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The Justice Department, citing antitrust concerns, said Friday it will file suit to block the merger of United Airlines and US Airways. The department said the 16-month-old proposal, which would have created the nation’s largest airline, would “reduce competition, raise fares and harm consumers.” The department said it will be joined in its suit by the attorneys general of several states. “If this acquisition were allowed to proceed, millions of consumers … business, government and families … would have little choice but to pay higher fares and accept lower quality air service,” said Attorney General John Ashcroft. The department expects to file suit next week; officials said they didn’t know in what court the suit will be filed. The action was widely expected even before United’s parent company, UAL Corp., wavered this summer in its commitment to what would have been the largest-ever airline purchase. United tried to end the deal in early July, convinced it would not win regulatory approval and faced with much steeper economic and labor challenges than when it proposed the transaction last year. US Airways balked at the proposed separation, and United agreed to continue to pursue the deal until federal regulators made a final ruling. Many analysts have viewed the $4.3 billion merger as all but dead for months, saddled with rising costs and strong political opposition in Washington from critics who said it would have been bad for competition. Shares of UAL were trading down 19 cents to $33.73 on the New York Stock Exchange, where shares of US Airways were off $1.23, or 7 percent, to $16.92. The Justice Department said the merger would violate antitrust laws by reducing competition in hub-to-hub nonstop markets like Philadelphia-Los Angeles, San Francisco-Denver and Pittsburgh-Washington, where US Airways and United are each other’s only nonstop competitor. The Washington and Baltimore markets would also see reduced competition, the department said. The government said competition also would suffer on East Coast and international routes and in the realm of corporate and government business travel. Under terms of the deal, United is entitled to walk away Wednesday by paying a $50 million breakup fee. Industry experts have said the Chicago-based carrier was seeking a final verdict to minimize the impact of potential litigation by US Airways shareholders. The decision was a blow for both US Airways and a proposed new airline called DC Air, created by Black Entertainment Television founder Robert L. Johnson. DC Air was to have taken over United’s flights in Washington to satisfy concerns that the merger would mean dwindling choices for passengers flying into the nation’s capital. “In the final analysis, the core of the proposed merger — a divestiture at Reagan National Airport and promise by American Airlines to fly five routes on a nonstop basis — would not adequately replace the competitive pressures that a carrier like US Airways brings to the marketplace,” said R. Hewitt Pace, deputy attorney general for the Antitrust Division. US Airways, the nation’s sixth-largest carrier, has said a merger with No. 2 United was its best chance to remain profitable in an increasingly competitive industry. United, meanwhile, has been surpassed by American Airlines, buffeted by labor and operational problems and lost nearly $1 billion since the deal was proposed. With a formal rejection of the merger, “United can try to get back to trying to fix their airline and cut back the losses they’re experiencing, which are much larger than the rest of the industry’s,” said Ray Neidl, a New York-based airline analyst for ABN Amro. “Meanwhile, US Air’s going to have to find another deal or sell their airline off in pieces,” said Neidl. United unveiled the merger plan on May 24, 2000, bidding to dramatically increase its presence in the lucrative East Coast market, strengthen its entire network and nearly triple its daily flights to more than 6,400 a day. It quickly ran into turbulence amid opposition from the airlines’ rivals, labor unions, Congress, consumer groups and state attorneys general, many of whom complained it would create a dominant airline that limited competition, particularly in the Washington area. United would have paid $60 a share for US Airways stock, which, after doubling to more than $50 a share when the proposal was announced, has sunk as the deal’s chances unraveled and fell as low as $16.02 earlier this month. Shares of UAL Friday were down 19 cents to $33.73 on the New York Stock Exchange, where shares of US Airways were off $1.23, or 7 percent, to $16.92. Copyright 2001 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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