The proposed merger between US Airways Group Inc (NYSE:LCC) and AMR Corp., the parent company of American Airlines, may be at risk. The Department of Justice and attorneys general from Arizona, the District of Columbia, Tennessee, Texas, Pennsylvania, Virginia, and Florida have all filed a lawsuit that would keep the two companies from merging, reports CNBC.
Shares of US Airways Group Inc (NYSE:LCC) declined as much as 11 percent after the lawsuit was announced.
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DOJ says US Airways-AMR merger would reduce competition
Officials say a merger of the two airline companies would create the world’s biggest airline and reduce commercial air travel competition in a number of local markets. They said as a result, passengers would have to pay more for airfare while also receiving less service.
The merger plans were unveiled in February and included plans for 6,700 daily flights and expectations of $40 billion in annual revenue for the new company. In July, US Airways shareholders approved those merger plans.
Past airline mergers in the U.S.
If the merger ended up being approved in spite of the DOJ’s lawsuit, all four of the largest airlines in the U.S. would be the result of a series of mergers which started in 2008. The mergers have helped airlines not only return to profitability but also keep a tighter lid on the number of seats available and raise airfares for those seats. AMR Corp. filed for bankruptcy protection in 2011 as it struggled to remain profitable. It has been looking for this merger with US Airways to bolster its efforts to do that.
One of the biggest problems with finalizing a deal in mergers between airlines involves dealing with labor unions. According to CNBC, pilots from both US Airways Group Inc (NYSE:LCC) and AMR Corp. agreed to be combined under one labor contract, which would clear the way for the merger to happen if regulators approve it.
In the U.S., the airline industry is worth more than $70 billion, including both leisure and business travelers.