Some analysts still see good odds of airline merger

If merged, American Airlines and US Airways could better compete with industry leaders United and Delta, advocates of the deal - including many of the airlines' unions - argue.
If merged, American Airlines and US Airways could better compete with industry leaders United and Delta, advocates of the deal - including many of the airlines' unions - argue. (SUSAN WALSH / Associated Press)
Posted: August 21, 2013

Some industry analysts say there is still a good chance the American Airlines-US Airways merger will go through, with concessions by the carriers to divest disputed routes and add routes and services to perceived gaps in the network.

That hardly eases what has been a grueling week for American and US Airways Group.

A federal judge delayed approving American's plan to emerge from bankruptcy protection after the U.S. Justice Department and a half-dozen states, including Pennsylvania and Texas, filed suit last week to block the merger.

One airline analyst, Daniel McKenzie of Buckingham Research, put the chances of the merger's being approved at 50-50.

"We doubt Justice will prove its case if and when it comes to trial," bond analyst Vicki Bryan of the independent research firm Gimme Credit said in a client note. The government makes "blanket statements that consumers will pay more and get less" but the evidence "seems weakly supported," she wrote. "We assume the merger will close."

Dan W. Goldfine, an antitrust lawyer at Snell & Wilmer in Phoenix and former trial attorney in the Justice Department's antitrust division, said the government would have a tough time proving its case.

"I think as alleged, it's a difficult case," Goldfine said. "It's a somewhat sketchy theory" of how the merger will be anticompetitive.

"Should it litigate to fruition, it would be a difficult and sketchy claim from an antitrust perspective for the government to prove," Goldfine said.

The merger aims to allow two smaller carriers, No. 3 American and No. 5 US Airways, to come together to better compete with United and Delta, which are No. 1 and 2 in passenger traffic.

If the merger is scuttled, the result would be a "duopoly" between United and Delta, Helane Becker, analyst with Cowen & Co. in New York, said in a note to clients.

While US Airways and American can survive, it would be back to the drawing board for American, which would become a smaller company with job losses and reduced capacity, Becker said.

"Airlines barely cover the cost of capital, so it's not as if they are knocking the cover off the ball," she wrote. "A combination of US Airways and American would provide strong competition between the network airlines."

Toxic labor relations between American's unions and its current management would be resurrected if the merger falls through. American and US Airways' unions have vowed to fight for the merger.

"We're prepared to bring the fight to federal court, the halls of Congress, and the White House if necessary," said Laura Glading, president of American's flight attendants.

US Airways flight attendants said the Justice Department "missed the forest for the trees."

"Real competition at the top of the airline industry turns on market share, size, and scale," US Airways flight attendants union president Roger Holmin said.

American's pilots union said in an advertisement in Monday's Dallas Morning News that American is "a powerful economic engine" in Texas but needs the merger to compete with bigger United and Delta.

The union asked Greg Abbott, the Texas attorney general, in an open letter: "Are you opposed to having a leading global carrier in Fort Worth? Considering everything at stake, including the large number of jobs and the tax revenues they generate, that doesn't make any sense."

US Airways and American's legal teams will face off against William Baer, a former partner at Arnold & Porter in Washington. While at the Federal Trade Commission, Baer successfully blocked the merger of Staples Inc. and Office Depot Inc.

Since Baer became head of the Justice Department's antitrust division in December, "he's reinforced his reputation for hard-line enforcement, challenging brewing giant Anheuser-Busch InBev's $20.1 billion acquisition of Grupo Modelo," the National Law Journal reported.

The acquisition went through, but Anheuser-Busch agreed to sell U.S. rights to several foreign brands, including Corona.


Contact Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

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