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.
No doubt divestiture of slots at Washington Reagan National would be a key element in a deal. National is the only airport discussed in detail in the DOJ's complaint. US Airways has long been aware of "the National Factor" in getting deals past DOJ. Washington regulators routinely fly out of National. Look around National and you would think that US Airways is most certainly the biggest most powerful airline in the world. This is true of any airline in any of its major hubs, and it is difficult to imagine that it is not an important psychological factor in regulatory decisions. In its 2000 proposal to merge with United, which dominates Washington Dulles, US Airways went so far as to propose spinning off National entirely. As for the other problem cited in the DOJ complaint, which is that some low-cost fares on 1,034 one-stop routes could disappear in a merger, maybe the DOJ could get creative. Peter Golder, a professor at Dartmouth's Tuck School of Business, has suggested that the agency find a way to preserve the opportunity to award slots and gates at congested airports to carriers that don't exist yet. "This is the last chance to think about (preserving competition) in a comprehensive way," Golder said. "An option for the future can be written into this deal." Here, we must say that readers can be excused for discounting any speculation coming from the airline industry, including its analysts and reporters, about the DOJ and what it might or might not do. After all, when it came to assessing whether the DOJ would approve the merger, every airline analyst, every airline reporter and every airline executive assumed that the response would be positive -- although many thought divestiture at National could be required. On Thursday, two veteran airline industry analysts disagreed on what might happen next. Jim Corridore of S&P Capital IQ raised his rating on US Airways shares to strong buy from buy, based on press reports that a settlement could occur. "We think the merger should not have been blocked, and believe it is feasible that the divestiture of slots at Reagan National will help reach a settlement," Corridore wrote. "With LCC shares at an extreme discount to peers, we find the stock compelling." Corridore has a $26 price target. The shares closed Thursday at $15.96, up 62 cents.
But Dan McKenzie of Buckingham Research Group wrote that a settlement is unlikely. "The two sides are too far apart and a settlement would likely need to provide relief that extends across the country," McKenzie wrote, referring to the one-stop fares between 1,043 city pairs. "It would be very challenging for US/AA to offer a settlement in each of the city pairs," he said. (Nevertheless McKenzie has a $25 price target.) Given that the analysts disagree, in this case at least someone in the airline industry will have to be right for a change. Follow @tedreednc -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: Ted Reed