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AMR Says March Trial Could Put US Airways Merger at Risk

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Aug. 29 (Bloomberg) -- AMR Corp. and US Airways Group Inc. said that waiting until March to start an antitrust trial as proposed by the Justice Department would cause “significant harm” and put their proposed merger at risk.

The government’s proposed trial schedule places the merger of bankrupt AMR’s American Airlines with Tempe, Arizona-based US Airways in jeopardy “because two independent companies can be asked to stay in limbo for only so long before they need to make independent plans,” lawyers for the airlines wrote in a filing yesterday in federal court in Washington.

The carriers and the government are at an “impasse” over a trial date, with the companies seeking a November trial. Judge Colleen Kollar-Kotelly is scheduled to hear arguments from both sides in court Aug. 30.

There ought to be a “realistic possibility” of a settlement in the case, the airlines said in another filing made jointly with the U.S. yesterday. They said they tried to settle the dispute before the lawsuit was filed and indicated their willingness to consider settlement options to antitrust officials.

The Justice Department said it hasn’t received a proposed settlement that addresses its antitrust concerns about the merger of Fort Worth, Texas-based American with US Airways, which would create the world’s largest carrier.

Complex Case

Rushing to try the antitrust lawsuit isn’t a good idea given the case’s complexity and the potential for the merger to hurt competition and consumers, the Justice Department said in papers filed Aug. 27.

The government said the additional time is necessary given the volume of trial materials to be exchanged, including interviews, expert testimony and data. The government is proposing that each side be allowed as many as 50 depositions, according to the joint report filed yesterday.

Airline lawyers argued that AMR’s recent healthy earnings - - described in a company press release as the best second-quarter result in the carrier’s history -- mask ongoing industry vulnerability.

“The reality is that the health of airlines is inherently fragile” because it’s subject to external shocks such as oil price spikes, airline lawyers wrote.

Aircraft Financing

The airlines have been making decisions about schedules, aircraft financing, plane configuration, facility leases and relocation “in expectation that the merger would close within the next few weeks,” according to the filing. “Many of those plans are now on hold as a result of the uncertainty engendered by this lawsuit.”

Government lawyers “discount the seriousness of bankruptcy, grossly underestimate the difficulty of putting together a successful reorganization plan, and summarily dismiss the loss to others, including employees and customers, while exaggerating their difficulties,” according to the airlines’ filing.

The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington). The bankruptcy 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; Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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