• by Thom Forbes , August 14, 2013

With a lot of reiteration of variations of the phrase “what’s good for the consumer,” the Justice Department and attorneys general in six states and the District of Columbia yesterday filed an antitrust lawsuit in federal court to put the kibosh on the proposed merger of American Airlines and US Airways.

Both airlines “vowed Tuesday to vigorously defend against a possible fatal blow to their merger that would create the world’s largest airline,” reports the Dallas Morning News’ Terry Maxon under a hed that suggests they are doing so “against long odds.”

The airlines issued a joint statement that US Airways CEO Doug Parker summed up succinctly in a letter to his employees, reports the Arizona Republic’s Dawn Gilbertson, “saying the Justice Department is wrong and ‘we will fight them.’”

The feds are certainly confident that they have a strong case.

“We looked very carefully for six months at this deal, and we think it’s pretty messed up,” William J. Baer, who runs the Justice Department’s antitrust division said. “It looks pretty bad for consumers.”

“He told reporters that the merger could cost consumers ‘hundreds and hundreds of millions of dollars,’ writes the New York Times’ Jad Mouawad, which presumably means that blocking it will conversely cost the airlines hundreds and hundreds of millions of dollars in revenue. 

“But blocking the combination of American and US Airways isn't going to miraculously make the airline industry more competitive -- the costs slapped on consumers that Justice abhors happened with American and US Airways as willing participants even as they compete,” writes the Wall Street Journal’s Scott McCartney in a skeptical analysis of the Justice Department’s move. “Indeed, the real question is whether the combinations of Delta-Northwest, United-Continental and Southwest-AirTran should have all been approved.” 

McCartney goes on to suggest several compromises that he feels would be beneficial to both consumers and the airlines, which “need to be able to make money to stay in business.”

During his conference call yesterday, “Baer stopped short of saying that Justice should have challenged previous mergers,” Maxon reports. “But he acknowledged that in hindsight, they stifled competition.”

And he seemed to rule out compromise solutions: “We think a full-stop injunction is the right course for the consumer,” he said.

The suit filed in U.S. District Court for the District of Columbia caught most analysts and industry observers with their flaps down and is further evidence of the Obama administration’s recent resolve under Baer, who was appointed in January, to do battle  with “aspiring monopolists,” as Bloomberg Businessweek’s Peter Coy puts it. 

Baer, 63, has a long history as an ”eager sheriff,” Coy writes, before sketching actions and potential actions he has taken this year against such big boys as Anheuser-Busch InBev’s takeover of Grupo Modelo, Google and Apple.

“This came as a surprise, to those of you -- at least to those of you following this, huh?” Jeffrey Brown asked Bloomberg reporter Phil Mattingly in an interview on PBS Newshour last night.

“Absolutely,” Mattingly replied, suggesting that viewers take a look at the free-falling stock prices of both companies after the announcement (U.S. Airways down more than 13%; AMR down more than 43%.)

“We spoke to some analysts who up to a couple weeks ago were rating this at a 99% chance this deal would be approved. And there's a reason,” Mattingly continued. “That is, that there's really no precedent for the Justice Department to step in.

The Texas and Arizona attorneys general, where American and US Airways respectively are based, joined the suit, as did those from Florida, Pennsylvania, Tennessee and Virginia.

In an editorial this morning, the road warriors’ unofficial hometown newspaper, USA Today, writes “the effort … to block the merger … is likely to be a popular one.” But it goes on to detail why it feels that the “hard-line bid to scuttle the whole deal comes off as an overreaction” and also offers some compromises to avert a be-careful-what-you-wish-for situation from developing.

“The industry could well end up with two major players (United and Delta), with American and US Airways struggling to hang on,” the editorial board opines.

For all the calls for compromise solutions, antitrust attorneys were pessimistic that a solution would be hammered out, with one attorney telling Bloomberg’s Sara Forden and David McLaughlin, “My take is that the deal is dead.” Points out another: “Typically, the government will have already had extensive settlement discussion with the parties ... although that doesn’t mean they can’t come back and take another shot at it.”

Meanwhile, we’ll be keeping our eyes on Baer. He’s clearly out for big game.