Airlines Merger Needs Divestitures to Settle U.S. Suit

American Airlines and US Airways Group Inc. will have to divest assets at key airports across the country if they want to settle the U.S. lawsuit seeking to block their proposed merger, Attorney General Eric Holder said.

Shares of American parent AMR Corp. surged after Holder said today he hopes to resolve the case before trial through talks now taking place between Justice Department and the airlines. Should the negotiations fail, the government is prepared to go to trial to block a merger that would create the world’s largest airline, he said.

“What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States,” Holder said at a news conference in Washington.

He declined to disclose the number of slots for takeoff and landing rights that the government wants the airlines to sell before it will approve the tie-up.

“We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint and do not substantially bring relief to consumers,” Holder said.

Share Prices

AMR rose 25 percent to $9.84 in over-the-counter trading in New York. That was the biggest jump since Feb. 14, the day the deal was announced. US Airways rose 1.2 percent to $22.71.

AMR’s $460 million of 6.25 percent convertible notes due in October 2014 rose 9 cents to 132.5 cents on the dollar in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.

The rally built on momentum generated last week when AMR Chief Executive Officer Tom Horton met with Florida Attorney General Pam Bondi to discuss ending that state’s role in the U.S. lawsuit.

Bondi said in a statement that both sides were “hopeful that we will reach a timely resolution,” and Horton echoed that with a statement saying he was “hopeful that a resolution can be reached in the near future.”

Florida is among six states plus the District of Columbia that have joined the Justice Department’s lawsuit. The U.S. and the plaintiff states argue the combination would reduce competition and raise fares. Texas dropped out of the suit last month.

‘Right Outcome’

Assistant U.S. Attorney General Bill Baer, head of the Justice Department’s antitrust division, said when the lawsuit was filed that “We’re in court today because we think a full-stop injunction is the right outcome for consumers.”

Bloomberg News reported the settlement talks between the airlines and the Justice Department Oct. 30.

“There has to be something where everybody can declare it a win-win and it makes sense for the airlines and it makes sense from the government’s standpoint to resolve the competitive concerns they have,” said Jonathan Lewis, an antitrust attorney at BakerHostetler in Washington, who isn’t involved in the case.

American, which has been in bankruptcy since November 2011, was set to exit court protection by merging with Tempe, Arizona-based US Airways when the Justice Department and a group of states sued to block the deal Aug. 13.

The lawsuit, unexpected by analysts and industry executives, marked a sharp break with the Justice Department’s past policy, which allowed six unprofitable airlines to merge over the past five years in an effort to cut costs and end losses.

Planned Merger

The Justice Department claimed the planned merger would leave US Airways no incentive to offer discounted “Advantage Fares” and could cause the industry’s legacy carriers, such as United Continental Holdings Inc., Delta Air Lines Inc. and American to charge more for tickets and ancillary services.

The U.S. said in its complaint that the merged airline would control 69 percent of slots at Washington’s Reagan National Airport, almost six times more than its closest competitor, effectively blocking other airlines from entering or expanding there to increase competition. A carrier that wants to begin or expand service at Reagan must buy or lease slots from another airline.

The case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington).

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