High Flying Merger Meets Justice Department Impasse

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As business law attorneys, we help our clients acquire, consolidate and merge their commercial interests. Sometimes attractive merger strategies run afoul of regulatory strategies, as in the recent matter of the proposed merger of US Airways Group and the parent company of American Airlines, AMR Corp.

Early this year, US Airways and American Airlines announced a merger that would create the largest airline in the world. In a bid to exit bankruptcy, US Airways would acquire American Airlines while retaining the American brand name. Among other benefits, the merger would allow the new company to compete with airlines created through mergers in the past decade, including Delta Airlines and Northwest Airlines, as well as United Airlines and Continental.

Unlike the earlier mergers, the Justice Department filed an antitrust lawsuit in August of this year objecting to the proposed merger for reasons including:

  • The $11 billion merger would allow four airlines to control 80 percent of the commercial air travel in the United States.
  • Airline mergers in the past decade have allowed airlines to raise prices, reduce services and create new fees.
  • The elimination of competition because of the merger would increase the cost of domestic airline travel.

In blocking the merger, the Justice Department noted both companies could succeed as independent companies and provide needed competition to slow the increase of fares and loss of service to the flying public.

William J. Baer, head of the Justice Department’s antitrust division, notes, “…if you look at the net effects, what we’ve seen is a reduction in capacity and higher prices, and not the benefits that were promised.”

It remains to be seen if a compromise can be reached to save the proposed merger. If you are considering the acquisition or merger of any commercial concern, speak with experienced legal counsel.

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