Bloomberg News

AMR, US Airways Fast-Track Merger Trial May Mean Year-End Ruling

August 31, 2013

American Airlines (AAMRQ:US) and US Airways Group Inc. (LCC:US) may know by the end of the year whether their merger can proceed after they won a fast-track trial schedule for the U.S. lawsuit seeking to block the deal.

U.S. District Judge Colleen Kollar-Kotelly set a Nov. 25 trial date during a hearing in federal court in Washington yesterday, saying that the March date proposed by the government was “too far off.” She urged both sides to be a “lean, mean machine” in preparing for trial.

“I’m going to set a schedule that enables both parties to get all of the information that you need to adequately prosecute or defend the case, but I’m going to do it on an expedited basis,” Kollar-Kotelly said.

The ruling is a win for the airlines, which had sought a Nov. 12 trial date and said that waiting until March would put the merger at risk. US Airways rose 1.3 percent to $16.16 in New York. American’s parent AMR Corp. gained 4.4 percent to $3.54 in over-the-counter trading.

“If she sticks to this schedule, I would expect a decision by year-end,” said Seth Bloom, founder of Bloom Strategic Counsel PLLC and former general counsel of the Senate Antitrust Subcommittee, adding that the judge is likely to rule quickly. “It makes abandonment of the deal less likely.”

More Talks

Rich Parker, a lawyer for US Airways at O’Melveny & Myers LLP in Washington, said yesterday that the airlines are still interested in having settlement talks with the Justice Department.

“We put something on that table before we got sued and the government responded with a complaint not with a counteroffer,” he said.

Vicki Bryan, an analyst at Gimme Credit LLC in New York, predicted in a research note following yesterday’s hearing that the case may not go to trial “since it can and should be resolved with a negotiated settlement.” If there is a trial, “we expect the airlines to prevail,” Bryan wrote.

The government and the airlines had hit an impasse over the trial date. The Justice Department had sought a March trial, while the airlines had pressed for November to resolve the case that is keeping AMR stuck in bankruptcy.

The government lawsuit causes “serious and needless uncertainty” over the future structure and business plans of the two airlines, they said.

Next Hearing

U.S. Bankruptcy Judge Sean Lane, who is overseeing AMR’s bankruptcy case, delayed approval of its reorganization plan at a hearing Aug. 29 in Manhattan, during which he said arguments in favor of approval were “fairly persuasive.” He set the next hearing date for Sept. 12. AMR has argued that the antitrust trial doesn’t need to be completed for its plan to receive confirmation because the proposal is conditioned on obtaining regulatory approval and can’t take effect without it.

Lawyers for the airlines said they were pleased with the trial schedule in a briefing with reporters after the hearing.

“We are very confident that at the end of the day the judge is going to believe as we do that this is good for the traveling public,” said Parker, the US Airways lawyer.

Peter Carr, a spokesman for the Justice Department, said in an e-mail that “we appreciate the court’s careful consideration of the scheduling issues and will be ready to present our case on Nov. 25.”

Live Testimony

Lawyers for both sides proposed a 10- to 12-day bench trial that will involve both live and videotaped testimony. The carriers told Kollar-Kotelly they are planning to call six live witnesses, which include airline executives. The government plans to call to the stand 12 fact witnesses and three experts.

The Justice Department has already collected information from competitors Delta Air Lines Inc., Southwest Airlines Co., JetBlue Airways Corp. and United Continental Holdings Inc. and intends to gather more, Mark Ryan, a Justice Department lawyer, said during the hearing.

The government, in arguing for a later trial, pointed to the case’s complexity, the volume of material that needs to be exchanged between each side and the potential for the merger to hurt competition and consumers.

“It’s good for everybody to get it done soon,” said Michael Derchin, an analyst at CRT Capital Group LLC in Stamford, Connecticut, who recommends buying US Airways shares. “A delay would have been pretty disastrous. This is a recognition that time is money, not only in legal fees but interest on bonds and the uncertainty.”

Stalled Exit

The U.S., joined by six states and the District of Columbia, sued the airlines on Aug. 13 to block the merger arguing the tie-up, which would create the world’s largest airline, would lessen competition and hurt consumers. The case upended the merger agreement that came together in February and stalled American’s exit from bankruptcy protection. AMR is based in Fort Worth, Texas, while US Airways is in Tempe, Arizona.

AMR’s $460 million of 6.25 percent convertible notes (AAMRQ:US) due in October 2014 rose 0.625 cent to 100.875 cents on the dollar, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority. They traded at 116.125 cents on the dollar on Aug. 9.

The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington). The bankruptcy case is In re AMR Corp., 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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