DOJ Sues to Stop the Merger Between American Airlines and US Airways

AMR Corporation’s proposed mega-merger with US Airways appears to be on the ropes. The likelihood that the $11 billion deal will close was called into question yesterday, when the United States Department of Justice (“DOJ”), six state attorneys general and the District of Columbia filed a civil antitrust lawsuit to stop it. Texas is among those states suing. The merger, if finalized, would result in the world’s largest airline and would further consolidate an already consolidated industry.

In simplistic terms, the basis for the DOJ’s lawsuit is that such a combination would lead to significantly decreased competition by concentrating airline services in too few airlines. DOJ points to the increased fares, increased fees and decreased services that have occurred in recent years. According to the DOJ, things would only get worse for consumers if American and US Airways become one entity.

As it stands now, domestic airline travel is highly concentrated, thanks in part to a series of other mergers over the last decade. For example, United Airlines merged with Continental, Northwest Airlines merged into Delta Airlines, and Southwest Airlines purchased AirTran, all in the last three years alone. The DOJ says that an American/US Airways merger would leave over 80% of commercial, domestic air travel in the hands of only four companies. This lawsuit, which appears to have surprised many in the industry, will either delay the deal or kill it altogether. Since American’s Chapter 11 reorganization plan hinges on this merger, the lawsuit’s outcome has a lot hanging in the balance.