POLITICS: PennAve

US Airways, American Airlines fight surprise merger ruling

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Politics,Congress,Virginia,Transportation,Travel,Washington,PennAve,Sean Lengell,Budgets and Deficits,Justice Department

With a proposed merger between US Airways and bankrupt American Airlines grounded by a government-led antitrust lawsuit, the carriers — backed by a bipartisan group of political allies — are pressing the Obama administration to allow the deal to fly.

When the airlines announced the deal in February, few expected the Justice Department to stand in the way after allowing four major airline mergers to go through in the last eight years. Each carrier's board of directors unanimously approved the deal, and the flight attendant and pilot unions from both have been enthusiastically on board.

But the airlines were stunned when Justice filed suit in August in an attempt to stop the estimated $14 billion corporate marriage — which would create the world's biggest airline — on the grounds it would thwart competition and lead to higher airfares.

Justice, with attorneys general of six states and the District of Columbia joining the lawsuit, also complained the proposed new mega-airline would control 69 percent of the takeoff and landing slots at Ronald Reagan Washington National Airport — almost six times more than its closest competitor. Reagan National, four miles from the White House in Arlington, Va., is the airport of choice of Congress, Washington officials and Beltway power brokers.

Even pro-business Virginia Attorney General Ken Cuccinelli signed the lawsuit, saying the merger would be bad for consumers.

The case is scheduled to go before a judge in November.

The airlines and their allies say the deal is vital to keep the carriers solvent and competitive in a changing industry. "Low cost" carriers such as Jet Blue and Southwest are undercutting prices. And the combination of several "legacy" airlines in recent years have made it difficult for American and US Airways to compete against the new giants, they say.

The deal also is a central piece in American's plans to dig out of bankruptcy, which it declared in 2011.

Lawmakers whose districts stand to gain from the merger are lashing out against the Justice Department. Democratic Rep. Marc Veasey of Texas and Republican Rep. Ed Pastor of Arizona, home to US Airways in Phoenix, have teamed up to petition the Obama administration to drop the lawsuit.

American and US Airways say the lawsuit also is unfair because the Justice Department didn’t block the mergers of Delta and Northwest, United and Continental, Southwest and AirTran, or US Airways and America West. The proposed new partners vow they will “mount a vigorous defense and pursue all legal options” to ensure their deal goes through.

But the Justice Department says the recent airline mergers haven't worked out as planned, as ticket prices since those approvals have increased while the number of flights has decreased — contrary to promises made by the airlines. And while breaking up existing megacarriers created through mergers would be nearly impossible, the agency's move signals it's taking a more hardline stance on industry consolidation.

While the nation had nine major carriers in 2005, a new American-US Airways partnership would cut that number to four companies controlling about 80 percent of the U.S. travel market — too few to sustain healthy industry competition, critics say.

Industry experts speculate the Justice Department may drop the lawsuit if the airlines agree to give up some of their coveted Reagan National slots.

But while U.S. Assistant Attorney General Bill Baer said in August the Justice Department was willing to discuss a settlement, the agency is determined to block the deal in its current form.

"As we look at the market today, it's not functioning as competitively as it ought to be," Baer said. "If this deal goes through, it's going to be much worse."

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