a roundtrip ticket this week between New York and Houston that included one stop, would cost $575 on US Airways, but much more on American, Delta, and United.
The Justice Department is also concerned the combined carrier would have 69 percent of the takeoff and landing rights and 63 percent of the nonstop flights at Reagan National Airport in Washington, DC.
Weinstein says he believes both airlines will negotiate with the Justice Department and likely give up a number of those takeoff and landing rights at Reagan Airport.
While the Justice Department says a merger will reduce competition, Tom Hoban of the Allied Pilots Association, which represents American’s pilots, strongly disagrees.
He and others say because the Justice Department previously allowed Delta and United to merge with other airlines, American and US Airways will only be able to compete — if they’re allowed to merge too.
One frequent flyer on United, Carlo Vieni, disagrees with the government’s concerns. “The other mergers I found like United-Continental has been to my advantage. The service got better, more efficient.”
The Texas Attorney General joined the lawsuit, saying it’s concerned after a merger, American will stop flying to smaller cities in Texas – leaving those airports without any air service at all.
But American’s pilots union, which supported the merger says Texas is wrong.
Hoban of the Allied Pilots Association says, “How the Texas Attorney General can oppose a merger that would headquarter the largest airline in the world in the state of Texas is mind-boggling. It just doesn’t make sense.”
In the end, several airline industry analysts believe the merger will go through.
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