AMR, US Airways Must Divest Slots in U.S. SettlementDavid McLaughlin, Sara Forden and Mary Schlangenstein
American Airlines and US Airways Group Inc. reached an agreement with the U.S. Justice Department over the government’s bid to block their merger, clearing the way to a tie-up that would create the world’s biggest carrier.
The airlines must give up 104 flight slots at Washington Ronald Reagan National Airport and 34 at New York’s LaGuardia Airport, along with smaller divestitures at five other airports under the proposed settlement filed today by the department’s antitrust division in federal court in Washington.
The accord positions the carriers to complete their combination in December, bringing American parent AMR Corp. out of bankruptcy. While Attorney General Eric Holder said the settlement would open up “a bigger foothold for low-cost carriers,” the airlines said their goal of $1 billion in savings and new revenue would remain intact.
The Justice Department “has lost the opportunity to claim a settlement in favor of the merger as any kind of victory,” Vicki Bryan, an analyst at bond researcher Gimme Credit, said in a note to clients. “That treat rightfully will be shared by AMR’s long-suffering employees and creditors in the resulting combination under US Airways’ management.”
Absent from the settlement was any requirement to maintain Advantage Fares, a US Airways discount offering that the Justice Department said in its lawsuit would be at risk in the merger.
AMR, based in Fort Worth, Texas, jumped 26 percent to $12 in over-the-counter trading, while Tempe, Arizona-based US Airways rose 3.4 percent to $24.07 at the close in New York. That pushed the year-to-date gain for the fifth-largest U.S. airline to 78 percent.
“DOJ saw as they were going through that their case wasn’t nearly as strong as they thought it was when they filed the complaint,” US Airways Chief Executive Officer Doug Parker said today in an interview.
Parker, 52, will become CEO of the combined carrier while AMR’s Tom Horton steps aside. The new airline will retain the name and Fort Worth headquarters of American, the third-biggest U.S. carrier.
US Airways’ Reagan National dominance was among the objections to the merger in the department’s Aug. 13 lawsuit to block the tie-up. AMR and US Airways also agreed to surrender two airport gates at Boston Logan, Los Angeles International, Chicago O’Hare, Dallas Love Field and Miami International.
“This agreement has the potential to shift the landscape of the airline industry,” Holder said in an e-mailed statement. “By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country.”
The U.S. had said the tie-up would harm consumers by damping competition, while the airlines said a merger was the only way they could compete with United Continental Holdings Inc. and Delta Air Lines Inc., the industry’s biggest carriers. The two sides faced a Nov. 25 trial date.
The concessions resolved regulators’ concern that the merged airline would control too many flights at Reagan National, where access is limited by federal law.
Making way for more low-cost carriers there and elsewhere “improves on a problematic status quo,” Bill Baer, head of the Justice Department’s antitrust division, said on a call with reporters. “It provides more competition than exists today in this industry and that is obviously good news for consumers all across the country who stand to benefit from more choice and more competitive airfares.”
With eight of American’s slot pairs at Reagan National already leased to JetBlue Airways Corp., the merged airline’s net reduction in daily departures there will be 44 flights, according to a US Airways statement. The combined carrier will have about 250 daily departures at that airport on weekdays, US Airways said.
The settlement affects less than 15 percent of daily departures at Reagan National flown by its planes and American’s, and less than 7 percent of departures at LaGuardia, US Airways said.
As part of the agreement with the Transportation Department, the combined carrier must maintain existing levels of service between Reagan National and smaller and mid-sized airports -- those not among the 29 largest in the U.S. by departing passengers -- for the next five years.
Preserving flights to those communities will help local economies and preserve competition to those markets, according to the agreement.
At least 75 percent of the airline’s commuter flights out of Washington must be to small or non-hub airports, which include Theodore Francis Green State Airport in Providence, Rhode Island, and Arizona’s Tucson International.
The remaining 25 percent of flights on commuter aircraft may fly to medium-sized airports such as St. Louis’s Lambert International and Houston’s Hobby.
The combined carrier won’t be allowed to use smaller commuter planes, typically flown by a subsidiary or a partner airline, on flights between Reagan National and any of the top 29 airports, according to the agreement.
American and US Airways announced plans to merge on Feb. 14, after US Airways convinced AMR’s bankruptcy creditors and board that a combination would be stronger than an independent American. The U.S. challenge was filed about two weeks before the carriers had hoped to celebrate closing the merger in September.
AMR sought bankruptcy protection on Nov. 29, 2011, after failing to secure union agreements that would help reduce its industry-leading labor costs. The company was the final large U.S. full-fare airline to seek court protection from creditors.
The judge overseeing AMR’s Chapter 11 case already endorsed its restructuring plan, contingent on resolving the federal antitrust suit.
AMR’s $460 million of 6.25 percent convertible notes due in October 2014 rose 8 cents to 142 cents on the dollar at 4:15 p.m. in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.
That debt traded at 17.75 cents on the dollar on the day AMR filed for bankruptcy, then rallied as investors bet that the US Airways merger would succeed.
The antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236, U.S. District Court, District of Columbia (Washington).