DALLAS – The merger between American Airlines and US Airways was supposed to cap an era of consolidation that helped the airline industry return to profitability. And it would make American a viable competitor to giants United and Delta.
The governments lawsuit to block the merger has put both of those expectations in doubt.
Airline investors fear that if American cant grow by merging, it will add flights, which will lower airfares and drive down profit margins for everybody in the business. That fear prompted a two-day sell-off in airline stocks.
By combining with US Airways, American would leave bankruptcy protection as the biggest airline in the world. By itself, American would remain No. 3, with a relatively weak position on the competitive East Coast.
And Americans employees worry about job security if the merger dies. Plus, they will have to work under executives with whom they have fought for years.
They are going to be disillusioned and unexcited, and that affects everything right down to customer interface, said Dennis Tajer, an American pilot and spokesman for the Allied Pilots Association.
Americans parent, AMR Corp., and US Airways Group Inc. announced their merger in February. They expected a judge to approve it this week, one of the last steps before AMR can emerge from nearly two years in bankruptcy protection. But Tuesday, the U.S. Justice Department and six states sued to block the deal, saying it would hurt competition and drive up prices.
The CEOs of both airlines have vowed to fight the Justice Department in court. If the airlines win, the lawsuit will just be a speed bump in the merger plan. Or they could negotiate a settlement with the Justice Department – maybe by giving up coveted takeoff and landing slots at crowded Reagan National Airport outside Washington, D.C.
AMR Corp. plans to ask a bankruptcy judge today to approve its turnaround plan that includes a merger with US Airways.
But if the merger gets scuttled, American and US Airways will be far behind United and Delta, which grew through regulator-approved mergers in the last five years. American will lack a strong presence on the East Coast, and US Airways, currently No. 5 among U.S. carriers, will have no service to Asia.