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Feds seek to block merger of American Airlines and US Airways

Action could derail planned raises and stock distributions for thousands of American Airline employees at Tulsa maintenance facility.
BY KYLE ARNOLD Published: August 14, 2013

The U.S. Department of Justice wants to end the planned merger between American Airlines and US Airways, a move that threatens raises and stock distributions to local employees and could derail more than 20 months of bankruptcy reorganization.

The Justice Department sued Tuesday and was joined by six states and the District of Columbia to block the merger between the two air carriers, claiming it would raise prices for consumers and eliminate competition on hundreds of daily flights throughout the country.

“The department sued to block this merger because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service,” said Bill Baer, Assistant Attorney General in charge of the Justice Department's Antitrust Division, in a statement.

“If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers. Both airlines have stated they can succeed on a stand-alone basis and consumers deserve the benefit of that continuing competitive dynamic.”

The lawsuit also threatens to upend 20 months of bankruptcy reorganization for American Airlines parent AMR Corp., billions of dollars in stock in the future company owed to creditors, union members and shareholders, and the plan to create the world's largest airline with nearly 100,000 employees.

American Airlines CEO Tom Horton, in a letter to employees, said that both American Airlines and US Airways will “vigorously defend the merger” and that a federal court in Washington, D.C., will have to settle the anti-competitiveness allegations from the Justice Department.

“While we do not yet know how long the court process will run, it will likely take a few months,” Horton said in the letter. “In the meantime, American and US Airways will continue to operate as independent companies and competitors.”

Officials for the Transport Workers Union Local 514, which represents more than 4,600 American Airlines maintenance workers in Tulsa, blasted the lawsuit, saying it added more uncertainty after almost two years of bankruptcy proceedings.

“As for the immediate impact, the merger was going to allow for pay raises and stock options for our employees,” said Local 514 president Dale Danker. “Now we're not sure when that is going to happen and as for the morale, it's tougher out there for employees.”

More than 6,000 American Airlines employees are employed in Tulsa at the American Airlines Maintenance and Engineering base. The union had negotiated a 4.3 percent pay raise when the merger commenced, after taking cuts to pensions and agreeing to workforce reductions in 2012.

The merger deal is also the centerpiece of American's plan to emerge from bankruptcy, which it filed for in November 2011.

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Key Objections

The U.S. Department of Justice sued Tuesday to block the merger between American Airlines and US Airways on antitrust grounds. Here's why:

Consumers: In hundreds of markets served by both airlines, prices could go up and routes would be eliminated.

Consolidation: Consumers will lose another “legacy” carrier and competition has been narrowed too much in recent years through other airline mergers.

Washington, D.C.: The deal would give the new company control of 69 percent of slots at Reagan National Airport.

Viability: Justice Department officials say American Airlines, through bankruptcy and deep cuts, is a financially viable company and doesn't need to merge with US Airways.

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Shares of both airlines plunged on news of the lawsuit. US Airways Group Inc. shares fell $1.92, or 10.2 percent, to $16.90 in afternoon trading. Shares of American Airlines parent AMR were taken off the New York Stock Exchange shortly after the company filed for bankruptcy protection in late 2011 but still trade over the counter; they were down $2.82, or 48.5 percent, to $2.99.


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