Government, states challenge proposed US Airways merger deal
By Tom Fontaine
Published: 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 firstname.lastname@example.org.
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