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After nearly a month, US Airways Group Inc. bowed to the inevitable July 27. The Arlington, Va.-based airline finally gave up on completing its $12.3 billion merger with UAL Corp. after the Department of Justice said it plans to file a lawsuit blocking the deal. US Airways could have fought the decision, but the company instead conceded defeat. “While disappointed … we nevertheless must respect the Justice Department’s decision,” the airline said in a statement. CONCEDING DEFEAT UAL said it has agreed to terminate the merger and will pay a $50 million break-up fee to US Airways. The company, which reported a loss of $292 million in the second quarter, said it will focus on restoring profitability, improving customer service and completing its labor contracts. The announcements end US Airways’ quixotic effort to complete a deal that UAL, the Chicago-based parent company of United Airlines, wanted to abandon weeks ago. The two had asked Justice last May to delay action on the deal until they could come up with new antitrust remedies, and they admitted July 2 that they had begun discussing an end to the deal ahead of an Aug. 1 termination date. But US Airways instead demanded that UAL get a formal Justice Department verdict on the merger, citing a clause in their agreement that said the companies would make “all reasonable efforts” to complete the deal. On July 12, the companies told Justice they would close the deal Aug. 1 unless antitrust officials sued to block the merger. The regulators’ decision leaves US Airways with few options. Company officials promised workers earlier this month that they would not break up the airline, despite being contacted by companies interested in buying pieces of the carrier. It is unlikely that another airline would attempt to buy US Airways in its entirety, said Ray Neidl, an airline analyst with ABN Amro. “I don’t think people are going to be real interested in light of the Justice Department’s strong wording,” he said. PROPOSED CONCESSIONS, NOT ENOUGH The deal would have given UAL a monopoly or duopoly over nonstop service on 30 air routes on which consumers annually spend more than $1.6 billion, and it would have limited competition on other routes that generate an additional of $4 billion in revenues, Justice officials said in a statement. The merger also would have curtailed competition along the East Coast. “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,” U.S. Attorney General John Ashcroft said. UAL and US Airways, the nation’s second- and sixth-biggest airlines, respectively, admitted from the start that the deal had antitrust problems. Before the deal was announced May 24, 2000, the companies struck a side agreement with Robert Johnson, a media entrepreneur, that would have let him buy routes to 43 small cities from Washington’s Reagan National Airport for $141 million. Johnson planned to use the routes to start up a new, lost-fare carrier called DC Air. The plan did not assuage antitrust officials, so the companies sweetened the offer by agreeing to sell half of US Airways’ Boston-New York-Washington shuttle service and 49 percent of DC Air to AMR Corp., the Fort Worth, Texas-based parent of American Airlines. But that still was not enough to please the Justice Department. “The core of the proposed remedy … would not adequately replace the competitive pressure that a carrier like US Airways brings to the marketplace,” said R. Hewitt Pate, deputy assistant attorney general of Justice’s antitrust division. The proposal “substituted regulation for competition on some key routes and created competitive harms through United’s and American’s agreement to jointly fly and price the New York, Washington and Boston shuttle routes.” MOVING ON US Airways could have fought the decision because the Justice Department would need to get a temporary restraining order to prevent the merger from closing Aug. 1. But such an order could be obtained within hours, and it is unlikely that a judge would refuse regulators’ request for one, antitrust lawyers said. Instead, US Airways said it “will be moving forward with a plan to address the competitive environment.” The company faces competition from low-fare carriers, particularly Southwest Airlines Co., and it reported a loss of $24 million in the second quarter of this year. US Airways chief executive Rakesh Gangwal told analysts July 18 that the company will consider revamping its route plan and fleet structure to make the company more competitive. Analysts have also said US Airways must cut its labor costs and have suggested selling the airline to workers through an employee stock option plan. Copyright (c)2001 TDD, LLC. All rights reserved.

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