Holder and GOP AGs Sue to Block US Airways and American Merger

The aviation and legal world was shocked by Eric Holder’s latest action — a lawsuit to block the proposed merger of US Airways and American Airlines. Most had expected the DOJ to stand pat, especially after the same Antitrust Division allowed mergers with United/Continental, Southwest/AirTran, and Delta/Northwest.

Also surprising was that the attorneys general from Texas, Virginia, and Florida joined Holder’s lawsuit. Florida’s Attorney General Pam Bondi issued a press release saying the merger would affect fares to Florida. As of this writing, Virginia Attorney General Ken Cuccinelli’s office has not issued a statement.

Some consider the DOJ lawsuit to be a fatal blow to the proposed merger. If so, that’s bad news for American Airlines in particular as they struggle to emerge from bankruptcy — the merger was the lifeboat out of bankruptcy. US Airways, looking for a mid-nation presence to accommodate expansive and dominant routes in the northeast and southeast, would likely remain a “dumbbell” airline without a merger — with hubs in Phoenix, Philadelphia, and Charlotte, and little presence in between.

US Airways has transformed its product over the last decade, winning in on-time arrival and other metrics. Meanwhile, American has struggled with labor agreements and a fleet of old, unreliable, and expensive MD-80s. The new American Airlines was going to be US Airways-managed with a new bold AA logo.

But is DOJ justified in suing to stop this merger?

The proposed merger may be the “Operation Market Garden” of airline consolidation — the merger too far. Perhaps the DOJ should have sued to block one of the previous mergers, but it didn’t. The proposed merger certainly increases consolidation and concentrates power in one airline at Washington Reagan National Airport (DCA). American would control almost seventy percent of the flights there.

Some have interpreted the DOJ lawsuit as a power play to force American and US Airways divesture of slots at DCA.  Congressmen rely on nice cheap flights out of DCA to get home for the weekend; so do federal government workers looking to travel on both business and pleasure.

The DOJ action might send a message to industries everywhere: if you are thinking about merging, you better do it quickly. Because if you are one of the last two competitors standing, the DOJ will stand in your way.