Why American and US Airways Need a November Trial Date
CHARLOTTE, N.C. (TheStreet) -- The airline industry was out to lunch when it came to figuring out how the Justice Department would react to the proposed merger of US Airways (LCC) and American (AAMRQ.), so it is probably senseless to speculate on what happens next.
But let's speculate anyway about what happens Friday, which is likely to be one of the most important days in the long history of airline consolidation, which ramped up after Congress deregulated the industry in 1978. A pre-trial conference is scheduled for 9:30 a.m. EDT in U.S. District Court in Washington, where Judge Colleen Kollar-Kotelly will decide the timing of the trial in the DOJ's suit to block the merger.
The airlines want a trial soon, on Nov. 12. The DOJ wants to wait six months, until March 3.
An earlier trial would increase the pressure on the two sides to settle and would, of course, allow the airlines to make their case, which they believe is strong, sooner. If the trial date is later, DOJ has little incentive to settle, partially because the merger could fall apart over time.DOJ loses no money by waiting, while the airlines would lose a combined $2.5 million a day, according to their court filing on Wednesday. Moreover, "the delay proposed by plaintiffs inherently puts the transaction at risk because two independent companies can be asked to stay in limbo for only so long before they need to make independent plans," the filing said. The merger agreement sets Dec. 13 as a termination date, unless the two carriers agree to extend it. Is there a deal to be had? Of course there is. There is always a deal to be had. In fact, both sides alluded to the possibility in filings this week. The key is that neither side can afford to lose at a trial. DOJ brought a widely disparaged case and would look bad if it lost. With a settlement, DOJ could declare victory. If the airlines lost, they would face an uninspiring future, because neither one, by itself, has any realistic prospect to compete with Delta (DAL) or United (UAL) globally or with Southwest (LUV) domestically.
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