American Airlines- US Airways Merger Approved by Department of Justice with Divestitures Required
A number of statements were released Tuesday after the Department of Justice announced conditional approval to the American Airlines- US Airways merger.
Statements released by both AMR Corp. and US Airways indicate the merger will still occur before the end of the year.
WASHINGTON – The Department of Justice today announced that it is requiring US Airways Group Inc. and American Airlines’ parent corporation, AMR Corp. to divest slots and gates at key constrained airports across the country to low cost carrier airlines (LCCs) in order to enhance system-wide competition in the airline industry resulting in more choices and more competitive airfares for consumers.
The department said the proposed settlement will increase the presence of the LCCs at Boston Logan International, Chicago O’Hare International, Dallas Love Field, Los Angeles International, Miami International, New York LaGuardia International and Ronald Reagan Washington National. Providing the LCCs with the incentive and ability to invest in new capacity and permitting them to compete more extensively nationwide will enhance meaningful competition in the industry and benefit airline travelers.
“This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country,” said Attorney General Eric Holder. “The department’s ultimate goal has remained steadfast throughout this process – to ensure vigorous competition in airline travel. This is vital to millions of consumers who will benefit from both more competitive prices and enhanced travel options.”
Six state attorneys general–Arizona, Florida, Pennsylvania, Michigan, Tennessee and Virginia–and the District of Columbia joined in the department’s proposed settlement, which was filed in the U.S. District Court for the District of Columbia. If approved by the court, the settlement will resolve the department’s competitive concerns and the lawsuit.
Meanwhile, after the DOJ announcement, Texas Attorney General Greg Abbott added his own statement on the settlement.
“This is a great day for American Airlines, for jobs in Texas, and for the economic opportunities that will arise from having the world’s largest airlines headquartered in Texas. The Office of the Attorney General’s early involvement in this case provided Texas a critical seat at the table and resulted in a settlement agreement that preserved competition, ensured daily flight service to communities across the state and protected Texas jobs. Since our agreement was announced, we have continued working with American Airlines – and other states that objected to the merger – to achieve the best possible results for Texans and keep the new American on the path to success. Because of our early and ongoing efforts, we’ve secured an agreement that will leave Texas in a much better position, ensuring that Texas jobs will stay in Texas,” Abbott said.
According to the Texas Attorney General’s Office, Tuesday’s agreement, reached by the airlines, the remaining states that challenged the merger, and the federal government, builds upon the initial agreement Texas reached with the airlines last month. The agreement secured expands the requirement that American maintain daily flight service to Texas communities from three years to five years – and adds the Texarkana Airport to the daily service commitment list. The Oct. 1 agreement that Attorney General Abbott negotiated with American Airlines ensured that 22 airports across Texas – including more than a dozen smaller airports in rural Texas – would continue to offer daily departures and arrivals. The initial agreement also guaranteed that Dallas/Fort Worth International Airport would remain a “hub” and the headquarters would be located in Texas, in the DFW metropolitan area.
American’s agreement to maintain hubs and daily service only applies to those states – like Texas – that challenged the merger.
Tom Horton, chairman, president and CEO of AMR, and incoming chairman of the board of the combined company, said, “This is an important day for our customers, our people and our financial stakeholders. This agreement allows us to take the final steps in creating the new American Airlines. With a renewed spirit, we are about to create the world’s leading airline that will offer, along with our oneworld® partners, a comprehensive global network and service by the best people in the business. There is much more work ahead of us but we’re energized by the challenge and look forward to competing vigorously in the ever-changing global marketplace.”
Doug Parker, chairman and CEO of US Airways, and incoming CEO of the combined airline, said, “This is very good news and we are grateful to all who have made it happen. In particular, we are thankful to our employees, who throughout this process continued to believe in a better future as one airline and who voiced their support passionately and consistently. We also want to thank the elected officials in the states and communities we serve, the business leaders in our hub cities, and the thousands of customers who endorsed and supported this effort. Thank you as well to the U.S. Department of Justice, the state attorneys general and the U.S. Department of Transportation. We are pleased to have this lawsuit behind us and look forward to building the new American Airlines together.”
According to American Airlines, under the terms of the settlement, the airlines will divest 52 slot pairs at Washington Reagan National Airport (DCA) and 17 slot pairs at New York LaGuardia Airport (LGA), as well as certain gates and related facilities to support service at those airports.[i] The airlines also will divest two gates and related support facilities at each of Boston Logan International Airport, Chicago O’Hare International Airport, Dallas Love Field, Los Angeles International Airport, and Miami International Airport. The divestitures will occur through a DOJ approved process following the completion of the merger. Despite the divestitures, the new American is still expected to generate more than $1 billion in annual net synergies beginning in 2015, as was estimated when the merger was announced in February.
As part of the settlement agreement, the new American Airlines has agreed to maintain its hubs in Charlotte, New York (Kennedy), Los Angeles, Miami, Chicago (O’Hare), Philadelphia, and Phoenix consistent with historical operations for a period of three years. In addition, with limited exceptions, for a period of five years, the new American will continue to provide daily scheduled service from one or more of its hubs to each plaintiff state airport that has scheduled daily service from either American or US Airways. A previous settlement agreement with the state of Texas will be amended to make it consistent with today’s settlement.
Completion of the merger remains subject to the approval of the settlements by the U.S. Bankruptcy Court, and certain other conditions. American Airlines & US Airways now expect to complete the merger in December 2013.