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| The merger of American Airlines and US Airways would create an airline behemoth that shuttles 140 million passengers around the world each year, and employs about 900,000 full-time workers operating about 951 airplanes. The new carrier would keep the name American Airlines. Above, American and US Airways planes parked at Ronald Reagan Washington National Airport in Washington, D.C. ( Susan Walsh, Associated Press / August 13 , 2013 ) |
American Airlines and US Airways moved another step closer to creating the world's biggest carrier but had to make concessions to help ensure the deal wouldn't lead to service cuts and higher fares.
The Justice Department said Tuesday the agency would back the $11-billion combination under an agreement that the airlines give up dozens of gates at major hubs including New York, Washington and Los Angeles. Both sides heralded the agreement as a boon to consumers because those gates must be auctioned off to low-cost competitors.
But the agreement left some analysts and consumer rights groups wondering if the merger would really benefit travelers.
"I wouldn't bet the farm on it," said John Briggs, an antitrust attorney with Axinn Veltrop & Harkrider and managing partner of the firm's Washington, D.C., office. "Everyone is going to put a smiley face on the deal."
The merger would create an airline behemoth that shuttles 140 million passengers around the world each year, and employs about 90,000 full-time workers operating about 951 airplanes. The new airline would keep the name American Airlines, though US Airways' chief executive would remain in charge.
FOR THE RECORD:
An earlier version of this article incorrectly said that the merged companies would have about 900,000 employees. The correct total is about 90,000.
After the merger is completed next month, four airlines — Delta, United, American and Southwest — will control nearly 70% of the nation's domestic air traffic.
Wall Street liked the deal. Shares of AMR Corp. , the parent company of American Airlines, shot up about 26%, or $2.48, to $12 on Tuesday after the government backed the deal. US Airways Group Inc. shares rose 1.1%, or 25 cents, to $23.52.
But some antitrust experts wondered whether the Justice Department gave up too easily.
The government vowed to ground the merger when it sued the two airlines in August. The Justice Department contended the combination would reduce competition and lead to higher fares and less service to smaller cities.
Still, the government capitulated just two weeks before a trial was scheduled to hear the lawsuit.
"The Justice Department blinked," said Jeffrey I. Shinder, an antitrust attorney and managing partner at Constantine Cannon's New York office. "The defendants did well in this deal."
To settle the Justice Department's challenge, American and US Airways agreed to give up landing slots and gates at seven key airports, particularly at Ronald Reagan Washington National Airport and New York LaGuardia Airport .
By ensuring that low-cost airlines take over those gates and slots, Assistant Atty. Gen. Bill Baer said airline passengers could expect fares to remain competitive and service to continue at smaller cities.
"This settlement will disrupt the cozy relationship among the incumbent legacy carriers, increase access to key congested airports and provide consumers with more choices and more competitive airfares on flights all across the country," he said.
American and US Airways executives called the loss of gates at those key airports "painful" but said the settlement still allows the merger to generate more than $1 billion in savings and "synergies" beginning in 2015.
"We'd rather not divest those slots but we think this will still be the world's best airline network," said Doug Parker, chief executive of US Airways.
The biggest concern raised by the Justice Department was that the newly merged airlines would control 69% of the landing slots at Ronald Reagan airport. Under the deal, the two airlines must give up 104 landing slots, or about 15% of the slots at the airport.
