The Deal: An Unscheduled Departure
Conventional wisdom among transportation sources is that the government's best chance to prevail in the US Airways/AMR case was to run out the clock, postponing the trial to early 2014 and forcing AMR to forego a merger and instead emerge from bankruptcy as a standalone airline. But the court's decision to schedule a trial in November, according to that line of thought, puts Justice in a bind and makes it more likely the government would be willing to compromise and avoid defeat.
Wolfe Research LLC senior airline analyst Hunter Keay argued in August that much of the DOJ's case relies on "anecdotal and vignette-driven arguments," saying it is reminiscent of the Oracle Corp./PeopleSoft case, which Justice "lost in an embarrassing fashion."
Keay has since said he received pushback from antitrust sources on the comparison, but stands by his conclusion. "With the caveat that we probably know as much about antitrust law as the DOJ seems to know about airlines, we believe the proposed merger ... will go through," he said.
Aviation analysts said the DOJ was overstating its case when it said there are more than 1,000 markets where the merger threatens competition, saying that most of those markets are third-tier city pairs like Austin, Texas, and Riverside, Calif., a route that serves fewer than a dozen passengers daily.Hong Kong-based aviation consultancy Aspire Aviation said the government analysis also counts flights to two airports in the same market, for example, flights to both Los Angeles and Orange County, Calif., as separate markets. Counting markets instead of airports reduces the list from more than 1,000 to 700 potential competitive issues, and Aspire said that in only 17 of those routes the merger would combine the market share leader and the low fare leader. And experts warn that while both US Airways and a restructured American are well positioned to compete today, over time their independent positions are likely to erode and leave Justice without the two vigorous competitors it hopes for. US Airways' recent success, they argue, is built on unsustainably low wage rates that were a product of past bankruptcies. American, meanwhile, in a standalone scenario would likely emerge from Chapter 11 burdened by significant debt and would be unable to expand to rival Delta and United.
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