U.S. sues to block AMR-US Airways merger; stocks fall

Tue Aug 13, 2013 6:02pm EDT
 
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By David Ingram and Karen Jacobs

WASHINGTON (Reuters) - The U.S. government on Tuesday sued to block American Airlines and US Airways' proposed merger to create the world's biggest airline, saying consumers would end up paying higher fares and fees.

The surprise move likely would delay, or even derail, a merger set to close next month and could stall a broad industry restructuring that investors were counting on to support airline profits, triggering a 5.4 percent decline in U.S. airline shares. It also could hinder American parent AMR Corp's efforts to emerge from its nearly 2-year-old bankruptcy.

The Department of Justice, which has in recent years allowed two major airline mergers - United-Continental and Delta-Northwest - to go ahead, made it clear that it is out to block the $11 billion deal entirely rather than seeking concessions from AMR and US Airways.

"We think the right solution here is a full-stop injunction," Bill Baer, head of the Justice Department Antitrust Division, told reporters on a conference call.

The lawsuit, filed in U.S. District Court for the District of Columbia and joined by six states including Arizona and Texas, drew support from consumer advocates, but surprised the industry and raised questions about its budding recovery.

Investors had been counting on large U.S. airlines to carefully notch up fares, fees and profits, ending years of price wars, overcapacity and setbacks such as the 9-11 attacks, the financial crisis and rising fuel costs.

The Thomson Reuters airlines index had climbed more than 35 percent this year as investors grew more confident that airlines would be solidly profitable.

On Tuesday, US Airways closed 13 percent lower at $16.36 on the New York Stock Exchange. American shares fell 45 percent to $3.17 in over-the-counter trading.   Continued...

 
A U.S. Airways jet departs Washington's Reagan National Airport next to American Airlines jets outside Washington, in this file photo from February 25, 2013. REUTERS/Larry Downing/Files