AA-USAir Lawsuit Settled

The Department of Justice (DOJ) settled its lawsuit to block the merger of US Airways Group Inc. and AMR Corp, American Airlines’ parent corporation.

The deal, which is subject to approval of American’s bankruptcy court, will require American to give up slots and gates at Boston, Chicago O’Hare, Dallas Love Field, Los Angeles, Miami, New York LaGuardia and Washington National, along with its rights and interest in other facilities that support the use of the slots.

The recipients will be low-cost carriers approved by DOJ.

Bigger foothold
 In a statement, U.S. Attorney General Eric Holder said, “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.”  

The settlement’s terms will be felt most sharply at Washington National, where American must give up “all 104 air carrier slots (i.e. slots not reserved for use only by smaller, commuter planes).”  

That represents about 15% of the slots held by the combined carrier.

Service reductions
In a telephone press conference, Doug Parker, chief executive officer of US Airways, said, “We will need to determine what routes will be cut. We have work to do on that plan.”

Parker, who will be CEO of the new American, said the reductions in service will be announced before the other carriers bid on the slots.

“We’re going to have to figure out what is best for our network and what maximizes value to our customers,” he said.  

American also must release 34 slots at LaGuardia and two airport gates and associated ground facilities at each of the other five airports.

DOJ’s lawsuit
The DOJ sued the airlines on Aug. 13, six months after they announced their merger plan and two days before American’s bankruptcy court was slated to approve its restructuring plan.

It was joined in the lawsuit by the attorneys general of Arizona, Florida, Pennsylvania, Michigan, Tennessee, Texas and Virginia and by the District of Columbia.

Texas Attorney General Greg Abbott dropped out of the lawsuit in October after receiving assurances from the carriers that the merged airline will maintain scheduled daily service to more than 20 airports in Texas and maintain its headquarters in the Dallas-Fort Worth area.

Neither of those issues was ever in doubt.

A powerful competitor
The DOJ hailed the settlement as having “the potential to shift the landscape of the airline industry” by reallocating slots to low-cost carriers.

But Parker said, “We compete against these same airlines every day. LCCs [low-cost carriers] are pricing every market in the U.S. This doesn’t change that.”

Tom Horton, American’s current CEO, said the merger “makes us a very powerful global competitor.”

The combined carrier will not be financially compromised by the deal, Parker added.

Closing the deal
The next step is a hearing on Nov. 25 in American’s bankruptcy court. Assuming the deal is approved, the carriers expect to close the merger in the first half of December.

Scott Kirby, president of US Airways, said Jan. 7 will be “a big date” for consumers, when the airlines’ frequent flyer programs are integrated.

Because of the delay caused by the lawsuit, there will be “a more seamless customer interface” due to the work accomplished on the normal integration process, Kirby said.