The Justice Department has made a stunningly bad decision to block the merger of American Airlines and US Airways. The feds say the lawsuit filed last week alleging antitrust violations is intended to preserve competition in the airline industry. It is more likely to crush one or both airlines and stagger the industry.
Justice, joined by the attorneys general of six states, filed the suit just two days before U.S. Bankruptcy Judge Sean Lane was scheduled to consider American parent AMR’s restructuring plan, with the merger deal as its centerpiece.
As a result, the $11 billion deal that would have taken American out of bankruptcy and created the nation’s biggest airline is in real jeopardy.
And to what end? The Justice Department hasn’t blocked an airline merger since United and US Airways tried to get together more than a decade ago. It has since then approved several deals — including the game-changing mergers of United/Continental and Delta/Northwest.
Both those megadeals raised as many concerns about competition as the American/US Airways transaction. Both of those deals created huge airlines that put more competitive pressure on American and US Airways. There is no consistency in the actions taken by the Justice Department.
This deal is necessary for the long-term survival of the airlines involved. Neither American nor US Airways has sufficient scale as a stand-alone company to compete effectively against United Continental and Delta.
American has lost billions of dollars in the past few years, even as conditions have improved for most U.S. airlines. It was shedding thousands of jobs and driven into bankruptcy court. Undersized US Airways reasoned that it needed the merger to compete, and offered workers the promise of saving many of the jobs at American.
The industry as a whole has a history of brutal economics: Between 2001 and 2009, major carriers reported at least $58 billion in losses.
The merger is in the nation’s interest. The Justice Department needs to back off.