From the start, airline analysts had been predicting that an antitrust lawsuit would not stop the $11 billion deal to combine US Airways and American Airlines.
They saw the suit, filed in August, as a government negotiating tactic, not a deal-breaker.
Turns out, they were right: On Tuesday, the Justice Department said that rather than go to trial, it has settled the case. The two carriers are now free to combine and create the world’s largest airline, but they must make room for low-cost competitors at seven airports.
Both the airline executives and many antitrust experts agreed that all’s well that ends well.
“We couldn’t be happier with the settlement,” US Airways CEO Doug Parker said on a conference call with journalists.
“It’s a win for consumers,” Boston College Associate Law Professor Brian Quinn said. “The government identified a number of markets where the merger would have eliminated all competition” on many routes once American and US Airways combined.
“Freeing up those slots creates an opportunity for competitors,” he said.
In a conference call, Assistant Attorney General Bill Baer said forcing carriers to surrender slots can help consumers. He pointed to Southwest Airlines’ entry into Newark Liberty International Airport in 2010. Because United and Continental divested themselves of some prime airport real estate when they merged, Southwest was able to acquire 36 divested slots at Newark. Air fares subsequently fell more than 10 percent on nonstop flights alone, he said.
Under the agreement, consumers will find new travel options at Boston Logan International, Chicago O’Hare International, Dallas Love Field, Los Angeles International, Miami International, New York’s LaGuardia and Ronald Reagan Washington National.
“This settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country,” Attorney General Eric Holder said in a statement.
The settlement puts the merger back on track, pending final approval from the bankruptcy court overseeing the financial reorganization of AMR Corp., the parent company of American Airlines.
The Justice Department’s legal challenge angered the carriers and surprised many in the airline industry because regulators already had signed off on similar transactions. In 2008, the Bush administration approved Delta’s merger with Northwest, and in 2010, the Obama administration approved the mega-merger of United and Continental. The next year, the Obama White House signed off on the combination of Southwest and AirTran Airways.
Given that US Airways already has made two round trips to bankruptcy court, and American remains in bankruptcy, analysts assumed the carriers’ plan to combine strengths would easily win approval.
But the Justice Department, joined by attorneys general from Arizona, Florida, Pennsylvania, Tennessee, Texas and the District of Columbia, objected to it.
“This transaction would result in consumers paying the price — in higher airfares, higher fees and fewer choices,” Holder said back in August.
But the administration’s position was criticized by labor leaders who say a merged carrier could offer more job stability to unionized workers.
And scores of Democratic congressmen petitioned the White House and the DOJ to drop the suit, saying a failed merger could hurt tens of thousands of unionized airline employees.
Still, the DOJ kept moving forward with its case, preparing for a courtroom showdown on Nov. 25.
But then last month, the federal government shut down for 16 days.
“That’s a lot of work days to lose” when preparing an antitrust case, said Carl Tobias, a law professor at the University of Richmond. “It could have had an effect on their ability to put on the strongest possible case.”
The DOJ complained about the shortened preparation time, but U.S. District Judge Colleen Kollar-Kotelly denied a request to delay the trial.
Tobias said that may have added to the DOJ’s motivation to settle now. “I think there was a lot of pressure on them” to get the case wrapped up, he said. “They may have felt that this was the best deal they could get.”
The airlines first announced the deal in February. They said the merger would help them withstand economic shocks and provide more competition for aviation giants United and Delta.
Consumer advocates voiced their concerns, primarily about fares at Reagan National Airport, where the combined two carriers would have control over more than 60 percent of the slots. Under the settlement, the carriers will operate 44 fewer daily departures at that airport, allowing competitors to jump in with new options for travelers.
On the conference call with reporters, the airlines’ executives agreed that having to surrender real estate at such an important airport was painful, but necessary.
Despite their earlier objections, “we’re really happy to agree to it now and move forward,” Parker said.