US Airways lays regulatory groundwork for possible merger

WASHINGTON Wed Jul 18, 2012 8:19pm EDT

A US Airways plane and American Airlines planes share a terminal at Ronald Reagan National Airport in Washington April 23, 2012. REUTERS/Kevin Lamarque

A US Airways plane and American Airlines planes share a terminal at Ronald Reagan National Airport in Washington April 23, 2012.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - US Airways Group has been laying the regulatory and political groundwork for a potential merger with American Airlines and would prefer to cement a bid while its rival is in bankruptcy, US Airways Chief Executive Doug Parker said.

Parker told Reuters in an interview on Wednesday that US Airways is working with legal advisers and has had preliminary discussions with officials of the Justice Department's antitrust division and with congressional lawmakers and staff.

Parker does not believe a deal with American would raise competition concerns, a view shared by a number of antitrust experts who said the Justice Department has approved three notable mergers with little or no pushback since 2008.

Parker sees the industry mega-mergers that created the new Delta Air Lines in 2008 and the new United Airlines two years later as an advantage to any review of a proposed American tie up because those two airlines, he said, are stronger.

American has grudgingly responded to pressure from creditors to consider a tie-up with smaller US Airways as its best option for competing with Delta and United.

But the airline has made it clear that it would prefer to emerge from Chapter 11 protection as a standalone carrier and is seeking bankruptcy court permission to formulate a reorganization plan without interference from outside parties through the end of the year.

Parker said the airline has had a number of conversations with lawmakers without any material objections to the possibility of American and US Airways forming the world's biggest airline.

"We are letting people know what's going on because we know that when mergers in our business get brought up, people start getting concerned," Parker said.

Leaders of American's big unions have accompanied US Airways on Capitol Hill visits, an unusual alliance in any merger process that Parker said is a plus for easing any concern lawmakers may have about workers affected by a merger.

Justice Department officials declined to comment.

Any American-US Airways transaction would likely win approval regardless of which party, Democrat or Republican, is running the Justice Department next year, several sources with knowledge of antitrust policy said.

"I don't see a big problem here because you have a consolidating industry that's not making any money. So I think this deal might make some sense," said Evan Stewart, an antitrust attorney with Zuckerman Spaeder LLP.

Parker also said he did not anticipate the presidential election influencing the timing of any merger proposal.

Sources familiar with US Airways' thinking envision the new airline would adopt the American name and become a force in the East and Midwest, hubs for premium-paying business customers with a substantial domestic and international network.

US Airways has negotiated shadow contracts with American's pilots and other unions, who as unsecured creditors in American's bankruptcy have pushed for a merger. Parker has also pitched the deal to Wall Street and has expressed a strong preference for it to be done while American is in bankruptcy.

Antitrust experts agreed regulators would approve a deal quickly, arguing the Justice Department would find few overlapping routes, its usual method of assessing airline mergers.

Airlines usually know where the conflicts are and which routes will need to be divested to ensure competition, said George Hay, a veteran of the Justice Department now at Cornell University Law School.

"If it's (the antitrust review) route specific, it's going to be pretty easy to fix it," said Hay.

A combined American and US Airways would control 20 percent of the domestic market-based on a key measure of revenue-that would feed international routes to Europe, Asia and Latin America.

United and Delta, each control about 16 percent of domestic service and both have robust international operations. Delta has 21 percent of the New York share, while United, through its deal with Continental, controls 37 percent of flights from Newark.

Parker argued that a tie-up of American and US Airways would be good for consumers because a third mega carrier would put price pressure on the other two.

(Editing by Carol Bishopric)

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Comments (1)
kidsrap wrote:
Didn’t US Airways try to take advantage of Delta a few years ago when Delta was in Bankruptcy court and got turned down? Seams they are always looking for a bargain. I wonder, is the money coming from old Air Wisconsin UAL funds? I suspect board members with a long history have a master plan.

Jul 19, 2012 9:56am EDT  --  Report as abuse
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