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Tempe-based US Airways appears headed to a merger with bankrupt American Airlines. In a preliminary deal with the feds and several states, the new airline will give up space at seven major airports, and it will keep hubs in Phoenix, Dallas-Fort Worth and other cities.
US Airways and American Airlines officially announced they wanted to merge in February. In August, the US Justice Department was joined by the attorneys general of Arizona and other states in a suit to block the deal. On Tuesday, the airlines announced they would reached a settlement with the feds and the states, two weeks ahead of a scheduled trial date.
The new American will sell its space at seven major airports. It will also maintain the current level of operations at its hubs in Phoenix, Dallas-Fort Worth and several other cities for three years.
“The intent is to maintain all of our hubs for … forever,” said Doug Parker, CEO of US Airways.
Parker is set to serve as CEO of the new airline.
“No one should read into the fact that we’ve agreed to three years to mean that we plan to make changes after three years, quite to the contrary. Of course, conditions can change, so you can’t agree to that forever, so we agreed to three years because that’s what the states asked for," Parker said.
Under the terms of the deal, the new American will also sell 52 pairs of takeoff and landing slots at Reagan National and 17 pairs at LaGuardia to low-cost airlines. It will also sell its gates at five other airports.
Robert Mittelstaedt is dean emeritus of Arizona State University's WP Carey School of Business. He is surprised by how quickly the DOJ’s suit was settled.
“A long time ago, I said that I thought this was largely political because the airport that all the politicians and bureaucrats use was one of the most affected airports, and so, given that that’s the biggest chunk of the settlement with them, it appears that that’s exactly what it was. It was all about Reagan National," Mittelstaedt said.
But Dan Goldfine does not think it was political. He chairs the antitrust practice at the firm Snell and Wilmer and said the DOJ argument that the merger would mean less competition at Reagan was strong, but hee does not necessarily buy the claim that the deal will mean higher ticket prices. Goldfine said Tuesday’s settlement focused almost exclusively on Reagan.
“If this agreement to give up 52 slot pairs in and out of Reagan allows a low-cost carrier to situate itself there, I think that will have some effect on consumers, primarily consumers in the northeastern part of the United States," Goldfine said.
So, Goldfine said, do not expect a new, low-cost nonstop from Phoenix to Reagan anytime soon. Charlie Leocha directs the Consumer Travel Alliance, which has been working to stop the merger, period. He was initially disappointed by the settlement, but...
“When I saw that the new merged carrier was going to have to give up space at most of the major airports and make room for low-cost carriers to come in and compete, that really started to change the equation a bit," Leocha said.
Leocha said it is not as good as having the whole merger denied but that the DOJ got a deal that will hopefully benefit consumers.
Arizona Attorney General Tom Horne said he is happy about the agreement reached. In August, the federal government and a handful of states, including Arizona, filed suit to block the merger.
Horne said the airlines have agreed to keep Phoenix as a hub for three years and keep the same level of service in Phoenix, Tucson, Flagstaff and Yuma for five years. He is hopeful the new carrier will continue each after the set number of years, and he believes the merger will be good for Arizona.
"There are a lot of benefits in this agreement for the state’s economy, as compared with what would have happened if we had not been successful in the litigation and the merger had occurred anyway. The big concern was loss of jobs, and there are plenty of protections in this agreement to maintain those jobs," Horne said.
Horne said the deal will be a boon to competition. The plan still needs to be approved by a federal judge in Washington and the court handling American’s bankruptcy. Executives say the merger should be able to close in the first half of December.
Updated 11/12/2013 5:26 p.m.