American Airlines and US Airways Group Inc. scored a win in their battle to merge as Texas Attorney General Greg Abbott quit the U.S. antitrust lawsuit seeking to block their tie-up.
American’s parent, AMR Corp., and US Airways reached a settlement with Abbott under which the merged airline agreed to maintain a hub at the Dallas-Fort Worth airport and keep its headquarters in the area. The Justice Department, six states and the District of Columbia are still participating in the lawsuit claiming a merger would be bad for consumers.
Shares of both airlines rallied, buoyed by optimism that the accord with Texas could improve the merger’s odds of winning approval and by a federal judge in Washington’s rejection of a government bid to delay the trial. The combined airline already had planned to retain American’s Fort Worth home and Dallas-Fort Worth hub, where flights from small cities in Texas and elsewhere converge.
“Our real concern, that we articulated from the beginning, was to ensure no interruption of service from rural areas of the state of Texas,” Abbott said at a news conference yesterday at the airport. “That was our main goal going in, that’s our main accomplishment coming out.”
Abbott, who’s seeking the Republican nomination for governor in 2014, has been attacked for his opposition to the merger, including by State Senator Wendy Davis, a Fort Worth Democrat considering a run for governor. In a column for the Dallas Morning News on Aug. 15, Abbott said the violations of antitrust law in the proposed merger were “so overt that it would offend my oath of office not to take action.”
Texas was the “outlier” among the states that joined the Justice Department lawsuit, Hunter Keay, a Wolfe Research LLC analyst, said in an interview today.
“Every other state had their reasons and you could at least come up with some degree of rationale for why they were involved,” Keay said. “With Texas there was never really a base case for him to be involved in the first place outside of political grandstanding.”
The U.S. Justice Department antitrust suit to block the tie-up, which would create the world’s largest airline, is scheduled to begin trial on Nov. 25. Final arguments are slated for January.
U.S. District Judge Colleen Kollar-Kotelly, in rebuffing the government’s request for a delay, said a “speedy disposition” is needed in view of a Jan. 18 deadline to complete the merger, which would allow AMR to exit bankruptcy. She also cited the interests of employees and the amount of money at stake.
“It is essential that the Department of Justice attorneys continue to litigate this case,” the judge wrote in an order.
The Justice Department, which argued it was suffering short-staffing as a result of the government’s partial shutdown, said the court’s order “would constitute express legal authorization for the activity to continue.”
AMR is counting on the merger as part of its plan to restructure in bankruptcy, after filing for court protection in November 2011. AMR and US Airways had targeted a third-quarter closing for their deal before the Justice Department filed its lawsuit in August.
Jim Corridore, a New York-based analyst at Standard & Poor’s Capital IQ, who has a “strong buy” rating on US Airways, said the agreement with Texas weakens the Justice Department’s case and makes an overall settlement more likely.
“The more setbacks they have and the less time they have to prepare, the more likely they are to try to find a face-saving resolution,” he said in a telephone interview.
Rich Parker, an attorney for US Airways at O’Melveny & Myers LLP, declined to comment on any settlement discussions after yesterday’s court hearing.
“We are interested in a reasonable settlement in this case, but I really am not going to discuss what if anything is going on with the Department of Justice,” he said. “It’s just not right to talk about settlement talks other than to say we’re open” to them.
In addition to the Justice Department, Arizona, Florida, Michigan, Pennsylvania, Tennessee, Virginia and the District of Columbia are proceeding with the litigation against the airlines. They claim a combination of American, the third-biggest U.S. airline, and No. 5 US Airways would hurt consumers by damping competition and paving the way for higher fares.
Justice Department spokeswoman Gina Talamona declined to comment on Texas dropping out of the case.
Allen Grunes, an antitrust lawyer with GeyerGorey LLP in Washington and a former attorney with the Justice Department’s antitrust division, said he didn’t think Abbott’s decision to settle would affect the federal lawsuit.
“With multistate task forces, if one state drops out, whatever slack that creates will be picked up by some of the others,” Grunes said. “Both Florida and Pennsylvania have good-sized antitrust components so I’d expect them to take up where Texas left off.”
AMR Chief Executive Officer Tom Horton said during a press conference with Abbott that the settlement with Texas “is an example of what happens when we sit down and talk to the party on the other side of the table and find a way to address the concerns.”
The settlement also calls for the carrier to retain service to 22 airports in Texas, Abbott said.
Horton said the merger would promote competition and create a stronger airline able “to compete head to head” with United Continental Holdings Inc. and Delta Air Lines Inc., which rank first and second in the global industry by passenger traffic.
Horton, who is set to become chairman of the combined airline, was asked if he’s disappointed that the judge doesn’t expect to rule on the lawsuit before January. The companies earlier agreed to extend the deadline for completing the merger to Jan. 18 from the original Dec. 17 date.
“We’re not happy with the delay, but the judge is absolutely proceeding with dispatch and we appreciate that,” Horton told reporters after the news conference.
The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington). (Washington). The bankruptcy case is In re AMR Corp., 11-bk-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).