U.S. Justice Department Blocks AMR, US Airways Merger

(RTTNews) - The U.S. Department of Justice on Tuesday filed a lawsuit against the proposed $11 billion merger of American Airlines' parent AMR Corp. (AAMRQ.PK) and US Airways Group Inc. (LCC), indicating the deal would jeopardize competition and inflate airfares.

The announcement had a baneful impact on both companies' shares. US Airways shares slumped 8 percent on the New York Stock Exchange, while over-the-counter shares of AMR Corp. tumbled 45 percent.

The DoJ, along with six state attorneys general and the District of Columbia, filed the civil antitrust suit in the U.S. District Court for the District of Columbia.

The DoJ charged the deal would create the world's largest airline and lessen rivalry for commercial air travel in local markets. The department also raised fears that passenger fares would be hiked and four airlines would dominate 80 percent of the U.S. commercial air-travel market routes.

American and US Airways compete directly on more than a thousand routes where one or both offer connecting service, and eliminating this competition betrays consumer interest, the DoJ said. The department also averred that both airlines can thrive as standalone entities.

In November 2011, AMR filed for bankruptcy amid escalating costs, and after unrelenting pressure from US Airways, the two airlines agreed to merge in February this year.

If the deal fructifies, it would create the world's largest airline by passenger miles, with 6,700 daily flights and annual revenue of about $40 billion.

In August, the two airlines obtained European Union approval for the deal, after agreeing to surrender slots at London's Heathrow and Philadelphia in the U.S.

AMR and US Airways had said their merger will benefit consumers as a new airline behemoth can effectively take on two merged airlines - Delta Air Lines Inc. (DAL) and United Continental Holdings Inc. (UAL).

Nonetheless, the DoJ cites past statement from US Airways President Scott Kirby who said that fare increases stem from consolidation.

The DoJ's attempt to put a spanner in the works of the merger comes in contrast with earlier approved deals in the airline space. These include the 2008 purchase of Northwest Airlines by Delta Air Lines Inc., the 2010 merger of United and Continental Airlines, and the 2011 acquisition of AirTran Airways by Southwest Airlines Co. (LUV).

Meanwhile, a bankruptcy-court hearing had been set for Thursday to confirm AMR's plan of reorganization, which mainly consists of the merger with US Airways.

US Airways stock is trading at $17.21, down $1.61 or 8.55%, on a volume of 42 million shares on the NYSE.

AMR stock is trading at $3.16, down $2.65 or 45.61%, on a volume of 53 million shares.