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Rule of Law

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

August 13th, 2013 - 12:05 pm

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.

Comments are closed.

Top Rated Comments   
Come on guys, think a little farther out of the flying boxcar! How many of dear leader's campaign bundlers are on the boards of the other three "competitors" in this drama and how do they stand to benefit if AA goes belly-up? The corruptocrat at the helm of the DOJ does his master's bidding on stuff like this. Remember, politics is a bloodsport!
49 weeks ago
49 weeks ago Link To Comment
The federal government is way too into business dealings.

Nothing is allowed to sink or swim on its own merits anymore.

49 weeks ago
49 weeks ago Link To Comment
I'm still wondering how American Airlines going belly up improves competition. The competition between airlines is pretty much a marginal fiction. Fuel costs what it costs, the planes all cost what they cost - and though newer aircraft are slightly cheaper to fly and maintain, they are the same costs for United as they are for US Airways.

I am not sure why Cooch is filing this one... maybe the Virginia connection to US Airways, and some potential move to Dallas... or something... Bondi is proving to be a political animal with her attention focused on something other than putting the copious number of Florida based bad guys in the pokey.

Airline fare competition is all pretty phony... Premiums can shave and wiggle to get a few bucks here and there... Discounts start low and work if you don't mind being winged cattle... or flying sardines...

Just one more proof that the government is clueless about business, and meddles too much.

r/TMF
49 weeks ago
49 weeks ago Link To Comment
All Comments   (12)
All Comments   (12)
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48 weeks ago
48 weeks ago Link To Comment
Just follow the money. Apparently, AA and US Air did not contribute their fair share during the last election season. Or perhaps neither airline greased the right investor palms.
Just follow the money.
48 weeks ago
48 weeks ago Link To Comment
As far as I know, American Airlines is the ONLY airline that still employs American mechanics.

That may be reason enough.
49 weeks ago
49 weeks ago Link To Comment
While I usually agree with your posts, Christian, this time I'll take a pass.

On it's face, a merger of two giant carriers will likely cause a reduction in services and an increase in pricing, absent countervailing factors, and especially when the organizations are in the class of what economists call "natural monopolies". I was reading in the WSJ, I believe, that the United/Continental merger has resulted in a net loss of flights here in Houston coupled with fare increases. Precisely the behavior of an organization with too much market power.

I don't fly as much as I used to but I got on a United jet fro Montana in July and the ticket cost took my breath away. And luggage fees! Fees for everything. I have flown that route enough to recall the costs of doing so only a few years ago and this trip the fare had just about doubled since roughly 2008.
49 weeks ago
49 weeks ago Link To Comment
Once upon a time ago families used to drive everywhere to their vacation destinations because gas was cheap and only the rich could afford to fly.

That changed by the 80's, but it seems to me we're getting back to that time when only the rich will be able to afford to fly, but the middle class won't be able to afford to drive to vacation spots either.

And the final nail in a vacationers coffin is local economies have started to jack up their prices because families now do "staycations" wherein they will go to a spot that is very close. Those spots are now cashing in on that trend.

People just can't win..........
49 weeks ago
49 weeks ago Link To Comment
Come on guys, think a little farther out of the flying boxcar! How many of dear leader's campaign bundlers are on the boards of the other three "competitors" in this drama and how do they stand to benefit if AA goes belly-up? The corruptocrat at the helm of the DOJ does his master's bidding on stuff like this. Remember, politics is a bloodsport!
49 weeks ago
49 weeks ago Link To Comment
CTW....No question that you have nailed it. If blocking the merger didn't benefit Obama, or the DNC's backers, the administration couldn't care less about the merger.
49 weeks ago
49 weeks ago Link To Comment
US Airways and America West pilots still cannot agree on a contract to cover all pilots that work for the merged airline from 2005. The former AW don't fly the "east" hardware or routes and the legacy US Air pilots don't fly "west" hardware or routes.

In training, they have to have separate schedules and accommodations.

Management of the company is generally dysfunctional with employees furious at work rules, political manipulation and heavy-handed discipline for minor infractions.

Additionally, they are terrified of their minority employees who have run amok with complaints and who get appeased, thus destroying morale overall.

In short, it is the quintessential "new millenium" corporation with all the fixins. Politically correct, environmentally friendly, diverse to the point of self-destruction, etc, etc.

Which surprises me why Holder doesn't want this to happen. However, he may have a point, much as I hate the government meddling in business affairs.

Since the 1980's, airlines have continued to cut to the bone on costs, in order to keep their ticket prices at 1980's levels. Everything else has gone up in price the world over; Landing fees, fuel, gate fees, cost of equipment, etc. But a $600 round trip ticket in 1982 is STILL a $600 round trip ticket 30 years later. I don't know of any other business that would be able to survive this way.

Then passengers....formerly the suit and tie crowd of years past is now a flip-flop wearing, unkempt, loudmouth who should be riding Greyhound. Yet they complain incessantly about prices, service or lack thereof and the rest of it.

Additionally, the corporate climate in the whole nation, not just the airlines is that employees are property, not assets. Combine that with typical arrogant management and you have a mirror image of the people of the US and its government.

Dysfunctional
Broken
More worried about appearances than actually getting anything done.

But one exception to that parallel: An overzealous religion about cutting costs. So much so that employees and passengers alike are deeply annoyed with the sub-par quality of things.


49 weeks ago
49 weeks ago Link To Comment
To finish out, another merger will decrease the total number of carriers in the nation, causing limited choices for passengers (crappy or crappier) and making the passenger a prisoner with no real choices. THAT tells me that Holder should embrace this merger...it's every socialists dream.

So, I think something else is afoot...that being that US Air and American haven't been willing to cough up the payola to Eric the Red's coffers for the democrat machine. In spite of the fact that US Airways management is pathetically politically oriented.
49 weeks ago
49 weeks ago Link To Comment
The federal government is way too into business dealings.

Nothing is allowed to sink or swim on its own merits anymore.

49 weeks ago
49 weeks ago Link To Comment
Since the destruction of Braniff, Pan Am and sadly, Eastern Airlines, we the passengers got no improved service. For those of you who remember flying Eastern from New York to Miami or Buenos Aires... Hats off to the greatest. The memory of the airline founded by a true American hero, Eddie Rickenbacker, still stands IMHO as the best. I flew my first trip to the US from Rio many years ago. Frank Lorenzo may have destroyed that beauty but it shines still as a model of what an American business can be.
49 weeks ago
49 weeks ago Link To Comment
I'm still wondering how American Airlines going belly up improves competition. The competition between airlines is pretty much a marginal fiction. Fuel costs what it costs, the planes all cost what they cost - and though newer aircraft are slightly cheaper to fly and maintain, they are the same costs for United as they are for US Airways.

I am not sure why Cooch is filing this one... maybe the Virginia connection to US Airways, and some potential move to Dallas... or something... Bondi is proving to be a political animal with her attention focused on something other than putting the copious number of Florida based bad guys in the pokey.

Airline fare competition is all pretty phony... Premiums can shave and wiggle to get a few bucks here and there... Discounts start low and work if you don't mind being winged cattle... or flying sardines...

Just one more proof that the government is clueless about business, and meddles too much.

r/TMF
49 weeks ago
49 weeks ago Link To Comment
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