American and US Airways Settle Suit with Justice Department

It’s now official: American Airlines has announced that it has settled the suit brought by the U.S. Department of Justice, which had sought to halt the airline’s merger with US Airways.

Listen: Analyst Rick Seaney’s assessment

Merger Back On: Reaction

Doug Parker, current CEO of US Airways and the man who will lead the newly combined carrier called it very good news, thanked his employees and added, “We are pleased to have this lawsuit behind us and look forward to building the new American Airlines together.”

Air travel analyst and FareCompare CEO Rick Seaney’s initial response to the news was, “I am pleased that the employees of both airlines finally have an answer – the worst part of this was the fear of the unknown – now folks can finalize plans and settle into the holiday season.”

Concessions

The U.S. Department of Justice filed suit back in August to halt the merger, claiming the ensuing drop in competition would result in “passengers paying higher airfares and receiving less service.” Here’s what the airlines agreed to do (and this information comes verbatim from the American Airlines press release):

  • “Under the terms of the settlement, the airlines will divest 52 slot pairs at Washington Reagan National Airport (DCA) and 17 slot pairs at New York LaGuardia Airport (LGA), as well as certain gates and related facilities to support service at those airports.  The airlines also will divest two gates and related support facilities at each of Boston Logan International Airport, Chicago O’Hare International Airport, Dallas Love Field, Los Angeles International Airport, and Miami International Airport. The divestitures will occur through a DOJ approved process following the completion of the merger. Despite the divestitures, the new American is still expected to generate more than $1 billion in annual net synergies beginning in 2015, as was estimated when the merger was announced in February.”
  • “After completion of the required divestitures, the combined company expects to operate 44 fewer daily departures at DCA and 12 fewer daily departures at LGA than the approximately 290 daily DCA departures and 175 daily LGA departures that American and US Airways operate today.  The divestitures required by the settlement are not expected to impact total employment at the new American.”
  • “To ensure much of the service currently operated by the carriers to small- and medium-sized markets from DCA is maintained, the new American has agreed with the DOT to use all of its DCA commuter slot pairs for service to these communities. The new American intends to announce the service changes that will result from the divestitures in advance of the sale of the DCA and LGA slots, so that the airlines acquiring those slots have the opportunity to maintain service to those impacted communities.”
  • “In the settlement agreement with the state Attorneys General, the new American has agreed to maintain its hubs in Charlotte, New York (Kennedy), Los Angeles, Miami, Chicago (O’Hare), Philadelphia, and Phoenix consistent with historical operations for a period of three years.  In addition, with limited exceptions, for a period of five years, the new American will continue to provide daily scheduled service from one or more of its hubs to each plaintiff state airport that has scheduled daily service from either American or US Airways. A previous settlement agreement with the state of Texas will be amended to make it consistent with today’s settlement.”

Rick Seaney was Right

Earlier, analyst Rick Seaney called the Justice Department’s suit unexpected but not a death blow, adding, “I do not expect this will kill the merger but it will probably delay it.” He was right.

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Published: November 12, 2013