A lot of people seem to think that the Department of Justice (DOJ) will eventually come to a settlement that would allow the American/US Airways to go through. While I’d think to think optimistically like that, I have trouble actually doing it. I’ve had the chance to do some research and talk to antitrust attorneys, and it seems to me that by filing a lawsuit to block the merger, DOJ has backed itself into a corner. It has to win this thing, because the alternatives are not really palatable. Considering that the case seems so weak at this point, it’s pretty surprising to see DOJ do this to itself.
Many people still think that slots at Washington/National hold the key to making this merger go through. If the new American would just give up enough slots, then the whole objection would go away. I believed that to be the case myself up until the lawsuit was filed. But the suit itself uses very broad strokes to talk about how horrible this merger will be for everyone in the world. It would seem unlikely that an agreement to shed some slots in DC would satisfy all these grandiose objections.
Despite the bluster, I hope there are still settlement talks in progress. Those will center on two types of fixes. One is the traditional fix we’ve been talking about – a structural remedy. Structural remedies involve shedding off parts of the business to help satisfy competitive concerns. That would include getting rid of slots at Washington/National. It’s hard to think of any other structural remedies that would really matter. Sure they could get rid of slots in New York or they could possibly ditch some more in London, but those are markets where there isn’t a concern anyway.
The other type of remedy is a behavioral remedy. That would basically be a promise from the merged company to do a certain thing (or not do it), possibly for a certain amount of time. In this case, you would think a behavioral remedy would be something like agreeing not to charge the $40 fee for award travel that DOJ strangely fixated on in the complaint. But DOJ will probably want something broader – like a commitment to not raise fees or something like that. I would be surprised if the new American would consider handcuffs strong enough to make a difference to DOJ.
But even if there was an agreement on behavioral remedies, you simply can’t address much of the complaint. DOJ has pointed out a thousand (mostly tiny and unimportant) markets where the merger would reduce competition too much for its tastes. There’s no way to satisfy DOJ’s desire for more competition on those routes.
Where does that leave us? Well, it means that if DOJ wants to settle, it’s going to have to settle for something that doesn’t actually satisfy all the issues in the complaint. In theory, that doesn’t technically matter. DOJ can still withdraw the lawsuit and this whole thing could go away. But there is one snag.
Have you ever heard of the Tunney Act? My understanding is that it states that if an antitrust suit is filed and there is a settlement, then the sides have to file it with the judge in the case to ask for approval. The funny thing is that the merger can close with or without approval, so it seems useless, but there is one thing of interest here. DOJ will have to put in writing why the settlement satisfies the department. (If any antitrust lawyers out there would like to confirm or disagree with this, please do so.)
So let’s say DOJ agrees to settle for slots at National. It then has to put in writing how that satisfies the whole big, broad complaint. And the next time there’s an antitrust case with a merger in any industry at all, you know the companies will pull out that written justification from this case to bolster their own. And DOJ would hate that.
So if DOJ really wanted to settle for slots at National, it would have done so before filing such a strongly-worded, broad case. Now it has sort of pinned itself into a corner. If it settles, it sets precedent that can be used against it in the future. If it goes ahead with trial, it risks everything.
See, if it goes to trial, then the judge will review the case on its merits. And the end result will be binary. Either the DOJ’s complaint is validated (which still seems unlikely at this point, though we don’t know if DOJ has something more substantial hidden somewhere) or it’s shot down. And if it’s shot down, then the new American not only gets to merge, but it gets to keep all its slots at National and everywhere else. That’s quite a risk to take.
Clearly DOJ thinks that it can win this thing or it never would have taken a chance like this. But it’s a huge gamble. Now we just have to wait and see what happens.
Wondering about that timeline? Well, by the end of this month we should have a better idea for the pace that this trial will take. In general, merger cases go pretty quickly since DOJ has already had access to records since before the merger was even announced. So there shouldn’t be a need to do much more discovery. Doug Parker has said that he now expects to see the merger completed by the end of the year. That takes into account the expected length of the trial. That could be optimistic, but you get the point. We’re talking about months, not years.
Like I said, we should know more about timing by the end of this month… unless a settlement is somehow reached more quickly. Considering all I’ve learned, that seems less and less likely.