Government Blocks US Airways, AA Deal

(CBS) The Justice Department and several U.S. state attorneys general on Tuesday challenged a proposed $11 billion merger between US Airways Group Inc. and American Airlines’ parent company, AMR Corp.

The Justice Department says the deal would result in the creation of the world’s largest airline and that a combination of the two companies would reduce competition for commercial air travel in local markets and would result in passengers paying higher airfares and receiving less service.

The U.S. government and the state attorneys general filed a lawsuit filed in federal court in Washington, D.C., seeking to prevent the companies from making the deal. Joining the federal government’s suit are Virginia, Texas, Tennessee, Pennsylvania, Florida, Arizona and the District of Columbia.

A spokesman for US Airways had no immediate comment. American Airlines did not immediately return a call seeking comment. The deal already passed muster with the European Union.

In February, the companies disclosed their plans to create a company with 6,700 daily flights and annual revenue of roughly $40 billion.

Were the deal to be approved, the four biggest U.S. airlines – American, United, Delta and Southwest – would all be the products of mergers that began in 2008. Those deals have helped the industry control seats, push fares higher and return to profitability.

On Tuesday, Attorney General Eric Holder said the transaction between US Airways and American would result in “higher airfares, higher fees and fewer choices.”

Last year, business and leisure airline travelers spent more than $70 billion on airfare for travel throughout the United States.

American parent AMR Corp. has cut costs and debt since it filed for bankruptcy protection in late 2011. Pilots from both airlines have agreed on steps that should make it easier to combine their groups under a single labor contract, a big hurdle in many airline mergers.

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