“Quaint at best.” “Misleading as framed.” “Concocts an imaginary narrative.” “No coherent rationale.”
American Airlines and US Airways are pushing back hard against the U.S. Department of Justice, filing court papers blasting the government’s bid to block their pending $11 billion merger.
Answers to complaints are usually brief, dry affairs, filled with sentences like “Defendant denies the allegations in paragraph 39.” Not so with American and US Airways, which to date have taken a best-defense-is-a-strong-offense strategy in litigating the case.
In US Airways’ 49-page answer, signed by O’Melveny & Myers partner Richard Parker and filed late on Tuesday, the company asserts that the merger would provide net benefits to consumers worth more than $500 million a year, and that the government “inexplicably ignores” the effect of low-cost carriers such as Southwest and Jet Blue on the market. The airline asked the court to approve the merger and award attorney fees.
As for American, its pleading by Jones Day partner John Majoras says that the transaction, “viewed through the lens of the actual U.S. airline industry today, rather than some idealized version of the past, does not violate the antitrust laws.” The government’s complaint “cobbles together a collection of ad hoc contentions…while ignoring the central facts and economic realities of today’s airline industry.”
On August 13, the Justice Department and the states of Arizona, Florida, Pennsylvania, Tennessee, Texas, Virginia and Michigan and the District of Columbia filed suit in U.S. District Court for the District of Columbia to block the merger, alleging that it would result in U.S. consumers paying higher fares and fees and receiving less service. The government alleged that the merger, which would create the world’s largest airline, would leave three similar “legacy” airlines—Delta, United and the new American—that “increasingly prefer tacit coordination over full-throated competition.”
A trial before U.S. District Judge Colleen Kollar-Kotelly (who presided over the second half of the government’s antitrust case against Microsoft Corp. in 2001) is set for November 25.
The airlines have been joined in recent weeks by a bevy of lawyers including Cadwalader, Wickersham & Taft partner Charles “Rick” Rule, who is co-counsel to US Airways along with lawyers from O’Melveny and Dechert.
Steptoe & Johnson LLP and James & Hoffman represent amicus curiae the Allied Pilots Association, which supports the deal, as does the Association of Professional Flight Attendants, represented by Guerrieri, Clayman, Bartos & Parcelli, and the Transport Workers Union of America, represented by O’Donnell, Schwartz and Anderson.
Former White House Counsel Gregory Craig, now a partner at Skadden, Arps, Slate, Meagher & Flom, represents American’s unsecured creditors, who also filed an amicus brief in favor of the merger.
American Airlines parent company AMR Corp. has retained Jones Day and Paul Hastings.
Combined, the law firms backing the airlines employ roughly 7,000 lawyers.
They’re facing off against the Justice Department’s 314-lawyer Antitrust Division, led by former Arnold & Porter partner William Baer, and litigation chief David Gelfand, who joined DOJ from Cleary Gottlieb Steen & Hamilton in late August.
Pre-trial rhetoric aside, the airlines’ answers give a sense of where the nitty-gritty legal battles lie. For example, DOJ in its complaint gives short shrift to low-cost carriers like Southwest, Jet Blue and Virgin America as competitors. These airlines “have networks and business models that differ significantly from the legacy airlines,” according to DOJ, and have “less extensive domestic and international route networks.”
US Airways, by contrast, says the emergence of low-cost carriers is “the most meaningful competitive development in the airline industry since deregulation,” and that Southwest carried more passengers last year than American and US Airways combined. “The low cost carriers offer strong competitive choices built on diverse business models,” it argues.
The airlines also attacked DOJ’s use of the Herfindal-Hirschman Index, a measure of market concentration. For example, US Airways controls 55 percent of the takeoff and landing slots at Reagan National Airport in Washington. Post-merger, according to DOJ, its share would be 69 percent—a whopping score of 4,959 on the index. Anything over 2,500 is considered highly concentrated.
According to the government, the post-merger index would exceed 2,500 points in more than 1,000 of the city-pair markets in which American and US Airways compete head-to-head.
American dismisses this as a “mechanical recitation,” and said that DOJ approved earlier airline mergers with comparable scores. The scores “are merely starting points for analysis, not the decisive results portrayed in the complaint,” it argues.
The airlines add that the court should consider cars, trains and buses as reasonable substitutes for air travel on shorter routes, as well as flights to other cities near the traveler’s destination.
The government in its complaint also uses statements from company executives to bolster its claims that the merger is anticompetitive, quoting, for example, a US Airways manager who said the deal “finishes industry evolution” by accomplishing US Airways’ goal of “reduc[ing] capacity more efficiently.”
Parker, writing for US Airways, responds that the government “cobbles together out-of-context statements in an effort to suggest by anecdote what the plaintiffs cannot support with analysis.”
Despite the fierce tone of the court papers, the antitrust bar is tight-knit. Baer and Parker, for example, worked together at the Federal Trade Commission in the late 1990s, where Baer headed the Bureau of Competition and Parker was his deputy (when Baer left, Parker got his job).
When Baer was confirmed in early January to head the Antitrust Division, Parker told the Blog of Legal Times that it was “really good for antitrust, and really good for the United States….Bill is terrific.”
Contact Jenna Greene at email@example.com.