Obama allies back airline merger

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Democratic allies of President Barack Obama are ramping up their pleas for the administration to stop fighting the merger of American Airlines and US Airways, less than a month before the Justice Department is to square off against the companies in court.

Unions have been on board with the merger since its early days, but several prominent names have climbed aboard the cause in recent weeks. They include former Obama chief of staff Rahm Emanuel, who is now mayor of Chicago, and other big-city mayors such as Philadelphia’s Michael Nutter and Los Angeles’s Eric Garcetti. Earlier this month, 68 House Democrats wrote to the Justice Department, asking it to abandon its lawsuit, which is scheduled for trial Nov. 25.

A settlement could head off the lawsuit — the airlines and the departments said in a court filing this week that they have agreed to hire a mediator and The Wall Street Journal reported Wednesday that American and US Airways are preparing an offer that would have them give up some flight slots at Ronald Regan National Airport. But failing that, some experts doubt the public pressure will have much effect on the Justice Department.

Craig Wildfang, co-chairman of the antitrust group at Robins, Kaplan, Miller & Ciresi LLP, said political pressure “rarely matters” in these types of cases.

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“It doesn’t mean that the attorneys at DOJ don’t listen or are … it’s not that they necessarily tune it out,” said Wildfang, who served for three years as the department’s special counsel to the assistant attorney general for antitrust, where he was involved in several high-profile tech cases. “It’s that there’s a very strong policy of making sure that politics doesn’t get into law enforcement decisions.”

Wildfang also questioned how much impact the unions and other merger supporters will have with their arguments that the deal would boost jobs and economies in cities where the two airlines have hubs.

“Those are not the types of economic arguments that typically the DOJ is most concerned with,” he said. “What they’re concerned with is: What is competition going to be like after the merger in relevant markets?”

Local economies and job considerations might tip the scales if other factors are virtually equal, Wildfang said. “But it would have to be truly a very, very close call,” he said.

The Justice Department was joined in the lawsuit by several state attorneys general, including those of Pennsylvania, Michigan, Virginia, Tennessee, Arizona, Florida and the District of Columbia — plus Texas, which recently withdrew. They argued that the union of the two airlines would harm competition and result in higher fares.

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But the letter from the 68 House Democrats argued that the department’s suit is the real economic threat.

“We are concerned that the DOJ’s lawsuit creates an atmosphere of uncertainty for our respective congressional districts and constituents,” the letter reads. “While we share your concern regarding any potential impact on consumers as consolidation in any industry is contemplated, we believe that DOJ’s concerns as outlined in the complaint filed last month are not an adequate representation of all the facts.”

Signers included West Virginia Rep. Nick Rahall, the top Democrat on the Transportation Committee, and Arizona Rep. Ed Pastor, the top Democrat on the Appropriations subcommittee in charge of transportation.

In a separate letter to U.S. Attorney General Eric Holder this month, Emanuel and Nutter — both Democrats — joined the mayors of Dallas; Fort Worth, Texas; Charlotte, N.C.; Phoenix; and Miami-Dade County, Fla., in arguing that the merger would economically benefit their communities. Garcetti of Los Angeles later issued a separate statement supporting the merger.

Other parties have announced their intent to file a “friend of the court” brief supporting the merger, including Oklahoma Attorney General Scott Pruitt and the governing bodies for airports in Dallas, Charlotte, Philadelphia and Phoenix.

The mayors represented a majority of the hub cities for both airlines, with the exception of New York City and Washington. Their support is notable considering that it’s not unheard of for hub cities to lose service or see fares rise after an airline merger, especially in cities where the acquired entity had been operating.

The mayors also echo a major argument from the airlines’ lawyers: They say the Justice Department is applying a different standard to their planned merger than it did in the merger of Delta Air Lines and Northwest Airlines and the merger of United Airlines and Continental Airlines. Both of those mergers gained approval.

The Justice Department has argued that the American Airlines and US Airways merger would hurt competition in more than 1,000 city pairs served by flights with at least one connection. But that’s not the standard the agency employed in other mergers, lawyers for the airlines and other pro-merger interests say. Before, DOJ considered only the impact on city pairs and didn’t weight connecting flights into those markets as heavily.

George Hoffer, a transportation economist at the University of Richmond, said the agency’s consideration of connecting flights when weighing harm is correct but that it doesn’t make sense to deny this merger, given the two previously approved mergers. He called the administration’s position “totally untenable.”

“That was the stance that should’ve been taken by the Bush administration before the first merger was allowed,” he said. “Once they allowed the first two mergers, the third merger was inevitable, and it’s idiotic to do what they’re doing.”

Hoffer said ultimately the force that matters the most is Wall Street, where money has been behind the merger all along. He predicted that the case ultimately would be settled by forcing the merged airlines to give up slots at Reagan National.

The combined airline — which would keep American’s name — would hold the lion’s share of slots at the airport closest to the Capitol , a commodity that’s coveted by other airlines such as JetBlue and Southwest. The rivals have precedent on their side: In other mergers, giving up flights at airports with limited slots has been a large part of the price for the Justice Department’s green light.

The Journal story said American and US Airways hope to offer a settlement proposal that includes a “package of divestments … focused largely on relinquishing some slots at Reagan National.” But the story noted that it’s unclear whether simply giving up slots would resolve the Justice Department’s “sweeping, fundamental arguments” about the damaging effects the merger would have on competition in multiple cities.

The Journal cites one source as saying the airlines’ lawyers are “still expecting to go to trial.”

In a statement, a spokeswoman for the two airlines said that “any discussions about settlement to resolve this litigation, whether internal, with DOJ directly, or through the mediator would be private — and we are not going to comment on them in any way.”

American and US Airways have previously argued against giving up any slots at Reagan National, saying they serve small- and medium-sized markets that the other airlines wouldn’t. That rhetorical tack is tailor-made to appeal to senators concerned about losing service to airports in smaller communities back home.

But even surrendering slots may not be enough to win approval this time, given the Justice Department’s larger concerns about competition nationwide.

“It’s not obvious what the DOJ might ask for or what the parties might offer, because of this problem of the increasingly consolidated concentrated airline industry,” Wildfang said.

They have about four weeks to figure it out.