DOJ Deal Should Allow Creation Of World's Largest Airline Within Weeks

By Darren Shannon
Source: AWIN First
November 12, 2013
Credit: AMR Corp.

AMR Corp. and US Airways are just weeks from finalizing their proposed merger, following a settlement deal with the U.S. Justice Department (DOJ) that calls for the divestiture of slots at Washington Reagan National Airport and New York LaGuardia Airport as well as gates at Boston Logan International, Chicago O’Hare International, Dallas Love Field, Los Angeles International and Miami International airports.

The deal comes three months after the DOJ and six state attorneys general filed a court motion to stop the merger based on claims it would stifle domestic competition. That case was due to start Nov. 25, but has now been superseded by this new settlement.

The merger now awaits the approval by AMR’s bankruptcy judge of this divestiture agreement, which AMR and US Airways expect in the coming weeks. In a letter to employees, AMR Chairman and CEO Tom Horton and US Airways Chairman and CEO Doug Parker (who also will be CEO of the “new American”) say the accord with the DOJ “allows us to complete the merger next month . . . [and that] we look forward to celebrating the creation of the new American with all of you within a few weeks.”

AMR already has asked for an expedited hearing to discuss the DOJ settlement that has been scheduled for late November. If approval is granted by AMR’s bankruptcy judge, the merger is likely to be concluded mid-December.

It is no surprise that the new American is being asked the divest slots at the capacity constrained Washington National and LaGuardia airports, but the call to transfer gate rights at Boston—once an AMR stronghold but now a major base for JetBlue Airways—as well as at American’s hubs in Chicago, Los Angeles and Miami, while rumored, was less expected.

The surprising inclusion of American’s two gates at Love Field, which are currently leased to Delta Air Lines, will allow “a low-cost carrier to provide vigorous competition to the new American’s nonstop and connecting service out of” AMR’s base at Dallas/Fort Worth International Airport when slot constraints at Love Field are lifted next year, explains the DOJ. Love Field is the home of Southwest Airlines.

Southwest and JetBlue are the initial beneficiaries of the settlement, which the DOJ prompts as “guaranteeing a bigger foothold for low-cost carriers at key U.S. airports.” Under the deal, JetBlue takes ownership of the 16 slots it currently leases from AMR at Washington National, while Southwest obtains the 10 slots its leases from AMR at LaGuardia.

AMR also must divest a further 88 slots at National and 34 at LaGuardia, which will be bundled and offered for sale at a time that has not been disclosed by the DOJ. “Preference will be given to airlines at each airport that do not currently operate a large share of slots or gates,” the DOJ notes, adding that other low-costs will be preferred should JetBlue or Southwest not take the slots assigned to them.

But low-cost airlines will face competition from Delta, which just minutes after the DOJ’s deal was announced said it “welcomes the settlement agreement and looks forward to the opportunity to acquire slots that will be divested under the agreement, particularly at Washington Reagan National Airport. Delta is the airline best-positioned to continue competitive nonstop flights from Reagan National to small- and mid-sized cities that could otherwise see service reduced or eliminated, which should be a strong consideration in the divestiture.”

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