US Airways Group Inc.
) and American Airlines Inc, a subsidiary of
) got the green signal from Department of Justice (DOJ) for their
proposed merger, which will create the largest global
In Aug 2013, the merger suffered a setback following
opposition raised by the DOJ along with attorneys general of six
states and the District of Columbia. The regulatory body stated
that the merger will result in concentration of power in the
hands of a few airlines thereby posing difficulties for
travellers. The clearance came around a week ago before the court
hearing of the DOJ case.
Both the carriers have now cleared all litigations against
them. Additionally, they also signed an agreement with U.S.
Department of Transportation (DOT) to use all the commuter pair
slots at Washington Regan National Airport (DCA) to service small
and medium-size markets.
The carriers have to pay a price for the settlement, however.
The airlines have to give up 52 take-off and landing slots at DCA
and 17 pairs at La Guardia airport in New York (LGA). Further the
carriers have to divest two gates and related facilities at each
of the Boston, Chicago, Dallas, Los Angeles and Miami
The divesture process will occur through a DOJ approved
process following the completion of the merger, which is expected
in Dec 2013. Carriers like
Southwest Airlines Co.
JetBlue Airways Corp.
), Virgin America and
Spirit Airlines Inc.
) are considering participation in the divesture process.
Post divesture, the merged entity's share of slots at DCA will
come down to 57%, while at LGA it will have 12 less flights than
the normal 175 daily departures. However, the combined entity
will generate more than $1billion in annual synergies from
Over the last few years, the U.S. aviation industry has seen
several consolidations the latest being United and Continental's
merger. However, with major and legacy airlines of the U.S.
joining hands, the total number of carriers operating within the
industry is becoming less. This is resulting in less competition,
higher airfares and increased fees.
Though it still remains uncertain why the DOJ changed its
stance on the AMR-LLC merger, but they have argued that opening
up the various slots will induce more competition within the
industry. Despite the nod from DOJ the carriers need approval to
the settlement from the U.S. bankrupt court to complete the
Although the merged entity will have more pricing power and
control over a larger number of slots we believe it will have
little effect on the dynamics of the U.S. aviation industry as
80% of the same market will be dominated by the new American,
United, Delta and Southwest.
AMR Corp. and U.S. Airways both currently carry a Zacks Rank
#1 (Strong Buy).
AMR CORP (AAMRQ): Get Free Report
US AIRWAYS GRP (LCC): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
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