JUSTICE DEPT SUES TO BLOCK US/AA MERGER

[ContUNITEus]

I don't think this will block future mergers. Keep looking to AT&T-TMobile as a parallel. Two companies in the top 5 trying to merge got shot down. T- Mobile with a smaller firm was OK.

DOJ's logic is pretty clear:

consolidation by smaller carriers = good
consolidation by larger carriers = bad

Looking back at the failed UA-US attempts, AA management now has an out clause they didn't have before. They were pressured into this by outside forces, and the unions.

They can choose not to push as hard if they want to, and the DOJ becomes the scapegoat. .......

And the penalties that US has to pay (I believe) if this goes bust, are immense.

 

[WorldTraveler]

I'd be surprised if US has to pay penalties due to failure to get gov't approval. Penalties are usually associated with failure to continue with the plan... I may be wrong though and the AMR creditors are probably still fit to be tied after reading the DOJ's case....

 

[ContUNITEus]

I'd be surprised if US has to pay penalties due to failure to get gov't approval. Penalties are usually associated with failure to continue with the plan... I may be wrong though and the AMR creditors are probably still fit to be tied after reading the DOJ's case....

UA had to pay US when that merger was stopped by the government.

 

[xUT]

UA had to pay US when that merger was stopped by the government.

IIRC UA had to pay US $50 mil when it abandoned merger due to 'possible' anti trust' issues. But that was their agreement.
B) xUt

 

[Airlinelifer]

Yep, UA/CO shouldn't have happened.
also, from your link:



Sometimes, people have to just shut up...
B) xUT

 

[Airlinelifer]

With US Airways executives blabbing and potentially screwing up the AA/US merger I thought of the old wartime phrase of "loose lips sink ships"
I Googled images "loose lips sink ships posters," it showed the classic wartime posters and many old posters that have been photoshoped with new sayings.


The best poster is a WWII GI holding a canteen cup and saying:
"How About a Nice Big Cup of "Shut the F*!k Up"
THINK BEFORE YOU SAY SOMETHING STUPID

 

[traderjake]

TPG and other investors might well be back in play again - but labor sure won't support them.

Don't count on that.

 

[traderjake]

and comparing what the DOJ ^did^ for DL/NW or UA/CO or WN/FL doesn't matter.

The reason why this merger is dead - concessions or not - is because it is impossible now to get those words off the record.

That's what you say, fortunately it's not your call.

That call will be made by a judge.

 

[eolesen]

You're wrong, Jake. It won't be decided by a judge -- he'll preside over the proceeding, but it will ultimately be decided by the lawyers, and how good of a case they can build. Right now, as much as I have no respect for the DOJ's politics, they seem to have all the evidence in their favor that they need, and it can only get worse should they uncover more internal documents related to the merger's benefits...

Just think about all the folks in Tempe and Fort Worth who've already figured out they're out of a job after the merger... Can you imagine what would happen if they were to start leaking stuff to the DOJ?...

DOJ can't go back and undo a merger that had already occurred.

Not a complete undo, but there are two precedents for forcing breakups of a company that has gotten too big: Microsoft, and AT&T. Both involved vertical integration issues, which would be much harder to achieve in the airline industry, especially now that most airlines have fully divested themselves of just about all agency (airlines used to own SATO) and GDS ownership.


I'd really like to see some intelligent discussion of what concessions might be sought to get the deal approved...

When DOJ filed to block Anheuser-Busch-InBev from buying out Modelo (Corona Beer) earlier this year, they agreed to divest of the operations and rights to brew and sell Corona in the US, but kept the rights to manufacture & market it outside the US. That's a fairly simply proposition for a manufacturer.... but how can you address the same issues with an airline? You can't just carve out operations in the states of Minnesota, Ohio, and New Canada from your network like you can with telecom or beer... Sure, there was the "what if we give our DCA operations to DC-Air?" proposal that went nowhere, but that was due specifically to the claim that UA-US would dominate DCA and IAD disproportionately.

What could reasonably be proposed as a deal-changer which would appease the "fares will rise" and "service will be reduced" issues that DOJ brought up? You can't regulate the fares of AA/US in a vacuum, and how can you force them to maintain the current levels of service while also not turning the existing hubs into more of a fortress than they already are?....

 

[AANOTOK]

Do they need to appease the DOJ or do the need to appease the Judge at this point?!?!

 

[FWAAA]

The DoJ publicly said today that concessions won't change their mind; at this point, their goal is to stop the merger under their Clayton Act powers.

Unless the DoJ is bluffing, appeasing the DoJ would be pointless now that Justice has filed its suit to block the merger.

Procedurally, the DoJ has laid out their case and will present evidence. If the judge finds that the government has satisfied its burden and shown by a preponderance of the evidence that the merger would lessen competition, then the judge will rule for the government. It's not a criminal case - it's civil, so there's no "beyond a reasonable doubt" out for US-AA. The government doesn't file suits like this unless it thinks it can win.

If the court rules against the merger, it's game over. No merger.

Oh, sure, "we'll appeal" says Parker. Odds of getting the decision overturned are very long.

If there is a trial, expect disclosure of lots of additional stupidity by the executives like the emails and memos mentioned in the complaint.

 

[bob@las-AA]

I think what your implying is that i'm "ranting" and if I were to put forth such a letter it would obviously sound insane ....

but the reality is that I'm NOT ranting ... The DOJ would whole heartedly approve this merger if they were afraid that AA would dissolve causing the loss of tens of thousands of jobs ... There's a political aspect to the Merger that has little to do with consolidation, passengers , or monopolies ...

If this wasn't purely political you wouldn't see so many cities suing in order to stop this , take Arizona for instance ... my state is undoubtedly afraid of the loss of jobs that will occur when the HQ moves from down town Tempe to Texas ...

Right now Arizona is just kinda chugging along , but losing Decent paying jobs will have a knock on effect on Mill ave ,the state , tax revenues will lessen ect ect ....

So really , if we're going to grab the tiger by the tail , we need to be prepared to think outside of the box ..To see the situation from several different angles .

Yes! let this merge happen and toss some US air people to the lions, let them move to DFW just so the can keep a job. Besides US Air is 13th largest in the state, I dont think it would effect much anyway.

 

[Pi brat]

UA had to pay US when that merger was stopped by the government.

UA pulled out when the government objected, they didn't fight it.

 

[WorldTraveler]

UA had to pay US when that merger was stopped by the government.

And it may be that US will fight because they would have to pay if it didn’t fight… so it fights to avoid having to pay the breakup fee.

Don't count on that.

Anything is possible at this point for AA and no one should rule anything out. AMR’s creditors have to work very quickly to figure out how to develop a viable standalone plan and to get the airline out of BK. The good news for AA is that the DOJ’s actions make a raid from another airline unlikely but it doesn’t stop increased competitive challenges by other airlines into AA’s key markets.
AA needs to move very quickly and very decisively to figure out how to compete in an industry where it will be smaller than DL and UA and where its costs may or may not be lower, and advantage which US has used to help offset its smaller size. AA has structural disadvantages in its network including in the Pacific and continental Europe, areas in which its competitors are stronger and where AA has not demonstrated it can compete profitably long term.

AA labor is not going to like the reality that AA mgmt and creditors will come back to them looking for deeper cuts in order to cut costs further. A merger was based on AA labor giving up less than what AA mgmt would have demanded for a standalone plan and it also would have shifted a lot of the contentious labor issues to the merged company, something that scared the creditors into believing that a merger – and Parker’s ability to keep his workforce relatively peaceful despite lower wages – was the best option.
AA also needed to significantly grow the company in order to keep its costs competitive and their financial results have not established they can do that on a sustained long-term basis. Capacity is tight enough in the summer that everyone should be able to show profits but demand falls off dramatically post 9/11, the European economy is still very fragile, the yen is weak, and the dollar is strong esp. relative to some of the major currencies in Latin America. Domestically, it is hard to imagine a market where AA can significantly grow without major competitive actions from its competitors. The ability for AA to rapidly grow in the current environment, esp. as summer winds down is very limited.

Not a complete undo, but there are two precedents for forcing breakups of a company that has gotten too big: Microsoft, and AT&T. Both involved vertical integration issues, which would be much harder to achieve in the airline industry, especially now that most airlines have fully divested themselves of just about all agency (airlines used to own SATO) and GDS ownership.


I'd really like to see some intelligent discussion of what concessions might be sought to get the deal approved...

When DOJ filed to block Anheuser-Busch-InBev from buying out Modelo (Corona Beer) earlier this year, they agreed to divest of the operations and rights to brew and sell Corona in the US, but kept the rights to manufacture & market it outside the US. That's a fairly simply proposition for a manufacturer.... but how can you address the same issues with an airline? You can't just carve out operations in the states of Minnesota, Ohio, and New Canada from your network like you can with telecom or beer... Sure, there was the "what if we give our DCA operations to DC-Air?" proposal that went nowhere, but that was due specifically to the claim that UA-US would dominate DCA and IAD disproportionately.

What could reasonably be proposed as a deal-changer which would appease the "fares will rise" and "service will be reduced" issues that DOJ brought up? You can't regulate the fares of AA/US in a vacuum, and how can you force them to maintain the current levels of service while also not turning the existing hubs into more of a fortress than they already are?....

Again, the major issues which the DOJ highlighted are about the PLAYERS and their COMMUNICATIONS involved in the merger. It is highly possible the merger could have been approved if the DOJ had not found so much damning evidence that proved that the merger would be uncompetitive.

As for breaking up airlines that have already merged, I would like to see where someone could believe there is evidence that DL, UA, or WN have engaged in uncompetitive actions as a result of their mergers. I don’t see them. DL has been aggressively growing, esp. in areas where it wasn’t strong before and in markets where other carriers were stronger before DL’s merger – that is exactly what the gov’t wants to see from a merger. DL has reduced domestic capacity (really shifted it out of a couple key states) but they also have good evidence to show that fuel prices jumped quite a bit and changed the economics of the 50 seat RJ which supported a lot of MEM and CVG service. The fact that other carriers are replacing 50 seat RJs with larger aircraft makes it hard to argue DL’s strategies are wrong.

Despite predictions that they would cut service at some airports, UA has not taken the hatchet to any major markets, including CLE. UA is slowly pulling capacity out of it system but it is doing it across the board.
WN has been fairly aggressive about pulling out of some markets but they are still perceived as a low cost discipline to the network carriers, even if the WN acquisition of FL removed a lower cost competitor from the market and removed some of the pricing discipline that WN had previously been forced to live with.
It is very, very unlikely that the industry will be forced to undo anything but the chances of any new mergers happening is very slim. It simply isn’t worth it for an airline to take the risk on a merger only to risk losing their case against the DOJ which has a very strong track record in winning cases it opposes.

 

[AA-MRO.COM]

Gas goes up my taxes go up my health insurance goes up everything goes up. Increase the price of an airline ticket and it becomes a problem. WTF. Regulate the industry so these airlines can make money instead of making us subsidize the price of a ticket.