US Airways and AMR Agree, But Will Regulators?

The merger of AMR’s American Airlines and US Airways (NYSE:LCC) has passed one more major hurdle, as both airlines have agreed to the terms of a merger. But, there are still a few things that could stand in the way of the proposed deal.

The boards of both companies approved the merger, which would give 28 percent of ownership to US Airways shareholders, and the remaining 72 percent would be split between American Airlines’ shareholders, creditors, labor unions, and employees.

The deal is valued at $11 billion and stands to create a larger airline than either Delta (NYSE:DAL) or United Continental (NYSE:UAL) — becoming the largest airline in the world by passenger traffic. The merged airline would still be known as American Airlines and could be expected to make as much as $38.69 billion in annual revenue, which would top United Continental’s earnings.

While the merger can be expected to allow the airlines to offer more connecting flights, purchase newer planes, and add enhancements to current planes that improve passenger experience, there are still some things that may stand in the way of the merger…

Consumer advocates are worried the merger will simply reduce competition between airlines by reducing the number of competitors in the market, which would drive up fares and fees and harm consumers overall. The Justice Department’s antitrust division could see it similarly and put a block on the merger, but analysts don’t think that is likely. American Airlines’ bankruptcy judge and US Airways shareholders also have to approve the deal for it to go through.

The merger would put 70 percent of the domestic air travel market under the control of just four airlines, which could pose some trouble for regulators, but may not be a deal-breaking issue. The merged airline will more likely be forced to make some concessions at airports that were formerly occupied by both airlines, as they could potentially have too strong a presence at those locations, which would drive down competition through a merger.

If the merger does go through, the two carriers will still face the challenge of fluidly combining their operations, which would involve combining reservation system, technologies, and very different, large labor groups that may not be easily integrated.

There are still hurdles for the airlines to get over to complete the merger, but the agreement between the two boards shows that both sides want to make it happen, so it seems likely that will be the case. Both companies expect to complete the merger in the third quarter.

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