The deal to merge US Airways and American Airlines, which would create the world’s largest airline, has suffered a big setback. In a surprising move, the US Justice Department filed an antitrust lawsuit, saying the transaction poses “substantial harm” to consumers. That means US Airways and American will have to offer more concessions, like giving up more take-off and landing slots at airports, to try to win approval, or risk losing the deal all together.
The move is another sign of the department’s recent aggressiveness on antitrust, in contrast to the George W. Bush years, when it was seen as lax. Under the Barack Obama administration, antitrust officials have blocked AT&T’s acquisition of T-Mobile, and wrangled more concessions out of beer brewer Anheuser-Busch InBev before it approved the company’s deal for Corona maker Grupo Modelo.
The Justice Department also won an antitrust lawsuit against Apple, which was accused of working with five book publishers to increase the price of e-books. That successful track record has no doubt emboldened government officials even further.
Even so, the lawsuit against the US Airways-American deal was unexpected, because the department has given the green light to other big airline mergers. In 2010, it approved the merger of United Airlines and Continental Airlines after they gave up some slots at Newark airport in New Jersey. That merger created what is now the world’s largest airline.
American and US Airways were having similar discussions (paywall) with the Justice Department, and had already gained approval from European regulators after agreeing to give up some slots at Heathrow Airport in London. Given that US Airways has been working on this deal for more than a year and the merger gives American Airlines a pathway out of bankruptcy, it’s unlikely that the two companies will give up easily, and the lawsuit could simply serve as a way for the government to squeeze more concessions out of them.
That’s what happened in Anheuser-Busch’s acquisition of Grupo Modelo. The companies had offered some concessions to the Justice Department, but it filed an antitrust lawsuit. More negotiations followed until the beer makers agreed to sell Grupo Modelo’s 50% stake in Crown Imports, the distributor of Corona in the US.
So all hope is not lost for US Airways and American, but if the merger goes through, it will cost more than they expected. And it will warn other companies planning a merger to rethink the concessions they will have to offer to get a deal approved. The regulators, it seems, are not bluffing.