Antitrust Challenge Stops United Merger With US Airways
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By KENNETH N. GILPIN
Published: July 28, 2001
United Airlines' $4.3 billion bid to acquire US Airways died yesterday after the Justice Department said it would go to court to block the deal. The government asserted that the proposed takeover would ''reduce competition, raise fares and harm consumers'' on airline routes across the country.
Shortly after the government's announcement, US Airways, a unit of the US Airways Group, said it would no longer pursue the transaction.
''While disappointed that the merger with United will not go forward, we nevertheless must respect the Justice Department's decision,'' a US Airways statement said.
United's parent, the UAL Corporation, also issued a statement, saying, ''UAL Corporation and US Airways have terminated their merger agreement.''
The government's opposition to the deal did not come as a surprise, and analysts said it seemed to indicate antitrust enforcement in the Bush administration would not differ much from the approach taken by the Justice Department under President Bill Clinton.
''There was a naïve sense on the part of people who don't pay attention to antitrust that Republicans would differ a lot from Democrats when it came to enforcing antitrust laws,'' said Jeff Eisenach, president of the Progress and Freedom Foundation, a free-market research organization based in Washington.
''The challenge in the US Airways case was to see whether there was a way around some fairly substantial market power issues,'' he added. ''What this indicates is, first, that those attempts were not successful and second, just any old merger won't fly under the Bush administration.''
Steven C. Sunshine, who from 1993 to 1995 served as the Justice Department's deputy assistant attorney general for merger enforcement, said: ''I don't think this administration will be as aggressive on all fronts as its predecessor. But in mainstream merger cases they are going to continue to bring cases.''
Wall Street analysts said the collapse of the proposed takeover removes what could have been a financial albatross for UAL, which along with much of the airline industry is suffering losses. And it once again raises questions about the strategy US Airways will pursue to remain viable.
Signs that the deal was in serious trouble had popped up repeatedly. Earlier this month, UAL tried to stop the merger, fearing regulators would block the deal. US Airways persuaded United to wait for a government announcement.
Had United pulled out of the merger before Aug. 1, when the offer was scheduled to terminate, US Airways could have sued UAL for reneging on the takeover agreement. Under the terms of the merger agreement, United is obligated to pay US Airways a $50 million breakup fee.
The proposed deal had faced fierce opposition from a wide swath of critics -- including consumer groups, competitors and members of Congress -- ever since the agreement was struck 14 months ago.
Essentially, the groups feared the anticompetitive effects of combining United, the nation's second-biggest airline, with No. 6 US Airways.
''This merger would have led to a consolidated U.S. domestic aviation market of three megacarriers,'' said Representative Louise M. Slaughter, a Democrat who represents the Rochester area. ''Fliers would have been forced to pay sky-high fares and with fewer planes in fewer markets.''
The Justice Department essentially agreed with that assessment.
''The acquisition would give United a monopoly or duopoly on nonstop service over 30 routes,'' the government said, ''where consumers spend over $1.6 billion annually, and substantially limit the competition it faces on numerous other routes representing over $4 billion in revenues.''
Robert Litan, vice president and director for economic studies at the Brookings Institution, said the ''level of public hostility to the merger was larger than either of the parties anticipated at the outset.''
''Congress doesn't tell Justice what to do, but it does provide strong background music,'' he continued.
When the deal was announced, United said the combination would allow millions of travelers in the Northeast, where US Airways is strong, to tap into its vast network of flights to the Midwest and West Coast and, on partner airlines, to Europe and Asia. The airline also pledged not to raise fares on some domestic routes for at least two years except for price increases needed to cover inflation and higher fuel costs.
