US Justice Dept. Probing American-US Air Merger

June 27, 2013

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The US Justice Department is taking depositions as part of a probe into a planned merger of American Airlines and US Airways, three sources close to the discussions told Reuters.

The sticking point in talks between the Justice Department and the companies is whether the airlines will agree to sell slots to reduce their dominance at Washington's Reagan National Airport, according to one source.

The three sources spoke privately to protect business relationships.

US Airways announced on February 14 that it planned to merge with American, which is emerging from bankruptcy, to create an USD$11 billion airline. The deal requires the approval of the US Justice Department and the Department of Transportation. The companies hope to wrap up the merger by the end of September.

American Airlines and US Airways declined comment.

The fact that the Justice Department is taking sworn testimony in the form of depositions indicates it has concerns that the proposed merger creates antitrust problems. Depositions will be needed if the agency approves the deal with conditions or, in rare cases, if it decides to try to stop it. The department could also decide to approve the merger without requiring asset sales.

Depositions preserve testimony if the department decides to challenge the merger, said Robert Doyle, an antitrust expert with Doyle, Barlow and Mazard.

If the deal is approved, the new airline would have 68 percent of the slots at Reagan National, far more than Delta Air Lines with 12 percent, United Airlines with 9 percent and the 11 percent held by other airlines, according to a report by the US Government Accountability Office.

The companies have pushed back hard against any suggestion that takeoff and landing slots at Reagan National be sold.

US Airways CEO Doug Parker said in congressional testimony last week that requiring the combined company to surrender slots could mean fewer flights to small and medium-sized cities.

Justice Department spokeswoman Gina Talamona said only that the agency's investigation was ongoing.

Antitrust experts have said the Justice Department could request divestitures of some slots at Reagan National and a small number of other airports. Outside these hubs, the carriers fly different routes for the most part.

In late May, more than 100 members of Congress asked US regulators to allow the new American to keep all the slots at Reagan National. The airport is used by many members of Congress to travel to and from their home districts.

The US airline industry has undergone five years of rapid consolidation. Delta acquired Northwest Airlines in 2008, United merged with Continental in 2010 and Southwest Airlines bought discount rival AirTran in 2011.

With fewer carriers competing, ticket prices have risen. The average fare rose about 8 percent to USD$375 in the third quarter of 2012, compared with USD$346 in 2008, according to the US Bureau of Transportation Statistics.

(Reuters)