Share This Page

Government, states challenge proposed US Airways merger deal

| Tuesday, Aug. 13, 2013, 10:51 a.m.

An unexpected antitrust lawsuit on Tuesday by the Justice Department and six state attorneys general, including Pennsylvania's Kathleen Kane, threatens to derail the proposed $11 billion merger of US Airways and American Airlines.

“We will fight them,” US Airways CEO Doug Parker said in a letter to company employees. “We are confident that by combining American and US Airways we are enhancing competition, providing better service to our customers and improving the industry as a whole.”

The federal government and the states moved to block the deal, which would result in the world's largest airline, citing concerns that it would reduce competition and harm consumers by increasing fares. The airlines could negotiate a settlement that would provide concessions to alleviate some of the concerns.

“The merger of these two important competitors will just make things worse — exacerbating current airline industry trends toward reduced service, increasing fares and increasing passenger fees,” said Bill Baer, an assistant attorney general who oversees the Justice Department's antitrust division.

The lawsuit, filed in federal court in Washington, emerges as the airlines were cruising toward finishing the deal by the end of the year. U.S. antitrust clearance was one of the last major hurdles they confronted, but it wasn't anticipated to be a problem because other big airline combinations recently did not meet government resistance.

Parker said he remains confident a merger can be completed by the end of the year, but Kane, in a phone interview, disputed his contention that it was good for the industry and consumers.

“They completely disregard the law of economics. When there is less competition, prices go up, it's that simple,” Kane said.

Kane pointed to fares between Pittsburgh and Philadelphia. In late 2011, when both US Airways and Southwest Airlines flew between the cities, average one-way fares hovered around $120. In the first quarter of 2012, once Southwest scrapped the flight, US Airways' average one-way fares for it jumped more than $100.

While the impact on airfares, service and competition was central to the antitrust lawsuit, other concerns about the deal weigh on the minds of people in Pittsburgh — such as the prospect of more job cuts from a company that received taxpayer-supported incentives.

“Pennsylvanians, especially the workers, travelers and businesses of Southwestern Pennsylvania, are very familiar with the wide-reaching impact of airline mergers, having witnessed the closure of the US Airways hub in Pittsburgh in 2004 and the dramatic drop in flights that followed,” Gov. Tom Corbett said in a statement.

Once US Airways' busiest hub, Allegheny County built Pittsburgh International Airport for $1 billion in the early 1990s largely to the airline's specifications. During the past decade, US Airways gutted operations in Pittsburgh, removing the airport's hub status and slashing hundreds of flights and about 10,000 local jobs as it went through two bankruptcies.

Allegheny County and Pennsylvania leaders provided US Airways with $16.25 million in incentives to entice it to build a $25 million flight operations center in Moon five years ago. Parker said in March that the 600-employee facility likely would close in a merger with American, with the combined carrier using a facility in Dallas instead.

“This is basically like a reprieve or an extension to stay in Pittsburgh until this thing is settled. In the short term, it's good for people,” said Dan Persuit, president of the Transport Workers Union Local 545, which represents more than 160 workers at the flight operations center.

This is not the first merger deal involving US Airways that may unwind over antitrust concerns.

An $11.6 billion deal with United Airlines in May 2000 fell apart a year later on antitrust and other concerns. US Airways merged with the former America West Airlines in a $1.5 billion deal five years later, but subsequent attempts to join with Delta Air Lines and for a second time with United dissolved before regulators got involved.

“Typically, it's the end of a deal” when an antitrust suit is filed, said airline industry analyst William R. Lauer of Allegheny Capital Management Inc. “But there's a window of opportunity to do some haggling, and maybe most of these objections can be overcome.”

US Airways provides about 43 flights daily to nine destinations from Pittsburgh, down from more than 500 flights daily before 9/11. American offers 13 daily flights to four destinations. The two airlines don't compete on any local routes.

Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or tfontaine@tribweb.com.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.