US Airways and American Airlines have reached a settlement with the Justice Department, clearing the way for them to form the world's largest airline, the government said on Tuesday.
The government had filed a lawsuit in August blocking a merger of US Airways and AMR Corp, parent of bankrupt American Airlines, because of antitrust concerns that would hinder competition and lead to higher fares.
The agreement, which will give low-cost competitors more access to half a dozen U.S. airports, in effect grants federal approval for their merger. Under the deal, the airlines would get rid of airport terminal gates, take off and landing slots, and ground facilities in Boston, Chicago, Dallas, Miami, Los Angeles, LaGuardia in New York and Ronald Reagan National airport in Washington, DC.
Shares in US Airways were halted Tuesday, amid reports that the airline and its prospective merger partner AMR were close to settling a state and federal antitrust suit.
The biggest change would come at National, where the combined company would divest or give to low-cost carriers 104 slots. It would divest 34 slots at LaGuardia, and would give up the right to use two airport gates at the following airports -- Boston Logan, Chicago O'Hare, Dallas Love Field, LAX, and Miami International.
The Department of Justice had wanted US Airways Group Inc. and AMR 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.
"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," said U.S. Attorney General Eric Holder.
The impact, however, will cover only about 112 flights out of about 6,700 daily flights for US Airways and American.
"The extensive slot and gate divestitures at these key airports are groundbreaking and they will dramatically enhance the ability of low cost carriers to compete system-wide," said Assistant Attorney General Bill Baer of the Department of Justice's Antitrust Division.
Shares of AMR soared more than 25 percent on the compromise to close at $12.00. The merger is central to American's effort to emerge from a two-year bankruptcy process. Shares of US Airways were volatile following news of the settlement, briefly surging to the highest point since late 2007 before falling to close 1 percent higher at $23.52 on the New York Stock Exchange.
Investors bid up low-cost carriers that stand to benefit from greater access. Shares in Southwest Airlines rose 1.3 percent and JetBlue shares jumped 6 percent.
Tuesday's settlement came as the airlines and the government stared down a Nov. 25 deadline, at which point the antitrust case would have gone to trial in District Court.
"This is the price of admission," said airline consultant George Hamlin. "It was a necessary evil to get the deal done."
"Both sides blinked" or there would not have been a deal, Hamlin said.
Analysts judged the settlement a win for smaller cities in the six states that joined the Justice Department's suit in August. Those cities will walk away with a five-year guarantee of daily service.
Arizona, Florida, Michigan, Pennsylvania, Tennessee and Virginia, as well as the District of Columbia, stayed with the suit until the end. Texas dropped out on Oct. 1 after its attorney general struck a deal with the airlines.
(Reuters contributed to this report)
First published November 12 2013, 2:18 PM