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AMR-US Airways Deal Probed by 19 States Led by Texas

July 2 (Bloomberg) -- US Airways Group Inc.’s proposed $11 billion merger with AMR Corp.’s American Airlines will be probed for its effect on consumers and competition by 18 state attorneys general led by Texas.

“We can confirm that Texas leads among states in the review of the merger,” Tom Kelley, a spokesman for Texas Attorney General Greg Abbott, said yesterday in an e-mail. He declined to comment further, citing a confidentiality agreement the attorneys general signed with the airlines.

The group of states joins the U.S. Justice Department, which is already reviewing whether the combination will create a monopoly in any markets. American will ask the bankruptcy judge overseeing its Chapter 11 case in Manhattan to confirm the airline’s reorganization plan at an Aug. 15 hearing.

The states are concerned that the combined carriers might reduce connecting flights to cut costs, which could hurt consumers, a person familiar with the matter said. They also want to ensure that the new American doesn’t use Washington’s Reagan National Airport as a hub, which could reduce the number of flights from regional airports to the nation’s capital, said the person, who asked not to be named because the probe is confidential.

National Service

US Airways has said it would retain service to midsize and small cities to feed passengers onto flights out of National. Other major airlines that would vie for limited flight slots US Airways might be forced to surrender wouldn’t maintain that service, the carrier has said.

American Airlines declined to comment on the state probe, said Michael Trevino, a spokesman for the Fort Worth, Texas-based carrier. Tempe, Arizona-based US Airways also declined to comment, said Michelle Mohr, a spokeswoman.

A civil antitrust lawsuit seeking to block the merger was filed today in federal court in San Francisco by 39 consumers represented by attorney Joseph Alioto, who claims the combination will reduce competition, drive up fares and create a monopoly in certain markets. The merger of the two companies violates federal antitrust laws and shouldn’t be allowed, according to the complaint.

“I have referred to this as skyway robbery,” Alioto said in a phone interview. “The cupidity that’s involved is outrageous. The last thing they want in the world is to have to compete.”

Mohr said the company believes the lawsuit is meritless.

‘Baseless Allegations’

“As is often the case with high-profile mergers, lawsuits containing baseless allegations such as these are filed and they are successfully defended,” she said by e-mail. “ We believe this lawsuit is entirely without merit and anticipate concluding the merger in the third quarter as planned.”

Trevino didn’t immediately respond to e-mails today seeking comment on the lawsuit.

Scrutiny of airline mergers by states attorneys general alongside the Justice Department isn’t unusual, and has been a factor in previous airline mergers, the person said. The attorneys general probing the merger are from Arkansas, Arizona, California, Florida, Iowa, Illinois, Minnesota, Mississippi, Nebraska, New York, Oklahoma, Pennsylvania, South Carolina, Tennessee, Virginia, Wisconsin and West Virginia, as well as the District of Columbia, the person said.

Biggest Airline

US Airways and American agreed in February to combine as part of AMR’s bankruptcy restructuring. AMR creditors will own 72 percent of the equity in the combined airline, while 28 percent will go to US Airways shareholders. Together, they will pass United Continental Holdings Inc. as the biggest airline, based on passenger traffic.

In addition to securing approval from the bankruptcy court and antitrust regulators, US Airways shareholders have to support the combination in a July 12 vote before the merger can be completed. The companies have said they expect that to happen in the third quarter.

The case is In re AMR Corp., 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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