Agreement reached on airline merger

American Airlines and US Airways reached a deal with the government that lets the two form the world's biggest airline and opens up more room at key US airports for low-cost carriers.

The settlement announced Tuesday - if approved by a federal judge - would end a fight with the US Justice Department and head off a courtroom showdown later this month.

It preserves hub airports in Phoenix, Philadelphia, Charlotte and four other cities for at least three years. And it caps a series of mergers that have already eliminated four big US airlines and stoked fear about higher travel prices.

For American, the nation's third-biggest airline, the deal lets parent company, AMR Corp, exit bankruptcy protection, repay creditors and reward shareholders.

At US Airways, the No. 5 US carrier, shareholders will own 28 percent of the new company, employees stand to get more pay, and top executives will realise their dreams of running an airline even bigger than United or Delta.

The Justice Department said it extracted the largest divestitures ever in an airline merger. Attorney General Eric Holder said the agreement would ensure more competition on non-stop and connecting routes throughout the country.

For American and US Airways customers, they'll get reciprocal frequent-flier benefits in January and, executives said, more service to more places eventually. Doug Parker, the US Airways CEO who will run the new airline, even suggested that customer service will improve because workers will share in a more prosperous industry.

William Baer, assistant attorney general for Justice's antitrust division, said that even a few more gates and flights for low-fare carriers would help consumers. He said that when Southwest picked up slots at Newark, NJ, as part of the 2010 merger of United and Continental, it had a ripple effect that reduced fares on many routes.

ANTI-TRUST LAWSUIT

The airlines were close to finishing the merger in August until the Justice Department and several states filed an anti-trust lawsuit to block the deal, saying it would reduce competition on hundreds of routes around the country and lead to higher consumer prices. A trial was scheduled to begin November 25.

To avoid the uncertainty of a trial, American and US Airways agreed to give up about 15 per cent of their takeoff and landing rights at Reagan National Airport near Washington - they'll still be the biggest airline there - and a smaller number of slots at LaGuardia Airport in New York.

They also agreed to give up two gates each at Chicago's O'Hare Airport, Los Angeles International, Boston's Logan Airport, Dallas Love Field and Miami. That could help competitors grow at airports where gates are in short supply. And they promised to maintain flights to cities in six states that sided with the Justice Department.

The settlement still needs the approval of a federal judge in Washington, but that is expected to be a formality, and the companies expect to close their deal in the first half of December.

-AP