by Megan Morley
Last week, the proposed merger of American Airlines and US Airways faced additional scrutiny when nineteen states joined the U.S. Department of Justice’s investigation of the pending transaction. Greg Abbott, Texas Attorney General, is leading the effort on behalf of a group of attorneys general from states including New York, California and Florida. This move by the states comes after the Government Accountability Office released a report last month that concluded the merger would reduce competition by eliminating an effective competitor in 1,665 routes.
Additionally, 40 consumers filed a suit against the airlines in the Northern District of California this week seeking to stop the merger. Ford, et al. v. US Airways Group, et al., case number 13-cv-3041. The complaint alleges that the deal would lead to anticompetitive effects that harm consumers, such as additional charges for amenities normally included in the ticket price, a decline in the quality of service, and the reduction of the number of flights. It also notes previous consolidations in the airline industry, including the Delta Air Lines and Northwestern Airlines merger in 2008, and claims these prior transactions caused similar anticompetitive effects. Plaintiffs argue that the combination would create the largest airline in the world and that the airline would control almost 25 percent of the U.S. market. US Airways called the suit “without merit” and believes that the deal will be successfully concluded in the third quarter.
This private action brought against the airlines serves as a reminder that any merger under review by a government agency, especially high-profile deals, faces potential follow-on civil suits. Companies contemplating a transaction should understand this risk and should be prepared to respond quickly against the allegations to successfully defend the merger.