US Airways chief executive Doug Parker said Tuesday that his company plans to fight a lawsuit from the U.S. Justice Department and six state attorneys general that seeks to block the airline’s planned $11 billion merger with American Airlines on the basis that the combined company would reduce competition for consumers.
The lawsuit from the DOJ took US Airways executives and many in the airline industry who had expected antitrust approval by surprise. US Airways and American planned to close their merger, which has been in the works for more than a year, as early as next month. Parker acknowledged Tuesday that isn’t a possibility anymore, but said he still thinks the merger can close by the end of next year.
“We will fight them,” said Parker, in a message to US Airways employees Tuesday.
“Other companies have found themselves in similar circumstances and gone on to successfully close their merger. This is still very new information, so we don’t have all the specifics on timing yet,” said Parker. He said the airline is “mounting a vigorous and strong defense in federal court.”
The move to block the merger sets up a possibly lengthy legal battle and creates more uncertainty for Charlotte Douglas International Airport, which has already been roiled by months of debate over who should run the airport.
Tuesday, the federal government and the state attorneys general filed a lawsuit in federal court in Washington, D.C., seeking to prevent the companies from making the deal, which would create the world’s largest airline. North Carolina and South Carolina are not part of the suit.
“By challenging this merger, the Department of Justice is saying that the American people deserve better,” Attorney General Eric Holder said in a statement. “This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices.”
Under the merger, Charlotte Douglas International Airport would become the combined airline’s second-busiest hub, behind only Dallas/Fort Worth International Airport. US Airways operates almost 650 daily flights from Charlotte Douglas, which airline executives said could grow to more than 700 in the merged company.
Antitrust approval from the U.S. Department of Justice had been one of the last steps needed to close the deal after US Airways shareholders approved the merger last month. A hearing is scheduled for Thursday in federal bankruptcy court in New York to ask the judge overseeing American’s bankruptcy to give the deal his approval.
Analysts said Tuesday that they were surprised the DOJ would move to block the merger, when it has approved three other very large airline combinations in recent years: Delta-Northwestern in 2008, United-Continental in 2010 and Southwest-AirTran in 2011.
“I was kind of stunned by reading what sounded like a criminal indictment,” airline analyst Bob Mann said. “I thought we were seeing some investment banker doing the (perp) walk with cuffs.”
He said the DOJ’s move is too little, too late if the department’s goal is to prevent airline consolidation.
“It’s like Rip Van Winkle woke up. Industry consolidation has been a 10-year process,” said Mann. “They certainly didn’t have any big objections to the last round.”
As the largest US Airways hub, Charlotte figures prominently in the Justice Department’s suit. The merger would illegally eliminate competition for flights between Charlotte and 38 other cities, according to the lawsuit.
The suit cites city pairs like Charlotte and Dallas, in which US Airways and American currently compete. After the merger, there would be virtually no competition for airfares in those markets, the government argues.
The Associated Press contributed.