Bloomberg News

American Airlines Settlement in US Airways Merger Wins Approval

April 26, 2014

American Airlines US Airways Merger

The Justice Department sued American Airlines and US Airways Group in August to block the merger, saying the deal would raise prices for consumers by removing any incentive for US Airways to offer lower fares. Photographer: Andrew Harrer/Bloomberg

The American Airlines (AAL:US) settlement that cleared the carrier’s $17 billion merger with US Airways Group was formally approved by a federal judge, capping the biggest antitrust case brought by regulators last year.

The settlement, creating the world’s largest airline, was approved yesterday by U.S. District Judge Colleen Kollar-Kotelly in Washington, about five months after the carriers agreed to resolve the Justice Department’s lawsuit by selling airport assets to competitors. American parent AMR Corp. was in bankruptcy at the time.

The judge said in her written decision that the settlement is in the public interest.

The accord benefits passengers by allowing expanded competition from low-fare carriers including Southwest Airlines Co. (LUV:US) and JetBlue Airways Corp. (JBLU:US), according to Bill Baer, the head of the Justice Department’s antitrust division.

“With the settlement, the department is requiring an unprecedented number of divestitures in this industry that will provide enhanced competition across the nation,” Baer said yesterday in a statement.

The Justice Department sued American and US Airways in August to block the merger, saying the deal would raise prices for consumers by removing any incentive for US Airways to offer lower fares. The lawsuit marked a break with the Justice Department’s past policy, which allowed mergers involving six unprofitable airlines over the past five years in an effort to cut costs and end losses. The two sides settled in November.

Merger Completed

The airlines didn’t wait for the judge’s approval, which was expected, completing their merger in December to create American Airlines Group Inc. American, based in Fort Worth, Texas, said in a statement it is pleased the agreement was approved.

The settlement called for 104 slots at Washington’s Reagan National Airport and 34 at New York’s LaGuardia Airport to be sold, along with gates at five airports.

Southwest and Virgin America Inc. bought slots at Reagan and LaGuardia, while JetBlue won flying rights at Reagan. A slot allows for one takeoff or landing, and a pair is needed for a round trip. The flying rights are valued by airlines because flights at the two airports are limited under congestion-control rules.

The U.S. provided significant evidence to support its prediction that low-cost carriers, such as Southwest Airlines, “will provide meaningful and effective competition through their acquisition of the divested assets,” Kollar-Kotelly wrote in her decision yesterday.

The settlement drew opposition from the American Antitrust Institute, a nonprofit organization in Washington that said the sale of gates and slots to other carriers won’t replicate the competition lost as a result of the merger.

The case is U.S. v. US Airways Group Inc., 13-01236, U.S. District Court, District of Columbia (Washington).

To contact the reporters on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net; Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Sara Forden at sforden@bloomberg.net Andrew Dunn


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Companies Mentioned

  • AAL
    (American Airlines Group Inc)
    • $42.38 USD
    • -0.10
    • -0.24%
  • LUV
    (Southwest Airlines Co)
    • $28.05 USD
    • 0.39
    • 1.39%
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