American Airlines merger plan gets antitrust review
BY Wire Reports
Wednesday, March 06, 2013
3/06/13 at 7:28 AM
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US Airways Group Inc. said it will comply with a Justice Department request for more information for an extended antitrust review of its proposed merger with American Airlines parent AMR Corp.
The airlines said they will continue cooperating with the antitrust division as it conducts its review of the proposed merger. The deal is still expected to close in the third quarter, the companies said in a statement, as American Airlines emerges from bankruptcy.
The request for more information is standard procedure under federal antitrust law if the agency reviewing the acquisition needs more time to study its possible impact on the market.
"Given the size and importance of this transaction, it was a foregone conclusion that the Justice Department would issue a second request," said Alison Smith, a partner with McDermott Will & Emery in Houston, who previously worked as an antitrust lawyer at the department.
Some industry observers, including former U.S. Rep. James Oberstar, believe the government will go to some effort to study the deal.
While in Congress, the Minnesota Democrat kept a close eye on the nation's airline industry. Often, he didn't like what he saw, particularly as the number of players kept shrinking through mergers.
For a number of reasons, he hopes that Congress and the Justice Department take a close look at the proposed merger.
"The real victim in this process is the traveling public," said Oberstar, who lost his bid for a 19th term in the 2010 elections. "The reduction of choices, the increasing power of the fortress hub makes it unlikely that other carriers would enter those markets where both American and US Airways serve, because they'll be competing with a much bigger presence, with more power to serve those markets."
Despite his misgivings, the chances of the deal being blocked appear minimal, particularly on the heels of four previous mergers of major carriers since 2005: US Airways and America West Airlines Inc. in 2005; Delta Air Lines Inc. and Northwest Airlines Inc. in 2008; Continental Airlines Inc. and United Airlines Inc. in 2010; and Southwest Airlines Co. and AirTran Airways Inc. in 2011.
But regulators may put conditions on the sale if they decide American and US Airways have too much market share on certain routes or at certain airports.
A particular point of interest for regulators will be the airports where the federal government limits the number of takeoffs and landings permitted by the carriers. In past cases, regulators have required airlines to give up slots to create more competition.
That's how Southwest got a foothold at the Newark, N.J., airport in 2011. Regulators pushed Continental to lease the Dallas-based carrier sufficient slots to begin service at Newark and operate 18 departures a day.
Similarly, in 2010, the U.S. Department of Transportation conditioned its approval of an American-British Airways PLC alliance with a requirement that they surrender a handful of slots at London Heathrow Airport to permit other U.S. airlines to compete with them.
If regulatory eyebrows are raised anywhere, it's most likely to be at Ronald Reagan Washington National Airport, where US Airways has a clear lead in market share with its mainline flights and an even bigger lead with its commuter partners included.
US Airways' mainline flights handled 18.5 percent of Washington's passengers in 2012. And combined with US Airways Express flights offered by three regional carriers, the airline carried more than double that number.
Delta and American each carried just under 12 percent of National's passengers, but American's share climbed to nearly 15 percent if American Eagle flights were included. Add the mainline and regional partners together, and US Airways and American would have around half of Washington's passengers.
When the two airlines announced their merger Feb. 14, US Airways Chairman and CEO Doug Parker played down potential problems.
"Adding American to US Airways' current operation at (Washington National) doesn't, we believe, raise anything that should remotely concern the Department of Justice," Parker told reporters. "But we'll see."
In contrast with their market share at Washington National, the combined American and US Airways would still trail Delta at New York LaGuardia, another airport where the government apportions takeoff and landing slots. Delta carried 36.3 percent of LaGuardia's passengers in 2012, to 19.7 percent for American and 12.7 percent for US Airways.
But regulators may still take a close look at whether they should force US Airways and American to provide some LaGuardia slots to competitors.
Parker, who will run the merged company, acknowledged to analysts on a Feb. 14 conference call that the biggest issue facing the merger is antitrust approval.
"Based on what we've seen with other airlines, based on what we know about how complementary these networks are, we don't expect any issues with the regulatory authorities," Parker told analysts. "But they certainly need to do their work, and we appreciate that and look forward to working with them. And that'll take some time."
The two airlines filed for antitrust review Jan. 31 under the Hart-Scott-Rodino Act. The Justice Department rarely opposes airline mergers outright but has done so on occasion.
In May 2000, United and US Airways agreed to merge. After a prolonged antitrust review, Justice officials in July 2001 announced plans for a lawsuit to block the merger, a threat that killed the deal the same day.
American and US Airways have made much of the fact that of more than 6,700 flights a day to more than 330 airports, they directly compete on only 12 routes with nonstop service. That is strong evidence, they say, that the merger wouldn't reduce competition.
The plan is being watched closely in Tulsa, where American Airlines employs almost 7,000 people and operates its largest maintenance base.
Original Print Headline: Airline merger gets antitrust review
This story contains reporting by Bloomberg News and The Dallas Morning News.