On 13th August 2013, the US Department of Justice (DOJ) and attorneys general from six US states and the District of Columbia filed suit in the US District Court for the District of Columbia to block the merger between US Airways and American Airlines. Days before, a group of American Airlines customers filed a claim that the merger would violate Section 7 of the Clayton Act.
These actions took place within little more than a week after the European Commission cleared the proposed merger with commitments, in a Phase 1 decision on 5 August 2013. The European Commission concluded that the merger would lead to a monopoly on the London-Philadelphia route, where US Airways and American Airlines (through its joint venture with British Airways and Iberia) are the only carriers offering non-stop flights. However, the Commission was willing to accept commitments that it felt would alleviate the competition concerns. These included an agreement to release one daily slot at each of London Heathrow and Philadelphia airports. In addition, the parties were willing to provide incentives for a possible new entrant to acquire certain rights and to entering into special feed traffic agreements with any likely new entrant airline.
The US actions have thrown American Airlines emergence from Chapter 11 bankruptcy into disarray. American has been in Chapter 11 since November 2011. In March 2013, the bankruptcy judge had preliminarily approved American’s reorganization plan, which contemplates the merger with US Airways. However, the plan confirmation has been postponed in light of the DOJ action.
The Department of Justice has sought to see American emerge from bankruptcy as an independent company. Suggestions that American could remain as an independent carrier and emerge from bankruptcy alone have been viewed by some commentators as unrealistic in light the increased strength of Delta and United Airlines following their recent mergers. Although American has asked the bankruptcy judge to confirm its reorganization plan notwithstanding the DOJ action, the suing customers have asked the judge to send their antitrust lawsuit to the US. District Court for the Southern District of New York, claiming that that the bankruptcy court is not the appropriate forum to decide this matter.
In the meantime, although DOJ had requested a trial date in March 2014, claiming the need for time to ensure the court will have an appropriate record on which to base a decision in what would be one of the largest merger challenges ever tried. The airlines had opposed this, pointing to the DOJ’s already 16 month investigation of the matter. The trial judge has now set an expedited 25th November 2013 trial date.
Just one day after the DOJ’s request for a March trial date, the parties have expressed an interest in settling the case, although the DOJ says it awaits a proposal from the defendants that addresses the competitive harms it has addressed in its complaint. In spite of the fact that prior policy allowed six unprofitable airlines to merge over the last five years, the current competitive landscape was viewed as not “functioning as competitively as it ought to be,” according to the Justice Department, and the merger would result in four airlines controlling some 80% of the US market.