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From Antitrust Law Daily, March 10, 2014

U.S. responds to critics of settlement resolving American/US Airways merger challenge

By Jeffrey May, J.D.

The proposed final judgment that would resolve the federal/state antitrust challenge to US Airways Group, Inc.’s $11 billion acquisition of the parent company of American Airlines, “will address the competitive harm alleged in this action and is plainly in the public interest,” the government said in a court filing today. The Department of Justice Antitrust Division has reviewed public comments concerning the proposed settlement and concluded that the remedies should be accepted as proposed without modification (U.S. v. US Airways Group Inc., Case 1:13-cv-01236).

The Justice Department received 14 comments on the proposed final judgment. Although a number of those comments suggested that the relief does not go far enough to remedy potential harm from the merger, the government concluded that the comments did not cast doubt on the very substantial public interest that the settlement will achieve. The Justice Department will move for the court’s entry of the consent decree after the publication of the comments and response in the Federal Register.

In August 2013, the government filed its complaint, contending that the combination of American and US Airways would eliminate actual and potential competition between these carriers and increase coordinated behavior among the remaining carriers. As proposed, the transaction would have been presumptively illegal in markets identified as more than 1,000 city pair markets in which American and US Airways compete head-to-head, particularly on flights to and from Washington’s Reagan National Airport, it was alleged.

Under the terms of the proposed final judgment, the airlines must divest slots and gates at Boston Logan International Airport, Chicago O’Hare International Airport, Dallas Love Field, Los Angeles International Airport, Miami International Airport, New York LaGuardia International Airport, and Ronald Reagan Washington National Airport. Specifically, they must divest 104 air carrier slots at Reagan National and 34 slots at LaGuardia. At each of the remaining airports, they must divest rights to and interests in two airport gates and associated ground facilities.

According to the Justice Department, the defendants have completed the divestiture of the 34 LaGuardia slots and are in the process of completing the divestiture of the 104 Reagan National slots. The government approved the sale of these slots to low cost carriers (LCCs), including Southwest Airlines, JetBlue Airways, and Virgin America. The process for the divestiture of the gates at the remaining airports is expected to occur in the near future.

Delta Airlines had asserted that it should have been entitled to acquire a portion of the remedy assets, namely slots at Reagan National and the two gates at Dallas Love Field. The government concluded, however, that “divesting assets to Delta would fail to address the harm arising from the merger and would be inconsistent with the goals that the remedy seeks to achieve.”

In defending the settlement, the Justice Department said that the proposed settlement significantly eases some of the most intractable barriers to LCC entry and expansion throughout the country. “At Reagan National, where LCCs had only about six percent of the take-offs and landings prior to the divestitures, the remedy transfers twelve percent of the slots to LCCs, nearly tripling LCC presence there,” the government noted. “Likewise, the remedy will extend access at LaGuardia, where LCCs hold less than 10 percent of the slots.”

Some commenters had argued that the remedy did not adequately address the harms alleged in the complaint. The government noted the proposed remedy does not purport to replicate the precise form of competition that will be lost as a result of the merger. In the government’s view, the “procompetitive benefits compare favorably with-and in some ways exceed-those afforded by preserving competition between US Airways and American.”

While some commenters objected to the consummation of the merger prior to entry of the final judgment, nothing in the Tunney Act prevented the parties from closing and courts have long acknowledged and accepted this practice, according to the Justice Department. Noting that the United States retains the right to withdraw its consent to the decree or the settlement could be rejected by the court, the government pointed out that the defendants, “by choosing to close prior to entry of the Final Judgment, have accepted the risk of undoing the merger should it be necessary.”

“Any allegations that the settlement is the result of improper lobbying or political pressure are both unsubstantiated and meritless,” the government also noted. “The commenters’ mere speculation of bad faith or malfeasance is insufficient to justify rejection of a proposed consent decree.”

Attorneys: Michael D. Billiel for Department of Justice. Gorav Jindal (Dechert LLP) for American Airlines Group, Inc.

Companies: AMR Corp.; American Airlines, Inc.; American Airlines Group, Inc.; US Airways Group, Inc.

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