Antitrust lawsuit could ground U.S. airlines merger

Even big concessions unlikely to salvage ‘messed up’ deal, legal experts warn

AMR Corp. and US Airways Group Inc. will have difficulty resolving U.S. objections to their proposed merger, antitrust lawyers said.

The challenge brought by the U.S. Justice Department can be compared with its lawsuit seeking to block AT&T Inc.’s proposed takeover of T-Mobile USA Inc. in 2011, said Allen Grunes, an antitrust lawyer with GeyerGorey LLP. AT&T eventually dropped its bid for T-Mobile.

“My take is that the deal is dead,” Grunes said. “Based on the complaint, this merger doesn’t look like it can be fixed with divestitures or slot sales.”

The Justice Department, in a complaint filed yesterday in federal court in Washington, said the proposed American Airlines-US Airways tie-up would hurt competition in the industry and raise prices for consumers.

The government is seeking to permanently block the merger “or any other transaction that would combine the two companies.”

Six states and the District of Columbia joined the lawsuit, making settlement prospects even more complex.

That also makes the case less like the division’s January challenge against Anheuser-Busch InBev NV’s purchase of Grupo Modelo SAB, which ended in a settlement after InBev agreed to sell a brewery in Mexico along with rights to Modelo’s brands in the U.S. to assure continued downward pressure on beer prices.

US Airways dropped more than 13 per cent, slicing about $470 million off its market value, following news of the lawsuit.

The bonds of American parent AMR fell on the news. AMR and US Airways said they plan to “mount a vigorous and strong defence” to the suit.

Assistant Attorney General Bill Baer, who heads the antitrust division, said at a press conference Tuesday in Washington that he went to court “because we think a full-stop injunction is the right outcome for consumers.”

While the government remains pre- pared to hold settlement talks, Baer said, the Justice Department hasn’t mapped out any potential remedies that could salvage the merger. He said the government had talks with the airlines before filing the lawsuit, adding that the proposed merger was “pretty messed up.”

“Typically, the government will have already had extensive settlement discussion with the parties,” said Craig Wildfang, an antitrust lawyer with Robins, Kaplan, Miller & Ciresi LLP in Minneapolis.

“The decision to sue only comes after settlement discussions have failed, although that doesn’t mean they can’t come back and take another shot at it.”

American and US Airways don’t need the proposed merger to be successful, and American has indicated it could emerge from bankruptcy on its own, Baer said.

“Just because the government says something is right doesn’t make it so. We think the government got it wrong.” JACK BUTLER LAWYER FOR AMERICAN AIRLINES’ CREDITORS

Jack Butler, an attorney for creditors of American, said in an interview on Bloomberg Television Wednesday that the U.S. lawsuit is based on “new theories that are untested and speculation” and won’t prevail in court. The government didn’t rely on the same analysis it used in approving past airline mergers, he said.

“Just because the government says something is right doesn’t make it so,” Butler said. “We think the government got it wrong.”

The lawsuit, unexpected by analysts and industry executives, marks a sharp break with the Justice Department’s past policy, which allowed six unprofitable airlines to merge over the past five years in an effort to cut costs and end losses.

The U.S. decision to sue follows the Aug. 5 approval of the merger by European Union antitrust authorities after the companies agreed to give up the right to a daily round trip between London’s Heathrow Airport, the EU’s busiest hub, and Philadelphia.