US wants broad divestitures from AMR, US Airways

Justice Department lawyers are reportedly looking for concessions at key airports throughout the country.

By MSN Money Partner Nov 4, 2013 1:32PM
By Brent Kendall and Jack Nicas, The Wall Street Journal

U.S. antitrust authorities want to see a broad package of divestitures from AMR Corp. (AAMRQ) and US Airways Group (LCC) as part of any deal to settle the government's challenge to their merger plan, people familiar with the matter said.

The people said talks are under way between the two sides three weeks before a trial of the antitrust challenge is set to open in Washington.

The Justice Department's antitrust suit, which sought to block the merger of AMR's American Airlines and US Airways, argued that the deal would harm consumers by reducing air service and increasing fares. It listed more than 1,000 routes on which regulators believed competition would suffer.

The opening of settlement talks suggests that the government isn't taking an absolute stand against the deal, and that a trial isn't a certainty. At the same time, however, the airlines might resist the broad concessions that the government is seeking.

A person familiar with the Justice Department's thinking said department lawyers insist that any settlement should include divestitures at key airports throughout the U.S. The department believes that the two airlines would need to divest assets at those airports to ensure that their merger wouldn't limit consumer choices on nonstop and connecting flights or harm consumers by raising fares, this person said.

The airlines are prepared to give up slots at Reagan National Airport outside Washington, where US Airways is already the dominant carrier, and make some divestments at other U.S. airports, two people familiar with the negotiations said last week. A person familiar with the process said Sunday that the airlines' settlement proposal would include divestments at other U.S. airports besides Reagan National.

Some of the busiest U.S. airports have limited room for competitors to expand, either because takeoff and landing slots are limited or because there aren't enough gates. LaGuardia and John F. Kennedy International airports in New York are among those with limited slots, while airports in Chicago and Los Angeles have limited gate space.

Another asset in limited supply is permission to fly to some international destinations. US Airways recently obtained rights to offer service to São Paulo, Brazil.

If combined at their current size, AMR and US Airways would vault past United Continental Holdings (UAL) and Delta Air Lines (DAL) to become the largest carrier in the world by traffic. AMR and US Airways say the merger would offer fliers more choice and a bigger route network.

The Justice Department's suit challenging the merger warned against overconcentration in the U.S. air-travel market if the deal went ahead as planned, because it would leave the U.S. with just four airlines controlling more than 80% of the domestic market.

Both sides have said they are prepared to go to trial, which is scheduled to begin Nov. 25.

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