Justice reaches settlement with American, US Airways
The Department of Justice has reached a preliminary settlement with AMR Corporation, the parent organization of American Airlines, and US Airways in its antitrust objection to the carriers’ proposed $11 billion merger.
If the settlement sticks, the merger, which received the acceptance of European regulators in August but still has to gain approval from the U.S. Bankruptcy Court, is now expected to be completed in December.
The airlines will divest 52 slot pairs at Washington Reagan National Airport, 17 slot pairs at New York LaGuardia, and two slot pairs each at airports in Boston, Chicago, Dallas, Los Angeles and Miami. According to a press release, the new company, which will operate under the American Airlines banner, has also agreed with the Department of Transportation to operate “a small community service” from Washington Reagan to maintain “much of the service currently operated by the carriers to small- and medium-sized markets.”
The divestitures mean that the new carrier will have 246 daily flights from Washington, D.C., and 163 daily flights from New York. The divested slots in Washington and New York will be sold under Justice-approved procedures, and according to a Justice press release, Southwest and JetBlue will be able to buy the slots they currently lease from American.
JetBlue President Dave Barger said he "looked forward to participating in the divestiture process," but other carriers have also expressed interest in gaining more traction in Washington and New York. In a statement, Delta Air Lines officials said they are looking forward to possibly acquiring more slots at Reagan and is already positioning itself as a strong candidate for improved service to small- and mid-sized cities from the Washington airport.
For now, though, the likely complex process of trading slots hasn't begun, and American and US officials are content to celebrate the new development.
“This is an important day for our customers, our people and our financial stakeholders,” AMR President Tom Horton said in a statement. “This agreement allows us to take the final steps in creating the new American Airlines. … There is much more work ahead of us, but we’re energized by the challenge and look forward to competing vigorously in the ever-changing global marketplace.”
The parties were to begin their antitrust trial on Nov. 25. Justice had been joined in its antitrust complaint by the attorneys general from Arizona, Florida, Michigan, Tennessee, Pennsylvania, Virginia and Washington, D.C. The Texas attorney general had originally supported the trial, but had withdrawn his objection to the merger in early October after American officials pledged to keep the airline’s Texas services intact. Carrier officials also had been talking with Florida’s attorney general to see if they could strike a similar deal.
The carriers' trade unions have come out with mixed statements on the deal. The Allied Pilots Association, which represents American workers, is for the "pro-competition" deal, saying it "will remedy American Airlines' long-standing network shortfalls" and will make American more competitive with Delta and United.
"With the DOJ settlement, American now has the opportunity to return to a position of industry preeminence," the union's president, Keith Wilson, said in a statement. "We look forward to working with our colleagues at the US Airline Pilots Association as we shift our focus to negotiating a joint collective bargaining agreement."
At the International Association of Machinists, which represents US Airways employees, talk turned immediately to contract negotiations and solidarity with the Transport Workers Union, which represents American ground handlers.
“Under our current contract, American Airlines employees cannot maintain US Airways' planes, and we can’t touch American’s aircraft,” IAM District 142 President Tom Higginbotham said in a statement. “Similarly, US Airways employees can’t load American's aircraft where TWU members are present and vice-versa. The synergies and seamless operation the airlines promised shareholders and passengers will not exist until our members get new contracts. US Airways has chosen to start this merger off with major labor unrest."
Justice announced this month that it had been in ongoing talks with the carriers to come to a settlement. At the time, Attorney General Eric Holder declined to elaborate beyond saying that a settlement would require that the carriers divested slots at major airports.
“This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country,” Holder said in a statement announcing the settlement. “The department’s ultimate goal has remained steadfast throughout this process — to ensure vigorous competition in airline travel. This is vital to millions of consumers who will benefit from both more competitive prices and enhanced travel options.”
In October, Justice officials petitioned the court for a delay in the trial due to the impact of the government shutdown. They had hoped for a March start to any trial, filing a document with the court that said the government work stoppage “is creating difficulties for the department to perform the functions necessary to support its litigation efforts and, accordingly, the department’s policy is to seek a stay in all pending civil litigation.” The request was denied.