AMR Corp's American Airlines and US Airways Group Inc could be in for a long and bruising courtroom battle against seasoned lawyers if they choose to keep fighting the U.S. Justice Department's objection to their merger.
Several experts in antitrust law said in interviews that the aggressive stance taken by the Justice Department in the suit it filed in U.S. District Court in Washington signals a sincere intention to block the deal, not just a mere negotiating ploy to get concessions before possible future approval.
If the Justice Department persuades a judge to agree, it will have scuttled an $11 billion deal intended to create the world's largest airline. The government argued that the merger would reduce competition for commercial air travel in local markets throughout the United States and cause passengers to pay higher airfares and receive less service.
The department's Antitrust Division has been picking and winning some big fights in recent years. In July, it won a trial over e-book price-fixing against Apple Inc. In 2011, it successfully blocked a proposed $39 billion merger between AT&T and T-Mobile USA.
One sign that government lawyers are dead set on blocking the deal can be found in an appendix to its lawsuit, said Mark Ostrau, an antitrust lawyer in Mountain View, California.
The appendix lists 1,043 airline routes between cities where, according to the Justice Department, the combined company would have a presumptively illegal monopoly or near monopoly.
The routes between two cities - for example, Charlotte and Dallas - are known in the industry as "city pairs." There may be too many troublesome pairs for AMR and US Airways to resolve in a settlement, and that is something government lawyers must have known when they put the list in their suit, Ostrau said.
"If you wanted something to resolve, you would not have listed more than 1,000 problematic city pairs," he said.
Jonathan Lewis, an antitrust lawyer in Washington, called the Justice Department's suit "very powerful" because it quotes company documents and executives anticipating higher prices through consolidation.
"If there were going to be a settlement, it probably would have happened already," Lewis said, adding that the outcome was still difficult to predict.
AMR and US Airways said they would launch a "vigorous and strong defense" and called the Justice Department "wrong in its assessment of our merger."
"Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices," the companies said in a joint statement.
'FULL-STOP INJUNCTION' SOUGHT
Assistant Attorney General Bill Baer, the head of the Justice Department's Antitrust Division, on Tuesday outlined broad objections to the deal based on competition in the industry generally.
"We learned during our investigation about what happened to competition from prior acquisitions, and as we look at the market today, it's not functioning as competitively as it ought to be," Baer told reporters on a conference call.
Baer said he wanted nothing short of a "full-stop injunction" - meaning a court order preventing the merger - even if it means his staff spending months in court.
"We don't file lawsuits unless we're prepared vigorously to defend them, and that's what we're doing right now," he said.
The Justice Department gives parties to a merger several opportunities to respond to likely government objections, allowing them to submit documents and sit down with top department lawyers. The department followed that process in this case, Baer said.
"I don't think it was a surprise to the parties," Baer said of the lawsuit.
U.S. District Judge Colleen Kollar-Kotelly was assigned to oversee the case. In 2001, she was assigned to oversee the penalty phase of the landmark U.S. antitrust case against Microsoft Corp.
An appointee of Democratic President Barack Obama, Baer joined the Antitrust Division in January from the Washington law firm Arnold & Porter. Private antitrust lawyers describe him as a self-assured leader in the field who does not shy from challenging cases.
Under Baer and his predecessors, the division has coined a term - "litigation-ready" - to represent a new willingness to go to court, and it has built up its courtroom experience with the hiring of its first director of litigation, Mark Ryan.
Although there is no hearing date set for the airline case, let alone a Justice Department trial team named, the government's courtroom lawyers are likely to include people like Ryan, who successfully argued the Apple trial last month.
The efforts are designed to help the Antitrust Division avoid any repeat of a major loss in 2004, when it tried but failed to block Oracle Corp's takeover of PeopleSoft.
AMR and US Airways will need to think hard if they are committed to following through on pledges to fight, said Evan Stewart, an antitrust lawyer in New York.
"Time is not the friend of these merging companies. Litigation as a playing-out-the-clock process is something that helps the government," he said.