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American, US Airways to defend merger plan on Capitol Hill
Posted On: Feb 26, 2013

(Reuters) - The merger of American Airlines AAMRQA.UL and US Airways Group Inc (LCC.N) would allow the companies to combine complementary networks, preserve competition and save $1 billion, executives from the airlines will tell lawmakers on Tuesday.

An expert on the airline industry will also testify and say that the deal may well harm consumers.

In testimony released in advance of a hearing before a subcommittee of the House of Representatives' Judiciary Committee, US Airways Executive Vice President Stephen Johnson and American Airlines General Counsel Gary Kennedy defended the proposed $11 billion transaction.

The Justice Department's Antitrust Division will review the deal to ensure it complies with antitrust law.

Experts have said that the agency is likely to ask for divestitures in US Airways' hub at Washington's Reagan National and Charlotte, N.C., and AMR's hub in Dallas.

If approved, it would be the third major U.S. airline merger since 2008.

Kennedy noted that the transaction had been endorsed by labor unions and the boards of both companies and would create "a degree of financial stability that we have not experienced in many years."

Both executives cited the Delta (DAL.N) deal to buy Northwest in 2008 and the United (UAL.N) purchase of Continental in 2010, saying that consumers wanted to fly one airline to their destination, not several, and that this hampered smaller carriers.

"Because of the limited size and scope of their respective networks, neither American Airlines nor US Airways is able to respond fully to that demand and both operate at a competitive disadvantage to the larger networks of Delta Air Lines and United Airlines," said Johnson.

The two airlines networks complement each other more than they compete with each other, both men argued in their testimony.

While the new company - which would be called American Airlines - will become the largest U.S. air carrier, it will have just 23 percent of available seats, compared to Delta at 20 percent, United at 18 percent and Southwest at 18 percent, Johnson said in his written testimony.

He also argued that competition in the airline industry is intense, taking issue with those who fear it is becoming too concentrated.

"The new American Airlines will also compete against a host of smaller but lower cost airlines, including JetBlue, Spirit, Alaska, Frontier, Allegiant and Virgin America," Johnson said in the testimony.

A third witness on Tuesday, Kevin Mitchell, chairman of the Business Travel Coalition, was skeptical of the companies' efficiency claims, particularly that they would give consumers better service and save money.

"It is important to note that high profits may indicate any number of developments. One is that carriers have in fact realized claimed efficiencies," said Mitchell, according to the testimony released ahead of the hearing.

Another explanation, he said, was that the profits came from the companies' dominance of the market or from hampering consumers' efforts to effectively price shop.

Mitchell took issue with the merger as being good for consumers: "From a consumer standpoint - individual traveler or corporate travel department - there are few benefits to offset the negative impacts of this proposed merger that include reduced competition, higher fares and fees and diminished service to small and mid-size communities."

Johnson said he expected the transaction to close in the third quarter.

Lawmakers from the Senate Judiciary subcommittee have also announced plans for a hearing on the proposed merger, with no date set so far.

(Reporting By Diane Bartz; editing by Ros Krasny and Andrew Hay) 


     
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