Three Things You May Not Know about the US Airways-American Airlines Merger Lawsuit

By Marc Scribner on August 16, 2013 · 0 comments

On Tuesday, August 13, the Department of Justice, six states, and the District of Columbia filed suit to block the planned $11 billion merger of US Airways and American Airlines. This surprise government attack on the merger follows three successful approved major airline industry mergers during the past five years: Delta-Northwest (closed in 2009), United-Continental (closed in 2010), and Southwest-AirTran (closed in 2011).

The government seems to view the American-US Airways merger differently, as the often bizarre complaint against it indicates. While a number of commentators have weighed in raising good points, here are three DOJ claims that deserve attention:

It should be clear to everyone US Airways hardly has an “exceptional” history with profits. Cherry-picking data does not tell the full story. Low single-digit margins — pitiful compared to most other industries — are considered healthy for airlines, but many are routinely in the red. The DOJ’s characterization of US Airways’ “exceptional” performance is the business analogue of making sure everyone gets a token trophy…… American filed for Chapter 11 bankruptcy protection in 2011. Heavily indebted (American is over $8 billion in negative shareholder equity), its plan to emerge from bankruptcy rested largely on the merger going through and offering the weary giant some much-needed liquidity. On Thursday, August 15, instead of the scheduled bankruptcy hearing being the effective end to American’s reorganization, the judge asked parties to submit briefs detailing the effect of the DOJ’s lawsuit on the reorganization plan….To Read More…..

My Take - It has been clear to me for years that the federal government shouldn’t have any say in this at all. If we actually look to the history of "trust busting" you will find the biggest proponents of it, such as Teddy Roosevelt, were poor economists and the busting up of Rockefeller's Standard Oil of New Jersey was a classic example of that kind of stupidity. I discuss this at this posting, " The True Story of Standard Oil", for your perusal.