By Dow Jones Business News, February 26, 2013, 12:45:00 PM EDT
WASHINGTON--American Airlines and US Airways Group Inc. ( LCC ) executives on Tuesday defended their planned merger
before members of Congress who are seeking a thorough antitrust review to make sure the deal doesn't hurt competition
American parent AMR Corp. (AAMRQ) and US Airways recently announced their plans to merge, subject to bankruptcy-court
and regulatory approval. The long-expected tie-up would bring American out of the Chapter 11 case it launched in late
2011, and it follows a recent trend toward consolidation in the airline industry.
"This is the most competitive business on the planet... When these airlines combine, that competition will remain. We
are simply trying to become a stronger, more vibrant competitor against those already in place," said Gary F. Kennedy,
American Airlines' senior vice president and general counsel, at a hearing before the House Committee on the Judiciary.
Rep. Spencer Bachus (R., Ala.), the chairman of the Judiciary subcommittee that handles antitrust and bankruptcy
issues, suggested it may be too late for regulators to stop an airline merger following the tie-ups of Delta Air Lines
Inc. (DAL) and Northwest Airlines and United and Continental, which became United Continental Holdings Inc. (UAL).
"You could have stopped those mergers before Delta and Northwest. You could have stopped them before United and
Continental. You created two airlines with a distinct advantage if you don't let these two airlines merge," he said.
Rep. Bob Goodlatte (R., Va.), the committee's chairman, said that while Congress has no formal role in the Department
of Justice's merger-review process, the department "must review this proposed merger to determine if it is
anticompetitive." He asked the Justice Department to focus on the merger's impact on consumer welfare, particularly with
respect to ticket prices, fees, and changes to the airlines' existing routes and service.
Critics of the merger say it would reduce competition in various ways.
Christopher Sagers, a Cleveland State University law professor, argued that the airlines have never justified their
arguments that a merger is the solution to their struggles.
"It hasn't worked. The legacy airlines at least have remained mostly economically in dire straits," he said.
Rep. John Conyers Jr. (D., Mich.) also questioned whether the merger is necessary. He said American is poised to
successfully emerge from bankruptcy as a standalone company with vastly reduced costs, while US Airways has posted
"These facts suggest that both airlines are in fact are perfectly capable of surviving, even thriving, as standalone
companies," Rep. Conyers said.
Stephen L. Johnson, US Airways' executive vice president for corporate and government affairs, acknowledged that his
company is profitable and that American's "terrific restructuring" would allow the company to emerge from bankruptcy as
a viable standalone company. But he said there are reasons to merge other than financial ones.
"We help our customers. We help our employees," he said, contending that the deal will lead to greater consumer choice
and better pay and benefits for employees.
Rep. Bachus suggested that the Judiciary committee's Senate counterparts may review the proposed merger as well. The
U.S. Bankruptcy Court in Manhattan, where AMR sought Chapter 11 protection in November 2011, is slated to do so at a
March 27 hearing.
If the merger receives the necessary approvals, the combined airline would keep the American name, would be valued at
$11 billion and would become the largest airline by passengers carried. The deal would hand 72% of the new equity--worth
$8 billion--in the combined airline to American's creditors, while US Airways shareholders would get the remainder.
The airlines hope to close the merger during the third quarter of this year.
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