U.S. Government Steps in to Block Merger of American Airlines and U.S. Airways

Mike O'Brien

The US government has filed a lawsuit to block the merger of American Airlines and US Airways.

The two companies have spent the past year trying to create the world’s largest airline.

But on Tuesday the Justice Department filed an unexpected anti-trust case to block the merger, arguing that it would reduce competition, increase air fares and cut service.

The $11 billion deal was backed by a federal judge in March and was approved by the European Union last week.

Six U.S. states and the District of Columbia have joined Justice Department in the legal action.

The states are Texas, where American Airlines is headquartered, Arizona, where U.S. Airways is based, Florida, Pennsylvania, Tennessee and Virginia.

Shares in both companies fell, along with the stock prices of other airlines, as news of the anti-trust case hit the markets on Tuesday.

Attorney General Eric Holder said in a statement: "By challenging this merger, the Department of Justice is saying that the American people deserve better.

"This transaction would result in consumers paying the price - in higher air fares, higher fees and fewer choices."

The lawsuit also cites direct competition between the airlines on nonstop routes worth that generates about $2 billion in annual revenue.

The complaint says the newly-merged company would take up 69 percent of flights out of Washington's Reagan National Airport and 63 percent of nonstop routes out of the airport.

U.S. Senate Commerce Committee chairman Jay Rockefeller said consumers would lose out when the deal was first announced in February, the BBC reports.

He said: "Any further airline merger must be carefully evaluated to make sure it is in the best interest of the travelling public by creating more competition, more options, and lower fares."

American Airlines has been in bankruptcy protection since November 2011, but U.S. Airways has been profitable in recent years.

The Justice Department has approved a series of mergers between the nation’s airlines in recent years. The last time anti-trust regulators got involved was a planned merger between United Airlines and U.S. Airways in 2001.