November 27, 2013

Judge moves airline deal one step closer to takeoff

Consumer group’s objection to merger is rejected, clearing the way to creation of the world’s largest airline next month.

The Associated Press

A federal bankruptcy judge has cleared the way for American Airlines and US Airways to close their merger and create the world’s largest airline.

A merged American and US Airways will be slightly larger than its top competitors, United Airlines and Delta.

Associated Press file

The judge ruled Wednesday that this month’s settlement of an antitrust lawsuit filed by the federal government didn’t upset American’s bankruptcy-reorganization plan, which is built around the merger. He rejected a request by a group of consumers to block the deal temporarily.

American said immediately after the ruling that it plans to complete the merger on Dec. 9.

The Justice Department had sued to block the deal in August, saying that it would hurt competition and lead to higher prices. But regulators settled their case in exchange for the airlines’ promise to surrender some coveted landing rights at Reagan National near Washington and LaGuardia in New York and a few gates at five other airports.

Together, American and US Airways will be slightly larger in passenger traffic than United Airlines and Delta Air Lines, currently the world’s biggest carriers after recent mergers of their own.

U.S. District Court Judge Sean Lane in New York had approved the merge-and-emerge-from-bankruptcy plan of American parent AMR Corp. back in September, but said it was on condition that the company won or settled the lawsuit filed by the government.

At a hearing in Lane’s courtroom Monday, a lawyer for a group of consumers asked the judge to block the merger until a trial could be held on his antitrust lawsuit, which made many of the same arguments that had been raised – and dropped – by the government.

Lane denied the request by the lawyer, Joseph Alioto of San Francisco, saying that his clients had failed to show that letting the airlines merge would hurt them. The judge said that if Alioto wins his lawsuit, he can demand additional divestitures by the two airlines but can’t hold up the merger.

At the same time, the judge granted American’s request that it be allowed to close the merger without submitting the settlement with the Justice Department to a vote of creditors and shareholders. A committee representing unsecured AMR creditors including American’s labor unions backed the company’s request.

AMR filed for bankruptcy protection in November 2011 after losing billions of dollars in the previous decade. Almost immediately, US Airways began pursuing a merger. AMR management was initially reluctant, but the two sides announced a merger deal in February 2013. The new company will be called American Airlines Group Inc., based in Fort Worth, Texas.

A separate federal court will oversee a 60-day period so the public can comment on the government’s settlement with AMR and US Airways Group Inc., but that won’t stop the merger.

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