US Airlines and American merger may be a no go

Just as American Airlines was ready to proceed with a bankruptcy hearing on Thursday in which the merger between American Airlines and US Air would have been made final six State attorney Generals and the DC State attorney filed a lawsuit today saying the merger would violate the US antitrust law.

The reorganization plan essentially involves a merger with US Airways. The Journal reports that it was not yet clear whether the airline would go through with the hearing.

Bloomberg reports that Justice alleges the merger would lead to “less competition in the industry and higher prices for consumers.” The wire service explains:

“The Justice Department sued to block the transaction because it would remove the incentive for US Airways to offer lower prices and lead to higher airfares for consumers, said a person familiar with the matter who asked not to be identified because the matter is private.

“The suit, unexpected by analysts and industry executives, marks a sharp break with the department’s past policy, which allowed six unprofitable airlines to merge over the past five years in an effort to cut costs and end losses. For American parent AMR Corp., which filed for bankruptcy protection in November 2011, the merger would have completed its reorganization and allowed it to exit court protection.”

As NPR’s Marilyn Geewax has reported, the proposed merger would create the country’s largest airline and company, which would be worth about US$11 billion.

The merger had been long rumored and was finally approved by both corporate boards back in February.

“Airline travel is vital to millions of American consumers who fly regularly for either business or pleasure,” Attorney General Eric Holder said in a statement. “By challenging this merger, the Department of Justice is saying that the American people deserve better. This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices. Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace.”