Today's Proposed Merger Thoughts

[robbedagain]

I find it interesting how quickly the DOJ backed off its original demand that the merger not take place under any circumstances, and that they saw no amount of concessions possible to make the deal happen.

Suddenly now, they are open to a settlement. As Church Lady likes to say: "How conveeeeeenient!"

is it possible they know they have a weaker case than some want to admit? just a question but like you nycbus its very convient that they are now changing tunes.... hohoho

 

[WorldTraveler]

It would be dangerous to conclude that the DOJ doesn't a case just because they say they are willing to negotiate even though they said at the time the lawsuit was filed that they would block the merger no matter what.

Negotiations in any context mean putting your strongest point forward. So far as I know, no airline has ever gone to trial with the DOJ over antitrust issues so they could have achieved their goals by simply making it clear they want significant changes or will fight to get them. Labor unions have long presented a laundry list of things they want and often said that some things are non-negotiable only to come back w/ none of those items.

We also really don't know how much more information the DOJ has or can obtain - but it is most certainly more than what they put in the original lawsuit filing. All they had to do in the filing was show that there is reason for them to force change; they do not have to put all the information in the initial filing to win the case.

I wouldn't be surprised if AA/US decide to settle before trial if for no other reason than because the cost of standing still and the whole legal process once it starts will have a significantly negative effect on both companies. The AA creditors esp. have a large incentive to keep the ball moving.

 

[FWAAA]

I believe what most people do not recognize is that the DOJ’s complaint and the company’s response is more about negotiation than litigation. During the past 9 years the DOJ has had minimum success in blocking mergers through court action. Since 2004 the Justice Department has won only one antitrust case in court when a judge blocked the H&R Block and Tax Act corporate combination. After filing a lawsuit the vast majority or almost every DOJ complaint is settled out of court without judicial intervention.

Given the political situation of the past dozen years, the dearth of section 7 cases shouldn't be too surprising.

The Feds know this and Rich Parker does too, which is why I believe the regulators said in two separate announcements it would be willing to reach a settlement agreement if the companies offered antitrust concessions that the government wants. But, due to the complexity of the filing, which could be modified on September 6[sup]th[/sup], there will likely have to be behavioral remedies along with the DCA structural remedy.

Yes, the complaint could be amended by September 6, as the federal rules permit plaintiffs to amend their pleadings within 21 days of service. Both US/AA and the government agreed that Friday, Sept 6 would be the deadline to amend the complaint. Here is an article that mentions the agreement on the Sept 6 deadline:

http://aviationblog.dallasnews.com/2013/08/antitrust-judge-gives-doj-american-airlines-and-us-airways-homework-before-fridays-hearing.html/#more-17085

And, one other important point is the Judge Koller-Kotelly has a reputation of encourage the parties to settle, if possible, which I believe is another reason or view that points to a settlement.

Good grief - you are really reaching with this one. Every federal judge has a "reputation" of encouraging settlement. Nearly every case filed in nearly every court in this country settles prior to trial. Perhaps this one will settle, but it won't be because you've discovered something unique about this judge.

Interestingly, the DOJ has indicated it will amend its complaint by Friday, September 6th. We will have a better idea of the DOJ's true intent after their new filing is made public.

Uhh, you're reading far more into routine deadlines than is warranted. The government has not indicated that it will amend its complaint by Friday. The deadline to file an amended complaint is this coming Friday.

It is my understanding US Airways currently operates approximately 230 peak-day departures at National. I'm not sure about AA, but the Texas-based company may have about 30 to 40 (this is a guess). Therefore, maybe the DOJ's target might be a 10% slot reduction of the combined slot assets that AA and US Airways currently operate. Hopefully it's a lower number.

This is one area where uninformed speculation is not necessary, since we have a recent government case on this issue: the US slot giveaway to Delta. The government made it fairly clear that about 55% of the slots was the maximum that an airline should be permitted to accumulate via a transaction, and thus, it would be reasonable to assume that new AA will have to give up the number of slots currently held by AA, so that new AA will hold the same 55%.

The issue is can the parties reach a settlement that both can live with? I believe there is a deal out there because the risk is too high for either party in court.

The good news is that the DOJ has won only one antitrust lawsuit in nearly a decade.

What's the risk to the Department of Justice if they lose the case? None. A little pride, perhaps, as all lawyers like winning cases that they bring. What's the risk to Doug Parker? If Parker wins, great. If he loses - it's all over. He won't have the network to survive and US won't have the revenues to pay its pilots (assuming they ever stop fighting each other and demand industry-average pay).

 

[USA320Pilot]

I find it interesting how quickly the DOJ backed off its original demand that the merger not take place under any circumstances, and that they saw no amount of concessions possible to make the deal happen.

Suddenly now, they are open to a settlement. As Church Lady likes to say: "How conveeeeeenient!"

Nycbusdriver,

Your point is well taken. History has shown that the DOJ has won only one lawsuit since 2004 or the last nine years. The vast majority of their lawsuits are filed and then settle, which I believe is a tool the regulators use to get the merger partners to agree to more concessions than they desire.

USA320Pilot

 

[USA320Pilot]

Given the political situation of the past dozen years, the dearth of section 7 cases shouldn't be too surprising.



Yes, the complaint could be amended by September 6, as the federal rules permit plaintiffs to amend their pleadings within 21 days of service. Both US/AA and the government agreed that Friday, Sept 6 would be the deadline to amend the complaint. Here is an article that mentions the agreement on the Sept 6 deadline:

http://aviationblog....tml/#more-17085



Good grief - you are really reaching with this one. Every federal judge has a "reputation" of encouraging settlement. Nearly every case filed in nearly every court in this country settles prior to trial. Perhaps this one will settle, but it won't be because you've discovered something unique about this judge.



Uhh, you're reading far more into routine deadlines than is warranted. The government has not indicated that it will amend its complaint by Friday. The deadline to file an amended complaint is this coming Friday.



This is one area where uninformed speculation is not necessary, since we have a recent government case on this issue: the US slot giveaway to Delta. The government made it fairly clear that about 55% of the slots was the maximum that an airline should be permitted to accumulate via a transaction, and thus, it would be reasonable to assume that new AA will have to give up the number of slots currently held by AA, so that new AA will hold the same 55%.



What's the risk to the Department of Justice if they lose the case? None. A little pride, perhaps, as all lawyers like winning cases that they bring. What's the risk to Doug Parker? If Parker wins, great. If he loses - it's all over. He won't have the network to survive and US won't have the revenues to pay its pilots (assuming they ever stop fighting each other and demand industry-average pay).

The DOJ's risk in losing the trial is three fold: 1. The New American will have 69% of the DCA slots and new entrants cannot currently enter the market, which is great for the merged business enterprise, but local Washington flyers may not like this. 2. From a political perspective Holter and Bair have a lot of egg on their face as appointed members of the Civil Service Senior Executive Service (SES). 3. The DOJ will not be able to control pricing and anciliary fees (is this not a form of regulations????).

 

[FWAAA]

usa320 i think a 10% slot sell or lease type of thing could be very beneficial.. you said something interesting.. the doj is amending its argument come friday.. is there a link to be had that would have an article about that.. that alone is going to be very interesting to see how they amend it...

robbed: you've been led astray by the good captain. There is no article or link that confirms that the government is amending its complaint - only the routine deadline (the same deadline as in every federal case).

So what was the point of selling LGA slots and increasing size at DCA. That seems to be a stupid move?. . I think the lawmakers ie senators are the key to how much we give up. I see the NH contingent and talked to them on the flight home the other day. They want more service to MHT not less. Again they are not happy and plan to be involved.

It's unfortunate that Parker gave away so many LGA slots in exchange for so few DCA slots plus $65 million in cash plus future access to GRU (which DL replaced in the latest Brazil route case). Had US waited, the new AA would have as many slots at LGA as Delta does now (would have had to divest some) plus new AA would have as many DCA slots as US currently holds. In other words, new AA would have about half the slots at both airports - a dominant position at LGA and DCA.

I find it interesting how quickly the DOJ backed off its original demand that the merger not take place under any circumstances, and that they saw no amount of concessions possible to make the deal happen.

Suddenly now, they are open to a settlement. As Church Lady likes to say: "How conveeeeeenient!"

There has been no change in the government's settlement position. On August 13, Baer said that the DOJ was willing to talk settlement. Last week, the DOJ filed the routine statement (routine as in every federal case) statement that it was open to settlement. That does not evidence any change in the government's position.

Here's an article that cautions against reading too much into routine filings discussing things like settlement:

http://aviationblog.dallasnews.com/2013/08/both-sides-in-antitrust-lawsuit-tell-judge-they-are-open-to-a-settlement-but-havent-gotten-anything-from-the-other-side.html/

is it possible they know they have a weaker case than some want to admit? just a question but like you nycbus its very convient that they are now changing tunes.... hohoho

Again, robbed, you've been led astray by routine court filings and people who read far too much into those routine filings.

Weak case? Maybe. Unlike all the experts here - I don't know. I know one thing, though. The government generally doesn't file very many of these cases and when they do, they generally expect to be able to win. Like I posted above - no lawyer likes to lose in court, and thus if they thought this was a weak case, dontcha think they would have let it slide like all the other airline mergers?

 

[USFlyer]

Weak case? Maybe. Unlike all the experts here - I don't know. I know one thing, though. The government generally doesn't file very many of these cases and when they do, they generally expect to be able to win. Like I posted above - no lawyer likes to lose in court, and thus if they thought this was a weak case, dontcha think they would have let it slide like all the other airline mergers?

No, the Government was hoping AA-US would abandon its efforts or get serious about negotiations. I've been in situations many times where we have filed some sort of legal action only to get someone to the negotiating table. It's quite common.

 

[FWAAA]

The DOJ's risk in losing the trial is three fold: 1. The New American will have 69% of the DCA slots and new entrants cannot currently enter the market, which is great for the merged business enterprise, but local Washington flyers may not like this. 2. From a political perspective Holter and Bair have a lot of egg on their face as appointed members of the Civil Service Senior Executive Service (SES). 3. The DOJ will not be able to control pricing and anciliary fees (is this not a form of regulations????).

Do you really believe that a federal judge is going to deny the government an injunction where the merging airlines would hold 69% of the slots at DCA? It's possible, but unlike Hunter Keay, I give US-AA about a 1% chance of winning on that one.

Yes, captain, the parties will likely settle before trial. But if they fail to reach a settlement, Parker's odds of winning don't look very encouraging.

 

[Phoenix]

..

I wouldn't be surprised if AA/US decide to settle before trial...

AA/US decide to settle...


The necessary premise to that speculation is that you believe the DOJ didn't/doesn't really want to go to trial. I.e. it was just a tactic to get AA/US to start negotiating (its up to them to settle), so the merger isn't any different than all the other mergers after all.

 

[nycbusdriver]

But if they fail to reach a settlement, Parker's odds of winning don't look very encouraging.

I picture you standing in your ruby slippers, clicking your heels together as you say that.

 

[FWAAA]

I picture you standing in your ruby slippers, clicking your heels together as you say that.

Huh? Where did that come from?

 

[USA320Pilot]

No, the Government was hoping AA-US would abandon its efforts or get serious about negotiations. I've been in situations many times where we have filed some sort of legal action only to get someone to the negotiating table. It's quite common.

USFlyer,

Thanks for making this point. I'm not an attorney, but I have been told this is a tactic used by the DOJ all the time. Would it be fair to say that is one of the reasons the DOJ has won only one trial in the past nine years? Is is an accurate statement to make that if the Justice Department is interested in having their concerns met and they cannot get the parties to agree they use the threat of judicial intervention to extract greater concessions than the new business partners desire?

I have been told this occurs in many cases.

 

[robbedagain]

fwaa might as well start drinking mudslides again!!! 🙂 i think both companies and the doj will come to an agreement but at what cost. thats the biggie there.... how far is dp willing to go and the aa creditors

 

[WorldTraveler]

BTW, AA/AE operates about 50 peak day flights per day at DCA. Just to keep in perspective the size of the potential divestiture if the DOJ demands that the equivalent of AA's entire portfolio be divested since as FWAAA notes the DOJ indicated when the slot deal was approved that would not allow US to go above 55%.

US operates about 60 flights/day on aircraft smaller than 50 seats, if I have counted correctly. AA and US operate jointly on two routes, BNA and RDU for a half a dozen or so slots.

Perhaps the reason why Parker has repeatedly said that he would ditch the RJ/small city operations first is because he might really be forced to give up a big chunk of them in order to be able to retain enough slots to operate to the remaining AA/US hubs.

 

[robbedagain]

fig if the combined airlines would have 69% of the dca slots they could be forced to give up say 14% slots is it possible that they would give up most of the eagle and most of the us express slots as well as adjust the bna and rdu slots to make the doj happy