On August 13, the United States Department of Justice, along with six state Attorneys General and the Attorney General for the District of Columbia, announced that it is bringing proceedings against American Airlines and US Airways under Section 7 of the Clayton Act to seek an injunction prohibiting the proposed US $11 billion (about £7 billion or €8.3 billion) merger between the two air carriers. The suit follows a trend of consolidation among air carriers. (In 2005 there were nine major carriers in the United States, compared with five today.)
The Department of Justice alleges that the merger, if successful, would lessen competition or tend to create a monopoly. If the two airlines merge, the combined company would be the world's largest airline and – according to the Department of Justice's lawsuit – that would significantly reduce competition on head-to-head routes with some US $2 billion (about £1.3 billion, or €1.5 billion) in annual ticket revenues. If the merger were to succeed, some 80 per cent of the United States domestic air travel sector would be controlled by four companies and, the allegation continues, that would result in increased fares and ancillary charges like checked luggage fees and flight-change fees.
The lawsuit was filed in the United States District Court for the District of Columbia and trial is scheduled to begin on November 25, 2013.
EU review: conditional clearance at Phase 1
The Department of Justice's tough approach may be compared with that of the European Commission, which in August 2013 announced its clearance of the American Airlines / US Airways merger at "Phase 1", just seven weeks after formal notification32. The clearance was conditional: the merged entity has been forced to dispose of slots to facilitate new entry on the London-Philadelphia route where, otherwise, the merger would have created a monopoly. It should be noted, however, that the European Commission's concerns were limited to the effects on markets in the EU (i.e., primarily, routes in and out of Europe), whereas the US Department of Justice is concerned also with effects on US domestic markets.
Wider significance for US merger control policy
The Department of Justice's lawsuit against the American Airlines / US Airways continues a recent trend of more vigorous US antitrust enforcement in merger control. For example, in 2011, the Department opposed three major mergers – NASDAQ / NYSE, AT&T / T-Mobile, and H&R Block / TaxAct - threatening to file a lawsuit in the first of these and actually doing so in the other two; all three transactions were abandoned. There were also several actions in 2012, including a threatened lawsuit against 3M's proposed US $550 million (about £350 million, or €415 million) acquisition of a business unit from Avery Denison. And in 2013, the DOJ sued to block the Anheuser Busch/Grupo Modelo merger, which we reported on earlier this year. [other examples?]
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Footnotes
32Case No. 1-13-cv-1236 (District of District of Columbia), American Airlines / US Airways.
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