Wednesday, April 7, 2010

United/US Airways Merger Talks

The New York Times is reporting that United Airlines and US Airways "are deep in . . . merger discussions" to form one of the world's largest airlines.  See Andrew Ross Sorkin et al., United and US Airways Said to Be in Merger Talks, N.Y. Times, Apr. 7, 2010 (available here).  According to the story, a formal announcement concerning the discussions is not expected for several weeks and that both carriers' unions may oppose the deal.

The two airlines may also face stiff resistance from the Department of Justice's Antitrust Division.  In 1995 and 2000, the DOJ threatened lawsuits to block US Airways's acquisition by United. Both threats were predicated on the implications of United taking over US Airways hub operations at high-use East Coast airports. Perhaps, given the financial woes the airline industry has faced since 9/11, including record high fuel prices and the economic downturn, the Justice Department would be willing to take a more lenient view of a domestic link-up between the two.

This assumes, of course, that antitrust enforcers in Washington won't be spooked by the size of a combined United/US Airways air carrier.  Recent statements by both the DOJ and the Federal Trade Commission seem to indicate limited tolerance for further market concentration regardless of whether or not the transaction will result in efficiency gains.  See Alan Devlin, Antitrust in an Era of Market Failure, 33 Harv. J. L. & Pub. Pol'y 31-38 (forthcoming 2010) (available from SSRN here).  As ill-advised as this policy position may be, it could prove an insurmountable obstacle to any significant consolidation in the U.S. airline industry.

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