Friday July 27, 11:58 am Eastern Time
Justice Dept. to Block Airline Merger
Justice Department Moves to Block Airline Merger of United Airlines and US Airways
By KAREN GULLO
Associated Press Writer
WASHINGTON (AP) -- The Justice Department, citing antitrust concerns, said Friday it will file suit to block the merger of United Airlines and US Airways.
The department said the 16-month-old proposal, which would have created the nation's largest airline, would ``reduce competition, raise fares and harm consumers.''
The department said it will be joined in its suit by the attorneys general of several states.
``If this acquisition were allowed to proceed, millions of consumers -- business, government and families -- would have little choice but to pay higher fares and accept lower quality air service,'' said Attorney General John Ashcroft.
The ruling was widely expected even before United's parent company, UAL Corp. (NYSE:UAL - news), wavered this summer in its commitment to what would have been the largest-ever airline purchase.
United tried to end the deal in early July, convinced it would not win regulatory approval and faced with much steeper economic and labor challenges than when it proposed the transaction last year. US Airways balked at the proposed separation, and United agreed to continue to pursue the deal until federal regulators made a final ruling.
Many analysts have viewed the $4.3 billion merger as all but dead for months, saddled rising costs and strong political opposition in Washington from critics who said it would have been bad for competition.
Shares of UAL were trading down 19 cents to $33.73 on the New York Stock Exchange, where shares of US Airways were off $1.23, or 7 percent, to $16.92.
The Justice Department said the merger would violate antitrust laws by reducing competition in hub-to-hub nonstop markets like Philadelphia-Los Angeles, San Francisco-Denver and Pittsburgh-Washington D.C., where US Airways and United are each other's only nonstop competitor.
The Washington, D.C., and Baltimore markets would also see reduced competition, the department said. The government is likely that competition also would suffer East Coast and international routes, and in the realm of corporate and government business travel.
Under the terms of the deal, United is entitled to walk away Aug. 1 -- next Wednesday -- paying a $50 million breakup fee. Industry experts have said the Chicago-based carrier was seeking a final verdict to minimize the impact of potential litigation by US Airways shareholders.
The decision was a blow for both US Airways and a proposed new airline called DC Air, created by Black Entertainment Television founder Robert L. Johnson. DC Air was to have taken over United's flights in Washington, D.C., to satisfy concerns that the merger would mean dwindling choices for passengers flying into the nation's capital.