American Airlines (AAMRQ:US) and US Airways Group Inc. (LCC:US) defended their proposed merger against a U.S. antitrust lawsuit, saying the combination would generate more than $500 million a year in benefits to consumers.
The combined airline will create an effective competitor to Delta Air Lines Inc. (DAL:US) and United Continental Holdings Inc., the airlines said in filings yesterday in federal court in Washington arguing that the U.S. effort to stop the deal should be denied.
“It is the complaint -- by interposing the heavy hand of federal and state regulation -- which will lessen competition by precluding the market from creating new and competitive flight options for passengers,” Tempe, Arizona-based US Airways said.
The U.S. Justice Department, joined by seven states and the District of Columbia, are suing American parent AMR Corp. and US Airways to block the merger, arguing the tie-up would reduce competition and hurt consumers. U.S. District Judge Colleen Kollar-Kotelly has scheduled the case to go to trial beginning Nov. 25.
The U.S. and the attorneys general argue the proposed merger, by reducing the number of legacy carriers from four to three, would increase the likelihood of coordinated behavior among the airlines, leading to higher fares and fees and diminished service. American and US Airways can compete effectively on their own, the government has said.
The main issue in the case is whether the merger would lead to cuts in service and increases in domestic fares, said Allen Grunes, a lawyer with GeyerGorey LLP in Washington who formerly worked in the Justice Department’s antitrust division.
“The American and U.S. Airways answers paint a picture of the merger as some kind of silver bullet that will miraculously transform the two companies into the greatest thing since sliced bread,” he said. “That’s more than a little optimistic, and it’s going to be tough for them to prove it.”
The merger, which would create the world’s largest airline, forms the basis for American’s plan to exit bankruptcy protection and pay creditors. Fort Worth, Texas-based AMR filed for bankruptcy in November 2011 and reached the merger agreement with US Airways in February.
“We believe this merger would result in consumers paying more for airfares and receiving less service,” Gina Talamona, a spokeswoman for the Justice Department’s antitrust division, said in an e-mail. “The department’s lawsuit seeks to maintain competition in the airline industry.”
American said in its court filing that the deal with US Airways would create a more competitive airline industry that would give passengers more choices.
The U.S. complaint “concocts an imaginary narrative where airlines tacitly collude and where prices are higher than in the past, but the real facts are just the opposite,” American said.
US Airways said the U.S. complaint improperly focuses on maintaining the number of legacy carriers, “those airlines that, prior to 1978, endured the well-documented failure of federal regulation of routes and fares.” Those carriers are by most relevant measures the least financially successful companies in the industry, US Airways said.
The U.S. ignores the effect on the airline industry of low-cost carriers including Southwest Airlines Co. (LUV:US) and JetBlue Airways Corp. (JBLU:US), according to the filing. The success of those airlines is the “most meaningful competitive development” in the industry since deregulation, US Airways said.
During the past 12 years, American lost $10.3 billion and US Airways lost $3.4 billion, according to the filing by US Airways. US Airways has been in bankruptcy twice in that period.
“Blocking the merger will not sharpen competition -- it will prolong this cycle of crisis to the detriment of passengers, the employees of American and US Airways, and the communities the airlines serve,” US Airways said.
The case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington).
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