American and US Airways Get Their Day in Court With a Side of Turkey and Stuffing

American, Mergers/Finance, US Airways

If you’re a fan of justice, then you’ll agree that Friday was a good day. The judge in the Department of Justice (DOJ) lawsuit trying to stop the American/US Airways merger set the trial to begin on November 25, right before Thanksgiving. That means that if this merger is stopped, it will have to be on the strength of DOJ’s argument instead of simply by having the clock run out.

American US Airways Thanksgiving Trial

After DOJ filed suit to stop the merger, the two sides proposed very different timetables. American/US Airways proposed a November 12 start date but said they could have been ready as early as October. In other words, they were confident of their arguments and wanted to go to trial quickly.

Meanwhile, DOJ proposed a February trial date but when the judge said she had another trial scheduled, DOJ pushed the request out until March. That kind of delay made me think DOJ wasn’t as confident in its case as it originally suggested and needed more time, but it could have just been an insurance policy. A delay that long could kill the merger because the parties can’t wait forever. Time is a killer.

The judge agreed with the airlines that they deserved a speedy trial, and so the date was set for November 25. It may seem a little strange that it will start the Monday before Thanksgiving, but it sets up a good timeline. The airlines predict a 10 day trial, though it could go a couple days longer. Either way, we should have a decision before everyone takes off for the holidays.

More importantly, we may very well have a decision by the self-imposed December 13 merger deadline. If the merger isn’t completed by then, either party could theoretically walk away per the merger agreement. Both parties have been clear that they don’t plan on walking away, but who knows if that would have been true if the trial was delayed all the way until March.

So what happens now? A bunch of technical stuff. There will be depositions and file exchanges, and a lot of things will have to be filed with the court at several steps along the way. As far as I can tell, there shouldn’t be anything particularly interesting to the general public until the trial happens… with one possible exception.

There is still always the chance that the two parties could come to a settlement that would allow the merger to go through with concessions. They both say they’re open to hearing proposals but neither side seems to actually be proposing anything anymore. I’ve already noted how I think a settlement is pretty unlikely, but I do wonder if DOJ will start to feel some pressure.

The easiest way for DOJ to win was to push the timeline out and hope the merger fell apart on its own. It lost that battle, so now it has to win on the merits of its arguments. If it’s not able to turn anything up over the next couple of months, it might decide that it’s better to settle and look stupid than it is to go to trial and lose everything.

I would say the airlines could come to the same conclusion, but I’m really not sure how they could craft a settlement that would satisfy DOJ unless DOJ decides that its case is weak enough that it better start negotiating.

Regardless of what you think about this merger, you should be happy about the trial date. It’s only fair that the airlines have their day in court in a timely manner… assuming it gets that far.

[Original knife, turkey, table, and stick figures via Shutterstock]

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50 comments on “American and US Airways Get Their Day in Court With a Side of Turkey and Stuffing

  1. Maybe the DOJ is hoping a longer delay would get the American people (aka American voters) to feel as I do right now and not care any more.

    If things happen to fast it gets more media attention which can get voters sounding off to their elected officials who could get more involved. We all know the longer something takes, the media looses interest so this becomes less of a new item and people forget about it.

    1. You got that right. As WPIX-TV commentator Lionel puts it “Americans have the atention span of a gnat.” This can be illastrated with who is starring in the next Batman flick & then Twerking.

      This court case will be ignored by most Americans unless it involves states where job losses could come into play, but that’s why we have cranky to keep us informed of the developments.

  2. I think AA/US will be able to get DOJ’s case thrown out by day two or three if they are able to show if you block our merger you are being hypocritical. You allowed UA/CO DL/NW SW/FL why not us

    1. That is like going to traffic court and telling the judge “but the officer didn’t pull over the other guy who was speeding too”.

      Not going to fly.

      1. Uh, no it’s not. Unless you think all previous mergers broke the law somehow. It’s called business. Companies merge, acquirer, sell off assets. Maybe you think the govt should run every business in the U.S. too. There is no monopoly here, just the government trying to feel important, or help someone else’s interests(not the public). Eric Holder is a disaster for this Country.

        1. It’s only called business today since Bush & Co. (2000 – 20008) changed the laws to allow gross abuses to happen. Unfortunately the collateral damage will continue as long as you have a stacked deck of judges on the Supreme Court. Your description of how companies function sounds like a template written by Geroge Romney, I might add. Eric Holder is Honest Abe compared to the gang of ultra conservative and super business friendly judges there. FOR LIFE (sounds like a verdict). Naturally, I will admit, Libertarians would agree with you 100%. They are the anarchist thinkers of the 21st century.

          I respect your opinion and had to express my own on this subject.

  3. I think the November trial date makes a settlement more likely. Taking a case to trial involves real risk for both sides. Settlements are often reached at the last possible minute, even after a trial is held. The bottom line is that neither side knows how the judge will rule in this case.

    We, the two airlines, consumer groups and pundits can argue the case’s merits over and over, but the judge’s decision is the only one that counts. And as the old saying goes, “You’re better off with the devil you now, than the devil you don’t.”

  4. Remember AA had a merger with Twa
    Remember that US and AW
    they have had their mergers so the idea that Dl and Ua mergers should allow AA/US is pure bunk

    1. NW had Republic, why should it have been allowed to merge?

      CO is an amagalmation of too many airlines to count… Why should it have been allowed to merge?

      Oh and you forgot US’s mergers with Piedmont and PSA!

  5. Agree with 95% of what you write. Too many reasons to list, but DOJ’s case is weak and I do not believe they can win on he merits. Still scratching my head about WHY they filed this, yet let the other two, similar mergers proceed without complaint. I hope that American and United Air prevail, but that’s for personal reasons. The merger is going to be difficult and expensive to implement even without the added costs and delays imposed by DOJ. Again, I have to wonder about t heir motivation.

  6. It will settle because it’s in everyone’s best interests to settle. Horton wants his $19 million. Parker wants to be The Man. Justice would be embarrassed by a loss and settling over slots would allow it to proclaim Victory For The Flying Public. The Unions want a raise. AA/US would be foolish NOT to settle if slots (even valuable ones) are all that is required. But if Horton keeps crowing about his bankruptcy profits, Justice might just dig their heels in a little. Wisely, Parker’s bravado has been notably absent lately.

    1. You don’t see or hear from old Doug much because Parker is probably spending a lot of time in church praying for his designed goal of a mega merger. My personal hope is that the DOJ is successful in defending competition.

      For the folks who keep chirping about the UA/CO and DL/NW mergers, just remember, two wrongs don’t make a right.

      1. You don’t understand competition then.

        3 airlines is better than 2. If doj blocks this merger with their weak case then it will allow delta and ual to have a duopoly.

  7. Two wrongs may not make a right, however, two wrongs do change the competitive landscape and require viewing the issue differently. United and Delta have been allowed to grow to a scale that puts them in a different league than American and US Airways. Without those previous mergers you have a more fair playing field, but those are all done. So it would make sense to create a third carrier that can compete on the same level.

    1. Interesting question for you Brett… if the prior three mergers weren’t allowed, what would the airline landscape look like today. Six bankrupt carriers on the verge of insolvency?

      1. SEAN – Interesting question indeed. I think Delta and Northwest probably survive on their own, though I do wonder what the networks would look like. People think Memphis disappeared because of the merger, but I don’t know that Northwest could have sustained Memphis with today’s fuel prices. It might have a larger presence than Delta today but not the same as it had before. Delta might not have been able to grow NYC the way it has without Northwest behind it as well. It just couldn’t provide the same level of utility, I don’t think.

        Continental would be fine on its own, though it would continue to be an afterthought in the west, where we never really even thought about the airline. United is the biggest wildcard. Tilton’s goal in life was to sell off the airline and get his payday. I wonder what it would have looked like if he wasn’t able to do that. I think United would be in rough shape (and that says a lot considering how rough it is today).

        Southwest/AirTran would look the most different, I think. AirTran would still have its low cost, low fare operation that Southwest has been dismantling. Southwest would probably have made a move on Atlanta itself but not much else would have changed there.

        I don’t think they’d be insolvent, but I think they would be turning in worse results and wouldn’t be able to invest in the product nearly as much as they do today. Of course, insolvency is always just one shock away…

        1. Follow up question – Based on that, what would happen to the various hubs that are on shaky ground such as Memphis mentioned, Cincinatti, Denver, Cleveland & others. Would they continue to shrink as they have been doing post merger or would things play out differently as cities would do what they can to keep hubs open & the jobs that go with them?

          1. SEAN – You mean if the mergers hadn’t gone through? Some like Denver wouldn’t have been impacted. But my guess is that Cleveland, Cincinnati, and Memphis would have slightly larger presences than they do today because the previous airlines had no other way to serve those regions. But ultimately economics would have still hurt them, and I’m sure they all would have shrunk significantly from their peaks.

    2. Monopolies ALWAYS change the competitive landscape – at the expense of the Consumer. Uncontrolled mergers in any industry is poison for competition and hurts Consumers. ALWAYS. This is why the Sherman Anti-Trust Law was enacted and helped the U.S. economy and industry grow (Made in America) for over 50 years, UNTIL Big business and greedy politicians (like retired Phil Graham, R-TX) started changing the laws and inventing new ways to avoid taxes, send jobs and technology off shore (China), giving themselves the same Rights under law as humans – thanks to a “stacked” Supreme Court.

      No CF, cherry picking only the airline industry and announcing that mergers are GREAT for business and Consumers is dead wrong. I find it sad that with the uncontrolled merger mania of recent years people think it is normal, beneficial and the right thing to do. The irresponsible cheer leaders of this merger disease have and continue to do great harm to new innovation, new competition, domestic investment, job creation and retention.

      1. Consumer Mike,

        I hear you. If you think airline mergers are bad, I’ve got one better – how about all the banking mergers over the past few decades, and all of them despite what you read are insolvent today.

    3. CF, why does AA need to grow more in order to compete against DL and UA? Smaller carriers like AS and B6 seem to have no trouble competing, so size isn’t everything.

      There is just one aviation market. There are not two separate markets, one for mega carriers and one for smaller ones.

      1. Jim – It depends on what you’re competing for. Anyone can compete for the leisure traveler, but it’s the more lucrative business traveler that is more difficult to woo. Alaska is dominant in Portland and Seattle, and so it can effectively win a great deal of regional business there. By partnering with Delta, it can really expand the footprint by going global in that market. But in other cities, it’s not going to compete with the big guys.

        JetBlue has a big chunk of leisure but it has been trying to get more aggressive with business travel in Boston and New York. It has made some progress, but it’s not going to compete for the huge contracts. (It’s desperately trying by doing things like business class on the transcon flights.)

        American can do the same thing, on a somewhat larger scale. But Delta and United can go into companies and provide a global deal. American can’t really compete with that because it doesn’t offer the same reach in a lot of cities in the US. So the bigger guys will have the opportunity to lock up more of this big business, leaving American to fight more for the smaller deals.

        1. That may be true if you look at airlines, but not alliances. AA is already part of Oneworld, which has around the same global reach as Star and Skyteam. Adding US Airways to the mix isn’t going to provide very much new service that isn’t already available on other Oneworld partners.

          1. Jim – I don’t see the biggest issue as global coverage but rather coverage in the US, and that’s exactly what AA/US brings together.

            Sure, having a more comprehensive network from US Airways will help American in Europe because it reduces the number of stops required to get between Europe and secondary cities in the US. (Today it’s Venice-London-New York-Columbus but after the merger it’s Venice-Philly-Columbus.) That’s important but it’s not the main issue as I see it.

            You have a lot of cities in the US that don’t have good, comprehensive service options on either airline today. In the West, American can’t really do much to get you within the west but US Airways can. In the East, you have a lot of cities that American can bring you west but not east. US Airways solves that problem.

            Previously, that might not have been a huge issue because no airline could cover everything, but that’s not the case any longer. United and Delta can both go in and offer aggressive pricing and benefits for committing more flying to them. American can offer those deals but it can’t cover everything. So if a company chooses American, it will still have to then pay higher rates and get fewer benefits for travel on the other carriers.

      2. Business travelers want airlines with a global network; if they have business in Namibia, they want to get there by plane, from an airport close to their home or office. That’s why the “big airlines” have so much code sharing and why they are members of global alliances. The AA/US merger creates an airline with more “entry points” than each of the partners have individually.

        And with three global alliances it is fair to expect three big US airlines.

  8. There is a long discussion of this on Flyertalk. However, under US antitrust law, the only thing that matters is whether the merger will raise prices for consumers. The financials of the airlines are not an issue. There is an exception if one of the airlines is at imminent risk of failing, but that is not the case here. Therefore, all DOJ has to do is convince the judge that the merger will raise prices for customers. Given that Doug Parker has already admitted to as much, this should be an easy case.

    1. This is from the Antitrust Law Center:

      “Antitrust laws protect competition. American Consumers rely on free, fair and open competition-getting goods and services at the lowest prices. Businesses and public entities rely on bidding and the free market to ensure the best prices. Markets can work only when the competitors set prices honestly. When competing businesses agree to cooperate behind the scenes by fixing prices, rig bids, or divide up customers – prices are inflated and consumers are cheated.”

      Note that the first sentence says, specifically, that “antitrust laws protect COMPETITION.” It says nothing about anti-trust laws keeping prices low (except to assert that competition keeps prices in check).

      But it can be argued that too much competition is also counterproductive. If you want evidence, just look at all of the recent airline bankruptcies. Airlines still operate on razor thin margins compared to most industries, and air fares (even with fees) are still relatively inexpensive when adjusted for inflation.

      The DOJ has to convince the judge that the merger will eliminate competition. Anyone who has followed the airline industry knows that high fares invite competition. They don’t eliminate it.

      1. DesertGhost, your quote appears to be from some sort of a publicity flier or pamphlet, which has been watered down for the general public. It is not a legally accurate statement of antitrust law.

        1. The American people want to get on an aluminum tube, whiz along at 600 MPH,30,000 feet over the ground,eat chateaubriand whilst being fanned with palm fronds,then get off said aluminum tube on the other side of the country,ocean or world and pay less for it than they would to have a set of quality tires installed on their car.

          Remember immediately after 9/11 the American flying public was so traumatized they would never set foot on an airplane again? What happened? The airlines lowered fares so much that in some divine miracle, people over came their deathly fear of flying and stampeded back on these planes.

          Then when fuel spiked and they tried to pass those costs along everyone wailed about not being able to fly to London for $250.00 R/T during the Christmas holidays.And the bitching and moaning on sites like this and FT was legendary.

  9. IMHO the main thing US and AA are guilty of is being tardy to the party.
    The first mega-merger was done by the MBA’s playbook. The overlap was minimal, the overlay was excellent, key labor agreements were in force before the first plane was repainted and integration was almost flawless. Round II looked great on paper and involved some concessions (EWR) but has been difficult to execute. New UA is getting better….but ‘better’ is relative to the mess it was in 18 months ago. I think most of us agree that Round III was about taking out competition. There will be a canyon blue foot print in ATL going forward….but for the most part, any vestige of FL will be dead and gone by this time next year.

    Now we have Round IV. Getting hitched because they are the last 2 standing. Bizschoolspeak ‘synergies’ and ‘kinetics’ promoted in PR departments and financial prospectuses are dubious. They are being held to a standard that is different from DL/NW, UA/CO & WN/FL because they are last. The DOJ (and consumers and politicians) have several years of history to examine since the first merger. US and AA have to prove that their integration will lead to a consumer friendly network that will not cut off smaller communities and monopoly pricing. They have to demonstrate that they have a realistic plan to integrate systems with minimal disruption to the public. It is incumbent on them to authenticate that this deal is based on growth and not eliminating a competitor. (The last burden will be difficult as both Companies have DNA that says otherwise. AirCal? Reno?). Piedmont?)

    I agree that the DOJ’s case is iffy….but this will not be a slam dunk for Team Merger. There will be tough questions that will require believable,coherent answers. Spin and bizschoolspeak won’t cut it this time around.

  10. Reading some of the comments here, it’s quite obvious some people have no idea what the definition of “monopoly” is. I don’t quite understand how you can call any industry a “monopoly” that has 4 major players competing for business and a pile of minor players besides.

    1. Understan this, monopolies do not occurr over night. One by one the “players” are disappearing from the table. Sometimes people wake up when it is to late.

      Excuses and bright forecasts will not save the day, jobs or consumer interests by letting only the mega merged airlines run the show. You talk as if the survivng independents are assured of a long and healthy life if another mega merger occurrs as it will help the industry. Sorry, greed does not end the story allowing another mega merger happen.

      1. Mike, do you think the airlines exist to fly you around for free or worse to loose money to fly you around. Even on a good day, the profit margin is less than 2%, that is hardly greed!

        1. Dear “L”, I always have said in this blog that EVERY business should get a fair and reasonable profit. That is the AAMERICAN way.

          As much as most people would not turn down ANY generousity from any of the airlines,l it would be a cold day in Hell before you would see it. Good day or bad day, Consumers and most reasonable people would not want to trust what a real profit margin any airline says they need. I do not deny that it is a slim margin. BUT, please remember to take into account the numerous tax write-offs and tax incentives granted airlines to remain servicing their home city, or start to do so. More than one city has been screwed by airlines that took the money and ran.

          Bottom line: Competition is the ONLY way to keep reasonable fares, service and keep the nations air transportation network viable, as well as keeping a healthy group of independent airlines. People who cheer on the mega mergers are really helping a death wish for reasonable fares and service for consumers. If it was up to the airlines they would only sell tickets to First and Business Class passengers. Get the picture?

          1. No matter if you have 4 or 20 airlines, they cannot sell you a ticket for less than the cost of opperating and expect to survive. Get the picture?

  11. I’m not really sure I like all these recent mergers, but that ship has sailed for everyone except AA/US. I’m no fan of Dougie Parker but I’m not sure it’s right for the feds to change the rules in the middle of the game.

    On the other hand, DOJ’s action is clearly political and deserving of the Crazy Jackass award as stated here .

    But whether you’re pro- or anti- merger, I agree with the court’s decision to get on with it and not drag the proceedings out till next Spring.

  12. The DoJ will want the new American to surrender slots at DCA, that is the crux of the issue.This nonsense about 1,000 pairings with no competition is noise.Some of the routings in the complaint average 5 pax a day each way.

    They want more “Low fare competition” at DCA? How many more jetblue flights to MCO do they need? Or WN to AUS? Come on now, the DoJ didn’t even mention WN, the largest US domestic airline in their “Complaint”.

    I know the American public wants hourly widebody service from their town to the rest of the world, but that isn’t the way the game is played.

    The airlines are the only industry that gives away the product for less than it costs to produce.

  13. I’m not at all sure why anyone would think DOJ’s arguments are DOA. I’ve traded merger arbitrage for years and there is a specific hatred reserved for the anticompetitive nature of airlines. Arbitrage spreads have always traded wide on these deals.
    Part of the dislike is related to “barriers to entry.” The idea some new airline can just start up and offer service doesn’t pass muster. This industry has the highest barriers to entry of any I can think of which have engaged in merger or potential merger activity.
    The DOJ suit seems pretty sound to me, from an antitrust perspective. I do not know how many travelers there are in each of the 800+ markets DOJ listed, but it’s more than a few , which seems to be the implication of a prior CF blog.
    Here , the issues seem unfixable. I’ll be reading the filings on Pacer before the trial because I may have a financial interest in the outcome. I am particularly interested to see what AA/US use as arguments that the merger will not tend to substantially lessen competition in violation of Section 7.

    As to other mergers, they are only relevant in that the marketplace is now more concentrated, and once it became more concentrated there is clearly a “last mover” disadvantage. Justice deals with the market as it is now…. there is no “you let them merge so we should be able to merge” standard.

    Perhaps the companies can make solid arguments that will carry the day. From everything I know, having been around this game for 15 years, I tend to think the government will win at the District Court level. We’ll see whether either party appeals the decision. I would think the government would appeal if they lost, but I just don’t see a strong argument that this merger is not going to increase prices of services and flights more than a de minimus amount. I’m VERY interested to see the companies’ arguments….if anyone has found them on Pacer yet , perhaps they can post them…I have not been keeping up with the filings.

    1. Traderprofit, Great input. Very educational and interesting. Your observations make sense.

      Personally, I hope that the thinking of your blog carries the day in court. It is always a good thing for consumers to have a watchdog protecting the well being of the public, when it is reasonable and makes sense. This mega merger proposal fits into this category.

      1. @CF @SidelineObserver. I am wondering where you are getting the 5 pax per day figure, and if you have seen any stories about the total number of affected passengers by market. If it’s 5 in each market, then you perhaps really have a “relevant geographic market.” But, these things have a mind of their own:
        Take into consideration, though, that small market areas can be relevant product markets in a national merger. In a merger of grocery store chains, every one I know of was required to divest competing stores in the same neigborhoods (Kroger/Fred Meyer, Albertson’s, etc). These deals took forever to complete because of the detail involved in nailing down to the neighborhood level the stores that might tend to result in a localized rise in prices.
        Also,the Brown Shoe case is perhaps slightly instructive in that it’s acquisition of Kinney was blocked even though Kinney had a 2% market share.
        I am not sure how relevant that is to this case, but I presented it to point out that small markets can have a big impact. That case did have a different fact pattern–and I am not just talking about shoes v. airlines.

        If anyone has figures on the number of affected passengers in each market on an annual basis I’d love to see it. I could probably pay for the data but I am not so inclined.
        I am looking for an adverse ruling because I want to buy American’s debt securities and though they already fell 10-15% , They have somewhat recovered and a final ruling would drive them lower.

  14. Very rare that antitrust suits go to trial. This will be settled before trial.both sides want the most leverage for the settlement

  15. The Aspire article is very interesting, but I am not persuaded by it. I find DOJ’s assertions win the day right now.
    Baer is also a guy who doesn’t bring cases that aren’t strong. As he said ,DOJ thinks a “full stop” is the only remedy. I have trouble imagining the airlines did not negotiate with DOJ prior to the suit being filed.
    I do agree these cases rarely go to trial, but that is because they are dropped by the merging parties. If the airlines–as any other business would–really expect to get their merger done, they should not set deadlines (August 15 here) and instead keep negotiating WITHOUT a lawsuit having been necessary. They simply agree not to merge until they have settled the issues with the government. I am of the opinion US and AA wanted to set a timeline to completion and you don’t roll that way with regulators. There have been plenty of mergers that took 1 to 2 years or even more to complete. The parties were negotiating with FTC or Justice. The airlines’ attitude seems unusual here. They seem to be saying “we need to get this done right away or we need to go our separate ways.” Well, they should have considered they would not be able to set a timeline the government would have to live with.

    The lawsuit is not a negotiating tactic. Disagree with anyone who thinks that.
    I also think there has to be a lot of ill will here, and nobody is going to force the government into a timeline.

    I still say “full-stop” is the remedy until I see otherwise. After all, I don’t think I have seen anything the airlines put out on proposed divestitures….and that is not going to be decided in a court. It’s full-stop or full-go in court.
    I have trouble beleiveing there is any serious negotiating going on with the airlines pressing an early trial date.
    I’ve been wrong before…quite a few times…..but I have seen enough injunctions and trials to say I don’t like the airlines’ chances.

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