The Justice Department just announced the very unexpected news that it’s going to be filing suit to block the proposed takeover of bankrupt American Airlines by US Airways. Shares in both companies—but especially American—are tumbling which is a good sign of how few people expected this.
The DOJ’s complaint is basically that moving from five large airlines to four large airlines will reduce competition and raise prices. That’s not a particularly shocking observation. But the general view among industry analysts has been that regulators would give the deal the go-ahead on the grounds that American was bankrupt and the generally money-losing aviation industry needed further consolidation and higher prices. I’m guessing the fact that American started reporting profits this year may have undermined the case for the merger in the eyes of the Justice Department. After all, if American is profitable right now then why can’t it emerge from bankruptcy without merging and maintain more robust competition? Still, as best I know nobody saw this coming—everyone had been looking forward to the bankruptcy judge’s ruling on the specific details of the merger plan as the last legal hurdle.
