After the Department of Justice and several states filed a lawsuit to block the merger between US Airways (NYSE: LCC) and American Airlines parent company AMR (NASDAQOTH: AAMRQ), the airlines have been looking for as many allies as possible. And recent developments indicate that the airlines have found more friends in both expected and unexpected places.
Defending the merger
Throughout this process, labor unions at both airlines have show their support for the merger in the form of press releases, court filings, newspaper editorials, and mass rallies. Many members of Congress have also shown their support, as more than 60 congressional Democrats have signed a letter asking the Department of Justice to drop the lawsuit.
But another group of politicians are also showing their support, and they could be just as important as Congress.
Local government
A recent letter is now indicating pro-merger support among many mayors from the cities seeing the heaviest involvement from US Airways and American Airlines. From the American Airlines side are the mayors of Dallas, Fort Worth, Chicago, and Miami-Dade County. And from the US Airways side are the mayors of Philadelphia, Phoenix, and Charlotte.
First of all, the support of some of these mayors is not too surprising. The mayors of Dallas and Fort Worth stand to benefit from a larger travel network centered on the Dallas/Fort Worth International Airport. Similarly, American isn't seen as a major threat to downsize operations at Chicago O'Hare or Miami International, and US Airways is not looking to shrink Charlotte operations.
But the support of two particular mayors shows the biggest positives from this letter. The mayors of Phoenix and Philadelphia are both in favor of the merger, in a move that may be surprising to some industry followers.
Because of Phoenix's location between American's Los Angeles and Dallas/Fort Worth hubs, many people are afraid Phoenix will be downsized. Similarly, fears surround Philadelphia that the airport could lose some international flights as the merged airline routes passengers through New York's JFK International.
And those fearful of more hub closures have past airline records to back them up. After the merger of Delta Air Lines (DAL -0.58%) and Northwest Airlines, the Memphis airport has been steadily downsized from prominent hub status under Northwest to a de-hubbed airport where Delta is axing another 36 flights and 126 jobs.
Memphis had the unfortunate position of being too close to Delta's megahub of Atlanta Hartsfield-Jackson International. With such a huge presence in Atlanta, Memphis operations were not efficient for the merged airline.
Merger positives
It appears that the mayors of Phoenix and Philadelphia have been convinced there will not be the same cuts applied to their airports as were seen in Memphis. And with all the political happenings in this merger battle, it would be reasonable to expect that the airlines at least talked to the mayors.
If this is true, some public officials are seeing the airlines' argument as convincing. Since both Arizona and Pennsylvania are among the states suing to block the merger, success in persuading state officials to allow the merger, along with possible concessions on the airlines' part, could go a long way to clearing the road for a settlement between the airlines and state AGs in these two states.
Tough negotiations
The state AGs of Arizona and Pennsylvania have the goal of doing what they see as best for their state. If that means full opposition to the merger, then the airlines would need to win at trial. But if these states are open to negotiations, then the support of the mayors of Phoenix and Philadelphia show that all is not lost in convincing government officials of the upsides of a merger.
In addition, the airlines have the ability to grant concessions to state AGs as a possible way to bridge the gap. With the support of both the Phoenix and Philadelphia mayors on board, I see a greater chance that the merger can move forward despite the current picture of state AG opposition in Arizona and Pennsylvania. Airline investors should continue following which parties are supportive of which side to get a better feel for whether this airline merger will ultimately proceed.
