AMR Corp.’s American Airlines and US Airways Group Inc. (LCC) are seeking a trial of the government’s lawsuit to block their $12.1 billion merger as early as Nov. 12, while the Justice Department is pushing for a February date.
A February trial would “cause serious harm and cannot be justified,” the airlines said in a joint filing yesterday. The carriers and the department asked U.S. District Judge Colleen Kollar-Kotelly in Washington for a hearing to resolve the dispute over timing.
“The parties’ urgency to complete their transaction is far greater here than in ordinary merger cases,” the airlines said. “American’s ongoing bankruptcy proceedings compound the costs and uncertainties associated with the delays caused by the government’s lawsuit, including approximately $500,000 in bankruptcy-related professional fees alone every day that the bankruptcy continues.”
The suit is an obstacle to American’s plans to exit bankruptcy through a deal that would create the world’s biggest airline. The government’s challenge to the transaction, which surprised industry executives and analysts, marks a break with the past policy. The Justice Department allowed six airlines to merge during the past five years as they sought to cut costs and end losses.
Hurt Competition
The planned merger, the Justice Department said in its lawsuit filed Aug. 13, would hurt competition in the airline industry and remove the incentive for US Airways to offer lower prices, leading to higher fares for consumers.
“The request for a November trial date also reflects our strong, unwavering belief in our merger with US Airways and our legal case,” American Chief Executive Officer Tom Horton said in an e-mail to employees. “We’re ready to go. It’s time to remove the uncertainty for our customers, people and owners.”
The airlines aren’t engaged in talks to settle the lawsuit, a person familiar with the situation said yesterday.
Gina Talamona, a Justice Department spokeswoman, said by e-mail that “the timing proposed by the department is typical in a merger transaction of this magnitude, which affects so many consumers.”
In their filing, the airlines said US Airways first notified the Justice Department of a possible merger with American in May 2012, giving the government sufficient time to investigate the deal.
Regulatory Approval
The airlines announced their plans in February and have been moving toward a merger while awaiting regulatory approval. They initially said they expected to complete the transaction in the third quarter.
“This merger is the foundation of American’s plan to exit bankruptcy and is the cornerstone of American’s and US Airways’ plan to form a more competitive and cost-effective airline to take on the country’s largest air carriers,” the airlines said in their filing yesterday.
Jack Butler, an attorney for the creditors’ committee in American’s bankruptcy, said his clients oppose the Justice Department’s proposed trial schedule.
“For them to suggest they need to go into next year seems to me to be a strategy to try to kill the merger by fiat instead of them having to prove their case,” he said in an interview. “From the creditors’ perspective, we thought from the beginning they got it wrong.”
Trial History
The airlines, seeking a 10-day trial, provided Kollar-Kotelly with a list of all government merger challenges since 2000 that went to trial. Almost all of the 16 cases brought by the Justice Department and the Federal Trade Commission were tried within 81 days of the complaint’s filing, according to the list.
The longest wait was 106 days in the department’s lawsuit to block a proposed merger involvingH&R Block Inc. (HRB), according to the filing.
A Nov. 12 trial would be 91 days since the government sued the airlines.
Talamona said the Justice Department’s proposed schedule proposed is similar to the one set by the court in the government’s 2011 lawsuit to block AT&T Inc.’s acquisition of T-Mobile US Inc. (TMUS)
AT&T abandoned the deal before the trial was held.
The Justice Department conducted an extended review to determine whether combining the two carriers would reduce competition or create a monopoly in any markets. The combination would surpass United Continental Holdings Inc. as the largest carrier by passenger traffic.
‘Always Prepared’
Bill Baer, the head of the Justice Department’s antitrust division, said during a news conference on Aug. 13 after the complaint was filed that the government is “always prepared” to hold settlement talks. He said the department hasn’t mapped out any potential remedies that could salvage the deal.
The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington). The bankruptcy case is In re AMR Corp. (AAMRQ), 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Tom Schoenberg in Washington attschoenberg@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.