Holder: American, US Airways must shed slots at multiple airports

Posted Monday, Nov. 04, 2013  comments  Print Reprints

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U.S. Attorney General Eric Holder indicated Monday that a settlement with the federal government is possible to allow the merger of Fort Worth-based American Airlines and US Airways, but only if the airlines shed assets at key airports across the country.

The airlines and the Justice Department opened settlement talks last week over a lawsuit filed by Justice to block the deal. The two sides are preparing for a trial scheduled to begin in Washington on Nov. 25.

While the airlines have indicated a willingness to negotiate the sale of slots at Washington’s Reagan National Airport, where the combined carrier would control nearly 70 percent of the traffic, Holder made clear that a settlement would require broader concessions.

“What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States,” Holder said at a news conference in Washington.

He declined to disclose the number of slots for takeoff and landing rights the government wants to see divested before it will approve the merger. Talks between the two sides are ongoing, he said.

“We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint and does not substantially bring relief to consumers,” Holder said.

The airlines declined to comment specifically on Holder’s comments.

“Any discussions about settlement to resolve this litigation, whether internal, with DOJ directly or through the mediator would be private and we are not going to comment on them in any way,” the airlines said in a joint statement Monday.

But Holder’s comments sent shares of AMR [ticker: AAMRQ] shooting up almost 25 percent Monday, to close at $9.84. AMR stock has traded on over-the-counter markets since shortly after it filed for bankruptcy in November 2011 and was unable to maintain listing requirements for the New York Stock Exchange.

As American has improved its finances in bankruptcy court and since it announced merger plans with US Airways, its stock price has increased significantly. If an investor had taken $1,000 and bought shares of AMR on Nov. 29, 2011, when it was 26 cents a share, the investment would be worth $37,846.15.

The stock rally built on momentum generated last week when AMR Chief Executive Officer Tom Horton met with Florida Attorney General Pam Bondi to discuss ending that state’s role in the U.S. lawsuit.

Bondi said in a statement that both sides were “hopeful that we will reach a timely resolution,” and Horton echoed that with a statement saying he was “hopeful that a resolution can be reached in the near future.”

Florida is among six states plus the District of Columbia that joined the Justice Department’s lawsuit. The U.S. and the plaintiff states argue the combination would reduce competition and raise fares. Texas Attorney General Greg Abbott dropped out of the suit last month when the airlines guaranteed it would keep the combined carrier’s headquarters in Fort Worth for three years and maintain service to a dozen Texas airports.

The airlines have mounted a public campaign to gain support for the combination from national and local politicians and business leaders as well as its unions. Last week, several airports, including Dallas/Fort Worth Airport, and chambers of commerce filed briefs with the federal court in support of the deal.

Vicki Bryan, an analyst with Gimme Credit, told investors she expected the DOJ to push for multiple slot divestitures as part of the settlement talks. It’s likely the DOJ wants the airlines to give up slots at not only at Reagan National but also New York’s LaGuardia Airport.

“We continue to expect this dispute to be resolved via negotiated settlement, potentially before the trial even starts but no later than year-end, paving the way for the merger to close immediately thereafter,” Bryan said in a research note sent to investors Monday.

Staff writer Andrea Ahles contributed to this article, which contains material from Bloomberg News.

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