Why Texas Won't Mess With American Airlines

When the Department of Justice filed its lawsuit against the merger between US Airways (UNKNOWN: LCC.DL  ) and American Airlines parent company AMR (UNKNOWN: AAMRQ.DL  ) , the Department was joined by the attorney generals of Texas, Arizona, Florida, the District of Columbia, Pennsylvania, Tennessee, and Virginia. But in an announcement on Oct. 1, Texas has changed its position on the merger and settled with the airlines. We'll take a look at what this could mean for other possible settlements.

Why Texas?
Although US Airways is technically the acquiring party in the proposed merger, the merger plans call for American Airlines to be the surviving name, and for the new company to be headquartered in AMR's current Fort Worth, Texas home.

And American is quite a big player in Texas, too. Besides calling the state home, American's largest hub is the Dallas Fort Worth International Airport. With so many jobs on the line, it's not too surprising that state officials would have an interest in further examining the situation.

Bargaining position
The easiest path forward for the airline merger may lie in a negotiated settlement between the DOJ, the state AGs, and the airlines. In Texas, officials and the airlines have settled the state lawsuit in a manner similar to how the settlement-oriented analysts have been predicting. Guarantees of maintaining services are a standard for airline merger concessions, and are the key points of the Texas settlement.

In the end, a primary point of the concessions was the continuance of service to smaller airports in Texas, where officials were concerned about military personnel who needed American Eagle flights to get to their bases.

Industry comparisons
Although every merger is a unique case, the closest comparison to the US Airways-AMR merger would be the 2010 merger between United Airlines and Continental Airlines that created United Continental Holdings (NYSE: UAL  ) . Although the DOJ didn't file suit to challenge that merger, the carrier gave up some of its Newark slots to ensure the deal went through.

Like the US Airways-AMR merger, some state officials were uneasy about allowing it. But in Ohio, the carriers managed to get state support by agreeing to maintain a hub in Cleveland, along with guarantees for service. The solution of maintaining service in return for governmental support creates a close comparison between these two airline mergers.

Other states
As a whole, the settlement in Texas is a very positive sign for this airline merger. It shows that at least some officials filed a lawsuit with the intention of a settlement, rather than a complete blockage. It also provides further indications that out-of-court settlement negotiations are happening, and that some have a realistic chance of succeeding.

Now that Texas has come to a settlement with US Airways-AMR, it is important to see how settlements could play out elsewhere. While Texas would get the new American Airlines Group's headquarters, not all states can get this honor. In my next article, we'll see whether US Airways' home state of Arizona is likely to be as welcoming as Texas. 

2 Airlines With a New Approach
Warren Buffett has claimed that investing in airlines is a surefire way to lose your hard-earned cash. But two airlines are breaking all the rules by keeping costs low and avoiding direct competition -- leading to enviable profits. Click here to learn how these two airlines are leading a revolution in the industry, and discover whether they can keep delivering big gains for shareholders!

Editors Note: this article previously stated American Airlines was headquartered in Dallas Texas; this has been corrected to Fort Worth Texas. The Motley Fool apologizes and regrets this error.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2664490, ~/Articles/ArticleHandler.aspx, 9/25/2016 5:00:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
AAMRQ.DL $0.00 Down +0.00 +0.00%
LCC.DL $0.00 Down +0.00 +0.00%
US Airways Group CAPS Rating: *
UAL $50.95 Down -0.09 -0.18%
United Continental… CAPS Rating: **