The Deal: DOJ Looks to Ground US Air-AMR Merger

NEW YORK ( The Deal) -- The Department of Justice stunned the market on Tuesday, by filing a lawsuit seeking to block the proposed $11 billion merger of US Airways ( LCC) and the parent of American Airlines, AMR ( AMR).

The DOJ was joined in its lawsuit by attorneys general from six states and the District of Columbia. The DOJ and the state AGs said the merger, which would form the world's largest airline, would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and fees for ancillary services and receiving less service overall.

The DOJ said American and US Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues. They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual routewide revenue. Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares, the department said.

A court injunction against the merger would upend plans for AMR to emerge from bankruptcy protection through the merger with US Airways.

The companies said they "intend to mount a vigorous and strong defense" to the DOJ's lawsuit.

"We believe that the DOJ is wrong in its assessment of our merger," the airlines said in a statement. "Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices.

"Further, this merger provides the best outcome for AMR's restructuring. The widespread support from the employees and financial stakeholders of both airlines underscores the fact that this is the best path forward for both airlines and the customers and communities we serve."

The companies announced their plans to merge in May and predicted the deal would help consumers by creating a third truly national carrier to compete with Delta Air Lines Inc. and United Airlines parent UAL Corp.

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