(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
WASHINGTON — American Airlines and US Airways, even before they've entered court, are fighting the Justice Department over when the government's antitrust lawsuit to block the airlines' proposed merger should go to trial.
The Justice Department is seeking a March trial, while the airlines are pressing for November to resolve the case that is keeping American parent AMR Corp. stuck in bankruptcy. U.S. District Judge Colleen Kollar-Kotelly in Washington is scheduled to hear arguments from both sides today.
The carriers and the government said in an Aug. 28 filing that they were at an "impasse." The airlines say waiting until March to start the trial would cause "significant harm" and put their merger at risk. The Justice Department has said rushing to try the case isn't a good idea given its complexity, the volume of material that needs to be exchanged and the potential for the merger to hurt competition and consumers.
"The government is shooting for the farthest-out date to give them more time to prepare," said Jeffrey Jacobovitz, an antitrust litigator with McCarthy, Sweeney & Harkaway PC in Washington who isn't involved in the case. "The airlines have more ammunition to proceed to early trial and they want to go as soon as possible because their business is being held up."
The U.S., joined by six states and the District of Columbia, sued the airlines on Aug. 13 to block the tie-up, which would create the world's largest airline. The case upended the merger agreement that came together in February and stalled AMR's exit from bankruptcy protection.
U.S. Bankruptcy Judge Sean Lane in Manhattan delayed approval of the company's reorganization plan at a hearing Thursday. Lane said arguments in favor of approval were "fairly persuasive" and set the next hearing for Sept. 12.
With the lawsuit pending, AMR remains in bankruptcy. The government lawsuit causes "serious and needless uncertainty" over the future structure and business plans of the two airlines, the companies said.
"Being in this situation is like being in legal and business limbo," said Robert McTamaney, a lawyer at Carter Ledyard & Milburn LLP in New York who isn't involved in the case. "You don't want to take significant actions with respect to the business because you don't know whether the business is going to exist in a combined or separate fashion."
Prospects for settling the case are slim, according to Seth Bloom, founder of Bloom Strategic Counsel PLLC and former general counsel of the Senate Antitrust Subcommittee. "Given what the Justice Department has alleged in the complaint, with more than 1,000 city pairs affected, the end of maverick pricing by US Airways, and the danger of price increases in ancillary fees, all of those issues makes this case very difficult to settle."
The government has proposed a "trial-ready" date of March 3, a time-frame similar to the one it sought in the 2011 lawsuit to block AT&T Inc.'s acquisition of T-Mobile USA Inc. AT&T abandoned the deal before the trial was held.
American and Tempe, Ariz.-based US Airways have proposed a 10-day trial beginning Nov. 12. That would provide a longer period between the lawsuit's filing and the start of the trial than other government merger cases, the companies said.
"Because American is in bankruptcy, time is an issue with the creditors," Michael Derchin, an analyst at CRT Capital Group in Stamford, Conn., said in a phone interview. "They want to get paid and they're sick of waiting," said Derchin, who recommends buying US Airways shares.
AMR, based in Fort Worth, Texas, has been reorganizing in bankruptcy since November 2011. The merger with US Airways forms the basis of its plan to pay creditors and exit court protection.
If the merger is successfully blocked, American would continue operating in bankruptcy and develop a new reorganization plan. That process would stretch into 2014, according to Jack Butler, an attorney for AMR creditors who helped negotiate the merger.
"The company will have to go back to the drawing board," said Michael Friedman, a lawyer at Richards, Kibbe & Orbe LLP who isn't involved in the case. "They'll have to come up with a game plan that works, a good rational business plan that would take them and help them survive as a standalone airline that's smaller but still able to compete."
_ With assistance from Erik Larson in New York and Mary Jane Credeur in Atlanta .