Airline attorneys say Justice Department ‘got this one wrong’

Posted Thursday, Aug. 15, 2013  comments  Print Reprints

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Attorneys for American Airlines and US Airways said Wednesday that they’re digging in to litigate the Justice Department antitrust lawsuit that seeks to block the carriers’ proposed merger.

During a conference call with reporters, three attorneys for the airlines maintained that the government’s case is weak and that they are ready to fight in federal court. The Justice Department and attorneys general for six states and the District of Columbia filed the suit Tuesday, claiming the merger is anti-competitive and will raise fares and fees while reducing services for fliers.

Richard Parker, an attorney with O’Melveny & Myers, said the parties are in discussions with the government on a trial date, which he expects to be “certainly by the end of the year.” The case has been assigned to U.S. District Judge Colleen Kollar-Kotelly in Washington, D.C.

Parker said that while the carriers respect the agency, “they got this one wrong.” He said that “only a federal judge can stop a merger” and that in the past eight years, the government has prevailed in just one such case while losing several.

“I can say both of these companies are looking forward with confidence to our day in court,” Parker said.

Despite that confidence, legal experts say the case is clearly a departure from the way the agency has handled past airline mergers. For example, the government relied heavily on a June report by the federal Government Accountability Office that showed the merger would reduce competition on 1,665 routes, including those with connections, a broader analysis criticized by the airlines.

US Airways and American Airlines compete on 12 nonstop routes, not thousands, the airline attorneys argued. Joe Sims, an antitrust lawyer in Washington for Fort Worth-based American, called the higher number “kind of a kitchen sink complaint. It is certainly a different approach than we’ve seen in the past,” suggesting it might not hold up in court.

“Everybody assumed the deal would get resolved as all the other cases have,” Robert Doyle, an antitrust lawyer with Doyle, Barlow & Mazard in Washington, told Bloomberg News, referring to Delta and Northwest in 2008, United and Continental in 2010, and Southwest and AirTran in 2011.

Former AMR CEO Bob Crandall weighed in Wednesday, arguing that the government’s past merger approvals were the right call. In an email, Crandall said that American and US Airways aren’t really competitive with the larger Delta and United and that killing the merger “will reduce the industry’s competitive intensity and move the country closer to a major carrier duopoly.”

Consumers might be paying more to fly, he said, but “a profitable airline industry is a positive for both the country and consumers.” Crandall retired from AMR in 1998.

Other antitrust lawyers unaffiliated with the case said the dispute could be hard to resolve.

“My take is that the deal is dead,” Allen Grunes, an antitrust lawyer with GeyerGorey, told Bloomberg News. “Based on the complaint, this merger doesn’t look like it can be fixed with divestitures or slot sales.”

Grunes compared the action to the Justice Department’s 2011 lawsuit to block Dallas-based AT&T’s takeover of T-Mobile USA. AT&T eventually dropped its bid.

The AT&T suit preceded the confirmation in December of William Baer as chief of the antitrust division at the Justice Department. Baer had worked at the Federal Trade Commission, another agency that oversees business competition issues, and his appointment was considered a sign of tougher antitrust enforcement in the future.

Within days of his arrival, he challenged Anheuser-Busch InBev’s purchase of Grupo Modelo, a big Mexican brewery. InBev agreed to sell a brewery in Mexico along with rights to Modelo’s brands in the U.S. to gain Justice’s blessing.

On Tuesday, Baer said he went to court against American and US Airways “because we think a full-stop injunction is the right outcome for consumers.” While the government remains prepared to hold settlement talks, he said, the Justice Department hasn’t mapped out potential remedies that could salvage the merger.

“Typically, the government will have already had extensive settlement discussions with the parties,” Craig Wildfang, an antitrust lawyer with Robins, Kaplan, Miller & Ciresi in Minneapolis, told Bloomberg News. “The decision to sue only comes after settlement discussions have failed, although that doesn’t mean they can’t come back and take another shot at it.”

Paul Denis, an attorney for US Airways, said during the conference call that the airlines spent seven months talking with the Justice Department about the agency’s concerns.

“When you’re in an investigation that long, you’re never surprised” if the government sues, Denis said. He said the only surprise was that “the complaint was not stronger.”

Asked whether attorneys were engaged in settlement talks even as they prepare for a court fight, Denis said: “We’re litigating this case, period.”

Parker quickly added: “If the government has a creative alternative, we’ll certainly listen to it.” Then he said, “we’re preparing for trial.”

Regarding the timing of the government’s lawsuit, coming just two days before a Bankruptcy Court hearing to confirm or reject AMR’s reorganization plan, Denis said that was more practical than anything else.

He said the airlines’ attorneys didn’t learn of the case until it was filed Tuesday morning.

“To take some of the drama out of this, DOJ has a strong preference to sue before the transaction is closed. It was not a secret the Bankruptcy Court confirmation hearing was the 15th,” meaning today, Denis said.

U.S. Bankruptcy Judge Sean Lane, who has overseen AMR’s Chapter 11 proceeding since it was filed in November 2011, is expected to hold the hearing as scheduled, parties said Wednesday. Airline executives have said they expected his approval to be the last legal step required to complete the deal.

With the government’s lawsuit, AMR could spend several more months in Bankruptcy Court while it fights to save the merger.

AMR executives “would have preferred that hearing be the final episode in this long effort,” Sims said. “It’s not going to be now, and they will deal with that.”

Jim Fuquay, 817-390-7552 Twitter: @jimfuquay

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