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Issue #588

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​Justice Department sues to block AMR-US Airways merger

By: | at 04:16 PM | Air Cargo  

The Justice Department sued to block the merger of American Airlines’ parent company AMR Corp and US Airways Group Inc, saying the deal would hurt consumers by leading to higher fares and fees.

The $11 billion merger would create the world’s largest airline, after four other major U.S. carriers combined in recent years, narrowing the field of large U.S. airlines.

The antitrust lawsuit, filed in U.S. District Court for the District of Columbia and joined by several states including Arizona and Texas, drew concern from industry experts and support from consumer advocates.

US Airways fell 8.4 percent at $17.23. American shares, which are thinly traded, were down 44.5 percent at $3.22.

The Justice Department seeks to block the merger “because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service,” Bill Baer, head of the Justice Department Antitrust Division, said in a statement.

“Both airlines have stated they can succeed on a standalone basis, and consumers deserve the benefit of that continuing competitive dynamic,” Baer said.

AMR and US Airways did not immediately respond to requests for comment on the suit.

The two airlines secured European Union approval for the proposed merger on August 5 after promising to surrender slots at two airports, London’s Heathrow and Philadelphia in the United States.

The Justice Department said it was concerned that if the merger went through, four airlines would control more than 80 percent of the U.S. commercial air travel market.

At Reagan National Airport in Arlington, Virginia, the one closest to Washington, the combined company would control 69 percent of the take-off and landing slots, the department said.

But industry experts said the move was out of step with past practices and would potentially leave US Air and American, which is emerging from bankruptcy, at a competitive disadvantage.

“This borders on shocking,” said George Hamlin, an aviation consultant in Fairfax, Virginia. He called the suit “marvelously inconsistent,” considering the approval of mergers between United Airlines and Continental, and Delta Airlines and Northwest.

“Assuming it prevents US Air and American from merging, does that condemn them to perpetual second-class existence?” Hamlin asked.

Others said the move was necessary to protect travelers who have paid higher fees and fares in recent years.

Consumer advocate Charlie Leocha, director of the Consumer Travel Alliance and a vocal opponent of the merger, said he was elated that the Justice Department had filed suit.

“This is a stake in the heart of the merger. I don’t see this moving forward,” Leocha said. “This is the best possible and the only good consumer outcome that we could have gotten.”

While U.S. discussions had centered on remedies such as slot divestitures at Reagan National, Leocha said, “in my meetings with DOJ and in my testimony before Congress, I have constantly said that that won’t take care of the overriding nationwide loss of competition that we’re going to face. It sounds like the Department of Justice has agreed with me.” (Reuters)