Airlines seal deal as DOJ greenlights their merger

 

The Department of Justice on Tuesday reached a deal with U.S. Airways and American Airlines that would allow the two companies to merge into the world’s largest airline.

Under the deal, U.S. Airways and American Airlines will give up 52 of their current flights to Ronald Reagan National Airport in Washington, D.C., and 17 of their flights to New York’s LaGuardia Airport. The merged company will be known as American Airlines.

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Attorney General Eric Holder, who had brought a lawsuit to stop the merger, said the agreement would clear the way for lower-cost airlines to fill the vacancies at "constrained airports."

“This agreement has the potential to shift the landscape of the airline industry," Holder said in a statement. "By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country.”

Holder said the Justice Department's goal throughout the entire lawsuit had been "to ensure vigorous competition in airline travel.”

"The department’s ultimate goal has remained steadfast throughout this process," Holder said. "This is vital to millions of consumers who will benefit from both more competitive prices and enhanced travel options.”

The FAA has special powers to regulate flight slots at Reagan National and LaGuardia Airport due to the high volume of air traffic in the Northeast. Both metropolitan areas are home to three major airports.

Reagan National is popular with members of Congress and their staffers because it is the closest airport to Capitol Hill, and airlines began jockeying for the open slots their almost immediately after the settlement was announced.

"Delta welcomes the settlement agreement and looks forward to the opportunity to acquire slots that will be divested under the agreement, particularly at Washington-Reagan National Airport," Delta said in a statement.

The deal also calls for U.S. Airways and American to maintain hubs in Charlotte, N.C.; Dallas; Los Angeles; Miami; Chicago; Philadelphia; Phoenix and at New York’s John F. Kennedy Airport. The companies would be required to keep current service levels for at least three years.

The combined company is the culmination of a sweeping merger trend that has seen most U.S. airlines combine with a competitor in recent years.

US Airways CEO Doug Parker said the value of the combined companies stands at $17 million. The airlines had said their proposed merger would be worth $11 million when it was first announced in February.

American Airlines was entering bankruptcy when it announced plans to merge with U.S. Airways in February, and a judge handling that case must still approve the DOJ settlement.

Officials from both companies expressed confidence Tuesday that the settlement would receive court backing.

“This is an important day for our customers, our people and our financial stakeholders,” American CEO Tom Horton said in a statement. “This agreement allows us to take the final steps in creating the new American Airlines.”

Horton said in a conference call Tuesday afternoon that the deal will be reviewed by American's bankruptcy judge on Nov. 25.

He predicted the agreement would quickly win approval, and passengers would start seeing U.S. Airways and American moving toward operating as one airline early next year.

"If all goes well, we expect to be able to close the merger in the first half of December," Horton said. 

The Justice Department filed a lawsuit in August to block the proposed merger, arguing that the combination of the companies would violate federal antitrust rules because the airlines had too many similar flights.

American and U.S. Airways countered that less than 10 of their normal nonstop routes were identical and said that they needed to merge to compete with other airlines. Southwest and AirTran, Delta and Northwest, and United and Continental have all joined forces in the last five years.

The department signaled last week that it might willing to allow the companies to merge if they gave up some of their flights to Washington.

The trial in the DOJ's lawsuit to block the proposed merger had been scheduled to begin on Nov. 25.

“We are pleased to have this lawsuit behind us and look forward to building the new American Airlines together,” Parker said.

— This story was originally posted at 11:45 a.m. and was last updated at 3:26 p.m.