The U.S. Department of Justice wants to block the planned merger between American Airlines and US Airways, a move that threatens pay raises and stock distributions for Tulsa area employees and could derail more than 20 months of bankruptcy reorganization.
The Justice Department was joined by six states and the District of Columbia in filing a lawsuit Tuesday that says the merger could raise prices for consumers and eliminate competition on hundreds of daily flights throughout the country.
"The department sued to block this merger because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service," said Bill Baer, assistant attorney general in charge of the department's Antitrust Division, in a statement.
"If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers," he said. "Both airlines have stated they can succeed on a stand-alone basis and consumers deserve the benefit of that continuing competitive dynamic."
The lawsuit threatens to upend the reorganization process by American Airlines parent AMR Corp., and disrupt the planned distribution of billions of dollars in stock in the future company owed to creditors, union members and shareholders.
The merger plan would create the world's largest airline, with nearly 100,000 employees.
American Airlines CEO Tom Horton, in a letter to employees, said both American Airlines and US Airways will "vigorously defend the merger" and that a federal court in Washington, D.C., will have to settle the Justice Department's allegations of anti-competitiveness.
"While we do not yet know how long the court process will run, it will likely take a few months," Horton said in the letter. "In the meantime, American and US Airways will continue to operate as independent companies and competitors."
Officials of Transport Workers Union Local 514, which represents more than 4,600 American Airlines maintenance workers in Tulsa, criticized the government's lawsuit, saying it added more uncertainty after almost two years of bankruptcy proceedings.
"As for the immediate impact, the merger was going to allow for pay raises and stock options for our employees," said Local 514 President Dale Danker. "Now we're not sure when that's going to happen, and as for the morale, it's tougher out there for employees."
More than 6,000 American employees work at the Tulsa Maintenance & Engineering Center.
The TWU had negotiated a 4.3 percent pay raise to take effect when the merger commenced, after accepting cuts to pension plans and workforce reductions in 2012.
The merger deal is also the centerpiece of American's plan to emerge from bankruptcy, which it filed in November 2011.
The Justice Department has been reviewing the deal for months and requesting information from both airlines.
Attorneys general from Arizona, Florida, Pennsylvania, Tennessee, Texas, Virginia and Washington, D.C., joined the lawsuit to block the merger.
US Airways is based in Tempe, Ariz., and American in Fort Worth. The merged airline would have its headquarters in Fort Worth.
The lawsuit claims that the newly merged American Airlines could more easily pass off price increases and cut routes, as well as cooperate with other airlines to raise fares.
Reagan National Airport, serving Washington, is the center of one of the arguments because the merged airline would control 69 percent of the "slots" there, even though there are other airports in the area.
The Justice Department is also trying to shoot down the merger on grounds that American Airlines could emerge independently from bankruptcy without US Airways and that both airlines have shown the ability to be profitable.
"Under experienced and sophisticated senior management, American's restructuring process has positioned it to produce 'industry leading profitability,'" the lawsuit states.
Industry analysts and insiders questioned why the Justice Department decided to block this merger when more than a decade of consolidation has reshaped the airline industry. American was the last of the "legacy" airlines to file bankruptcy, and many analysts saw a merger with US Airways as the only way to repay billions in debt to creditors.
The Justice Department didn't file suit in the merger of United Airlines and Continental Airlines in 2010, the combination of Delta Air Lines and Northwest Airlines in 2008 or Southwest's purchase of AirTran Airways in 2010.
But the department is contending that the merger between American and US Airways will hurt millions of consumers across the country and could result in higher fares.
U.S. antitrust law puts a heavy burden on the two airlines to prove that the merger won't hurt consumers, said John E. Lopatka, an antitrust expert and professor at the Dickinson School of Law at Pennsylvania State University.
"The past mergers are not a legal defense," he said. "They have to come up with a reason why this merger isn't an antitrust case."
Lopatka said the airlines will have to prove that the merger won't reduce competition on hundreds of routes serving dozens of cities nationwide.
Federal regulators typically settle with businesses in antitrust cases, Lopatka said, and in this case it is likely that the airlines will be asked to give up slots at Reagan National.
But in many other markets where airports will lose a carrier, it is uncertain that another airline would be willing to step up and fill the void, Lopatka said.
American and US Airways were hoping to close the merger as soon as this month. The carriers already obtained approval from European Union antitrust officials by opening competition on a route between London and Philadelphia.
American Airlines is scheduled for a confirmation hearing on its reorganization plan Thursday before a U.S. Bankruptcy Court in New York. It had been thought that it could be just days before American Airlines emerges from court protection.
But that plan, which would pay off creditors in whole with stock and give equity shares to union members and former AMR Corp. shareholders, relies entirely on the merger with US Airways.
Key Objections
The U.S. Department of Justice sued Tuesday to block the merger between American Airlines and US Airways on antitrust grounds. Here's why:
Consumers: In hundreds of markets served by both airlines, prices could go up and routes would be eliminated.
Consolidation: Consumers would lose another "legacy" carrier, and competition has been narrowed too much in recent years through other airline mergers.
Washington, D.C.: The deal would give the new airline control of 69 percent of slots at Reagan National Airport.
Viability: Justice Department officials say American Airlines, through bankruptcy and deep cuts, is a financially viable company and doesn't need to merge with US Airways.
Kyle Arnold 918-581-8380
kyle.arnold@tulsaworld.com
Original Print Headline: Merger plan rerouted
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