US Airways-American merger could cost jobs in Pittsburgh
Pennsylvania among six states to join U.S. lawsuit opposing deal
August 14, 2013 7:30 AM
Jim Watson/Getty Images
A US Airways jetliner rests on the tarmac near two American Airlines planes at Ronald Reagan Washington National Airport. The U.S. Justice Department and several states sued Tuesday to block the $11 billion merger between American Airlines and US Airways, saying it would reduce competition and increase fares.
By Mark Belko Pittsburgh Post-Gazette
The decision by the U.S. Justice Department and six states, including Pennsylvania, to sue Tuesday to block the proposed merger between US Airways and American Airlines could have ramifications for jobs and facilities at Pittsburgh International Airport.
While the lawsuit seeks to block the merger for competitive reasons, saying it could lead to higher fares and less service, that's not mainly what's at stake in Pittsburgh.
If the merger takes place, there is a good chance that US Airways will close a $32 million state-of-the-art operations control center, built in 2008 with the help of $3.75 million state grants and tax credits, and move that work to Dallas-Fort Worth International Airport, where American is located.
U.S. Reps. Tim Murphy, R-Upper St. Clair, and Mike Doyle, D-Forest Hills, also raised concerns that Pittsburgh could lose a heavy maintenance base, one that primarily serves narrow-body Airbus jets, if the two airlines consolidate. American has a large maintenance base in Tulsa, Okla.
Together, the Pittsburgh operations and maintenance facilities employ more than 1,600 people locally.
Mr. Doyle said Tuesday that if the Justice Department, joined by the six attorneys general and the District of Columbia, succeeds in blocking the merger, it could mean a reprieve for the operations center and perhaps the maintenance base. Without the merger, US Airways and American would operate as stand-alone airlines.
"It just seems to me that it's reasonable to assume that if the merger doesn't go forward, there would be no reason to move the operations center," Mr. Doyle said. "It was a model facility."
Allegheny County Executive Rich Fitzgerald said concerns about the future of both facilities and the potential impact on flights at the airport are among the reasons he supports the lawsuit.
Mr. Fitzgerald, members of Pennsylvania's congressional delegation, local business leaders and others will discuss the lawsuit in a conference call today and try to determine how it can be used to help benefit the region and save the facilities and jobs.
While US Airways and American vowed Tuesday to "mount a vigorous defense and pursue all legal options" to fight the lawsuit, there's a chance the airlines and the government could reach a settlement that would allow the merger to proceed based on certain conditions.
That raises the question of whether local leaders and members of the congressional delegation would push the Justice Department to include in any proposed settlement protection for operations and maintenance facilities in Pittsburgh, which was hit hard by the closing of the US Airways hub at the airport in 2004.
Mr. Fitzgerald said such a push "could be part and parcel of the discussions we have," although he added it's something "we will decide in talking to folks who have more expertise than I do."
Mr. Doyle added that if the thrust of the lawsuit is what the merger would do to competition and air fares, he didn't know how willing the Justice Department would be to introduce other issues.
"It's too early to answer those kinds of questions. Everybody is asking what this means for Pittsburgh. Right now, it's really not clear. We have to see how it progresses and whether it turns into negotiation," he said.
Pennsylvania Attorney General Kathleen Kane said the potential loss of the US Airways operations center factored into her decision to join the Justice Department lawsuit.
"If US Airways were to close the operations center, [at] least 700 jobs will be lost," she said.
In a phone interview, Ms. Kane criticized US Airways for its abandonment of Pittsburgh as one of its hub cities, and said that the airline has a long history of letting down Pennsylvania airports and air passengers. Pennsylvania, she said, would see more merger fallout than any state but Texas.
"We look at all of those broken promises that US Airways has made it the past," she said.
She also worried that higher fares and ancillary fees like baggage charges could result in "anti-competitive" rates at Pennsylvania airports, and lost business to out-of-state airports. In Pittsburgh, US Airways and American compete directly to only one market, New York, with US Airways flying into LaGuardia and American into Kennedy.
Mr. Murphy could not be reached for comment but said in a statement that the merger requires additional scrutiny "to protect consumers, workers and taxpayers."
At the same time, U.S. Sen. Bob Casey, D-Pa., urged the Justice Department and the airlines to "reach an amicable solution that would preserve jobs and allow opportunities for growth."
Some analysts believe the lawsuit could be an attempt to coerce concessions from the airlines. In speaking with reporters, assistant U.S. Attorney General Bill Baer said the Justice Department is prepared to litigate to stop the merger. But he didn't rule out a possible settlement, saying officials would listen to any proposal from the two carriers.
The lawsuit, filed in the U.S. District Court for the District of Columbia, said that American and US Airways compete directly on more than 1,000 routes where one or both offer connecting service, representing tens of billions of dollars in annual revenue. Head to head battles for nonstop service is worth another $2 billion annually. Eliminating that competition would give the merged airline incentive to raise fares, it said.
One of the biggest casualties, according to the Justice Department, could be US Airways' Advantage Fares program, which offers travelers discounts of up to 40 percent for taking connecting flights on other airlines' nonstop routes.
With the merger, that program likely would be eliminated, the department concluded, citing an American internal analysis and a statement by an American executive, resulting in higher fares for millions of consumers.
The merger also would have a dramatic impact on operations at Washington Reagan National Airport, where the merged airline would control 63 percent of the nonstop routes and 69 percent of takeoff and landing slots, the Justice Department said.
It also claimed the consolidation would make it easier for the remaining carriers to increase fees for checked bags, flight changes and other services. In 2012, domestic airlines generated more than $6 billion in fees from checked bags and flight changes alone.
In a message to employees, US Airways CEO Doug Parker vowed to mount a strong defense to save the merger.
"We are extremely disappointed in this action and believe the DOJ is wrong in its assessment. We will fight them. We are confident that by combining American and US Airways we are enhancing competition, providing better service to our customers and improving the industry as a whole," he said.
Mr. Parker added that the airlines are still hoping to conclude the litigation and close on the merger before the end of the year. With the announcement of the lawsuit, US Airways Group Inc. shares fell 2.46 to $16.36 in trading Tuesday.
The lawsuit surprised some, given that antitrust regulators have allowed three other major airline mergers to go ahead over the last five years. As a result, five carriers now control about 80 percent of the domestic market.
One industry analyst, Michael Boyd, called the lawsuit "terribly misguided." He said the merger would benefit small and mid-sized airports by giving them access to larger connecting hubs and more destinations. But they would not be the biggest winners.
"The biggest beneficiary of this merger is Sherwin Williams" or whoever repaints the airplanes, he said.