Via Milepoint, Attorney General Eric Holder directly addressed the Department of Justice’s lawsuit against the US Airways-American Airlines merger and indicated their openness to a settlement.
American Airlines shares jumped on the news. A merger is great for American Airlines shareholders because they actually get a payout rather than being completely wiped out by the airline’s bankruptcy.
Shares of companies in bankruptcy can fluctuate wildly even on the slimmest of news, but a big reaction is indicative that the market believes the Attorney General’s comments were meaningful.
The Justice Department wants US Airways and American Airlines to divest landing and take-off slots at Reagan National and other “key” U.S. airports as a condition to drop its effort to block a proposed merger, Attorney General Eric Holder said on Monday.
…Holder said that talks with the companies were ongoing and he hoped for an agreement before the trial is due to start.
…Holder would not elaborate on Monday about whether the government has a specific number of slots in mind that the carriers need to sell to advance the deal. There were a “number of ways” to address the government’s concerns, he said.
“What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States,” Holder said.
“We hope that we will be able to resolve this short of trial, but if we do not meet those demands that we have, we are fully prepared to take this case to trial,” he said. “We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint.”
I’ve long said that I prefer a standalone American Airlines. And I prefer to keep AAdvantage and Dividend Miles separate. But I was really surprised that the Department of Justice filed its suit against the merger, because while not bound by past precedent this one would seem far less problematic from an anti-trust standpoint than past mergers that have more or less sailed through review.
Clearly the biggest issue is slots at Washington’s National Airport where the combined carriers would control two-thirds of takeoffs and landings. Any deal would involve divesting some slots at National, plus some sort of sweetener — DOJ could be looking for slots at other airports like New York LaGuardia (where neither carrier is dominant and still wouldn’t be) or O’Hare (where US Airways doesn’t have a substantial presence), or they could be satisfied with promises regarding pricing practices or service.
Frequent flyers may hope this doesn’t come to fruition, but the Department of Justice may not see its legal case as a slam dunk and if they go to trial and lose then they get nothing — just as Doug Parker doesn’t get to run the largest airline if he loses, so there’s a strong incentive to find some sort of a settlement even though plotting how to get there beyond slots at National, given the way the Justice Department voices that their case was much broader than National, has been a challenging road.
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Very interesting.
This leaves some question as to just what DCA routes must go, and the article does no address it. Anything which makes DCA appear to be a hub is going to rub some folks the wrong way.
My guess is that the present AA routes to its hubs and the ghosts of hubs past (RDU, BNA) are safe. As are routes to US hubs. Beyond that, my guess is that any US routes to cities with an existing Jet Blue or Southwest presence are logical to the extent there are interested buyers, but no antitrust concerns.
@jfhscott – there won’t be an answer of ‘which routes’ until after any settlement. They’ll agree on a number of slots, and then make their own decision about which cities. And Parker is right — they’ll kill service to small cities.
Remmeber that inside of the 1250 mile ‘perimeter’ slots are not designated for city pairs. Anyone can fly to/from anywhere if they have a slot. So US Airawys won’t have to sell specific cities.
Gary, I hope you are right. I assume that US/AA offered some DCA slots even before the lawsuit because they would have known that was an area of legit concern. They may even have offered a modest sweetener to give DOJ something to wave in front of consumers. The fact that such an offer was insufficient to stave off a lawsuit makes me think that the parties are very far apart. Will US/AA be willing to give up a significant number of additional slots in markets where there is no evidence of an antitrust problem? We’ll see.
What does this mean for us airways hubs? I’m thinking PHL, which is my home airport. Good of bad for an aa platinum like myself?
@Nathan – AA platinums living in US hubs will have more flight choices, of course..
My understanding is they are looking for “hundreds” of concessions.
What date is the trial scheduled for?
I assume we could see a closer FFP ties pretty quickly after an agreement, given that US originally had thought they would be out of Star by now.
@Tom – trial start date nov 25
I don’t think this is terribly significant, at least based on what’s being reported in the media. It will take a lot more than slots at controlled airports to satisfy DOJ. If this were only about slots, this would’ve likely been solved a long time ago. Unless something new emerges (and it might), I still think this is going to trial.