U.S. Justice Department proposes a deal for the US Airways and AA

Published on : Tuesday, November 5, 2013

U.S.-Justice-DepartmentUS Airways and American Airlines (AA) should direct their landings and take-off slots at Reagan National and other “key” U.S. airports said the Justice Department. This condition was done in hope to drop their effort to block a proposed merger, Attorney General Eric Holder said.

Share prices in the airlines jumped as Holder seemed to offer a path to an agreement, three weeks before the scheduled start of a trial on November 25.

Shares closed at 24.5 percent in heavy volume of the bankrupt AMR Corp (AAMRQ.PK) parent of American Airlines. Those of US Airways (LCC.N) at one point rose more than 5 percent to their highest in almost six years before it closed at 1.2 percent

Holder hoped for an agreement before the trial date was due as the talks with the company were still on.

The Justice Department’s complaint focused on the carriers’ dominant position at Reagan National, outside Washington, and on more than 1,000 city pairings that American and US Airways now dominate. It said the merger would reduce choice for travelers and lead to higher fares.

Holder would not elaborate 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.

The focus will be on to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States, felt Holder.

He was hopeful that the issue will be resolved without trial, but if the demands are not met with then they are fully prepared to take this case to trial. He said that they will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint.
Experts said it is unusual for an attorney general to comment at length in the middle of antitrust battle.

Herbert Hovenkamp, an antitrust expert who teaches at the University of Iowa’s College of Law, referring to Holder’s comments said that he thought this to be a positive sign (of potential settlement), but it’s important not to over-read it.

Several antitrust specialists were surprised by the share price increases, which suggested that investors saw Holder’s utterances as a tipping point in favor of the merger.

Three said Holder essentially backed up previous comments from his antitrust deputy, Bill Baer, by insisting that the merger created antitrust problems in a number of markets nationally.

Three weeks before the scheduled start of the trial, US Airways and American Airlines can agree to a package of divestitures, prepare to litigate, or abandon a merger that has been years in the making, Hovenkamp said.

The government is asking for a lot and the parties want to give up as little as possible Hovenkamp added.

The two carriers control a combined 69 percent of takeoff and landing slots at Reagan National, an airport used by many members of Congress to fly to their home districts.

Airline officials have said privately that they are willing to cede some slots, but not scale back by the equivalent of the entire 14-percent American share.Roughly 55 percent of slots at the airport are held by US Airways and 14 percent held by American.

None of the airlines were available for any comments

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