US anti-trust enforcers cleared the proposed merger between bankrupt US Airways and America West Airlines, saying it would be good for consumers, the Justice Department said on Thursday.

The agency said it concluded its 30 day review of the deal worth up to USD$1.5 billion and found that combining the carriers would not hurt competition. The government declined to seek additional information from either company.

"The consolidation of America West and US Airways, which will create the fifth-largest domestic carrier, will enable the merged airline to offer US consumers more and better service to more destinations throughout the country," the Justice Department said in a statement.

US Airways hopes to emerge from court protection this autumn and then begin the process of merging with smaller America West. Combining the two airlines could take more than two years, the companies have said. The new carrier plans to operate under the US Airways flag.

The companies said in a joint statement they remain on track to secure regulatory approval and finalize the transaction.

Industry analysts and consultants had envisioned little, if any, push back from antitrust officials since there are few overlapping routes and US Airways would likely fail if the deal fell through.

US Airways mainly operates short-haul service in the East with hubs in Philadelphia, Charlotte and a mini-hub in Pittsburgh. US Airways serves 179 cities and operates 3,400 daily departures.

America West, the eighth-largest domestic airline, has hubs in Phoenix and Las Vegas. It serves 96 cities and operates 924 daily departures.

Competition concerns helped to sink US Airways last merger bid -- with United Airlines -- in 2001.

Justice Department clearance is generally the toughest government hurdle in a merger, but US Airways and America West have the added burden of having to satisfy the federal board controlling USD$1 billion in government-backed loans to the two carriers.

The Air Transportation Stabilization Board, set up to help struggling airlines get private financing after the 2001 attacks, controls roughly USD$700 million in loan proceeds for US Airways and USD$300 million for America West.

"That's the next big hurdle they have to pass," said Robert Mann, a New York-based consultant. "They obviously will be showing the same sorts of documents that they've shown to investors to the ATSB for simply allowing them to go forward."

US Airways moved forward in bankruptcy on other fronts on Thursday.

The federal judge in the Chapter 11 case approved a revised financing agreement between the airline and its largest creditor, General Electric, that allows the carrier to accelerate the reduction of its fleet and receive additional breaks on aircraft lease and other payments.

Approval of the GE deal cleared the way for Republic Airways to announce that it will proceed with plans to purchase or assume leases of 28 Embraer 170s as well as gates and slots at New York LaGuardia and Washington National airports from US Airways for USD$100 million. Republic had the option to execute the transaction as part of a USD$125 million equity investment in the bankrupt airline.

US Airways will lease back the slots and Republic will fly the new aircraft on US Airways routes.

Judge Stephen Mitchell of the US Bankruptcy Court for the Eastern District of Virginia in Alexandria also approved an agreement that will allow US Airways to continue to draw funds from the ATSB loans, the only source of available cash.

Access to cash, added liquidity, and new terms for aircraft financing are crucial for maintaining operations and completing bankruptcy restructuring, US Airways said. The company plans to file a new business plan with the court by June 30.