DOJ Files Lawsuit to Block American Airlines/US Airways Merger

From Bloomberg:

“American Airlines’ merger with US Airways Group Inc. should be blocked, the U.S. Justice Department said in a lawsuit filed in Washington, upending American’s plans to exit bankruptcy through a deal that would create the world’s biggest airline.

The department, in a lawsuit filed in federal court in Washington, said the proposed tie-up violates U.S. antitrust law and would lead to less competition in the industry and higher prices for consumers. US Airways fell as much as 11 percent.”

This is a surprising move by the Department of Justice. The EU gave their stamp of approval barely a few days ago and it looked like this thing could be wrapped up in the next couple of months. Not to mention the fact that the DOJ approved both the Delta-Northwest and United-Continental mergers without any objections whatsoever. On the face of it, it seems quite unfair for US Airways and American Airlines to be stuck at a competitive disadvantage, compared to Delta and United, by an agency that’s supposed to encourage healthy competition in the airline industry.

My guess is that the big sticking point was the issue of the time slots at Reagan National Airport (DCA) in Washington, DC. US Airways already operates a hub there and once the merger is complete the combined airline would own over 70% of the flights at the very crowded airport. One could see why the airlines would not want to give up these much coveted slots, but it’s doubtful that this would be a complete deal breaker for the merger.

The stock prices for US Airways (LCC) and American (AMR) have dropped precipitously since the news broke, but now is not the time to panic. You can be sure that while the airlines may have to make significant concessions, this merger will go ahead one way or another.

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