The Department of Justice along with the Attorneys-General of six states (Texas, Arizona, Florida, Pennsylvania, Tennessee, Virginia and the District of Columbia) have filed suit to block the merger between US Airways and American Airlines citing concerns about the anti-competitive nature of the merger.

Before I go farther, let me say that this decision has one single merit behind it and that is the fact that I will be able to write weeks worth of blog entries on the inherit stupidity of this lawsuit.  I won’t be bored.

At first glance, what I am most upset about is the fact that this decision is founded on either some of the worth work done in investigation for a major airline merger or it is founded on political moves and either is distasteful beyond belief.

One example that grates on my nerves to a high degree is the citation that with this merger, only 3 legacy airlines will be left in the United States.  In point of fact, there haven’t been any legacy carriers left in the United States since the day after American Airlines filed for bankruptcy.

Those guys are gone.  They have neither the market power nor the market share they are credited with.  Indeed, they are now beginning to fiercely compete with each other in the domestic landscape.

And, more accurately, that statement ignores what factual data exists on the competitive landscape.  With this merger, there would not be 3 legacy airlines but, rather, 4.  They completely ignored Southwest Airlines.

Southwest Airlines holds about an equal share of domestic traffic in the United States compared to United Airlines, Delta Airlines and the combination of American Airlines and US Airways.

So, what the US DoJ and its cronies from The States have implied here is that 4 exceptionally healthy, broadly national and high competitive airlines is undesirable.  Instead, it is more desirable to have 3 highly competitive airlines with 2 other weaker airlines with substantially reduced market prospects going forward.

For the first time in nearly 50 years, airlines are either earning the cost of their capital or on the verge of it.  The required financial performance to be viable businesses in this industry is only just now being realized.

But political buffoons unable to do homework located in Washington D.C. have decided that now, long after Pandora’s box was opened, now is the time to try to draw a line in the sand.

The statement being made is that they are concerned about the high cost of air fares and believe that those air fares may, in fact, go up and “harm” consumers.

This statement goes to the idea that air fares are artificially high.  Interesting and before I go on, let’s not forgot the the forthcoming analysis of this idea comes from someone who has little sympathy for airlines and the fixes they get themselves into with respect to costs.

It is unsustainable for any airline going forward to be unable to earn a return on capital investment.  The capital markets will simply not buy into the idea of continuing to loan money to enterprises who cannot pay interest on their debts.

And unable to merge, they must go bankrupt again.  This time they will go Chapter 7.

More to come.

Filed under: Airline News, Mergers and Bankruptcy by ajax