UPDATE 2-U.S. Justice Dept details deal for American, US Airways fight

Diane Bartz
Monday, 4 Nov 2013 | 5:13 PM ET

* AMR Corp shares spike up 24.5 percent

* US Airways stock reaches highest level in nearly 6 years

WASHINGTON, Nov 4 (Reuters) - The U.S. Justice Department wants US Airways and American Airlines to divest landing and take-off slots at Reagan National and other U.S. airports in return for dropping its efforts to block a proposed merger, the attorney general said on Monday, sending share prices higher as investors saw hints in the remarks that a settlement is possible

Shares in bankrupt AMR Corp, parent of American Airlines, closed up 24.5 percent in heavy volume, while those of US Airways at one point rose more than 5 percent to their highest in almost six years before retreating to close up 1.2 percent.

U.S. Attorney General Eric Holder said that talks with the companies, the merger of which would create the world's largest carrier, were ongoing and he hoped for an agreement before a trial that is due to begin on Nov. 25.

"What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States," Holder said in response to a reporter's question.

"We hope that we will be able to resolve this short of trial, but if we do not meet those demands that we have, we are fully prepared to take this case to trial," he said. "We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint."

Experts said it is unusual for an attorney general to comment at length in the middle of antitrust battle.

"I think it's a positive sign (of potential settlement), but it's important not to over-read it," Herbert Hovenkamp, an antitrust expert who teaches at the University of Iowa's College of Law, said of Holder's comments.

Several antitrust specialists were surprised by the share price increases, which suggested that investors saw Holder's utterances as a tipping point in favor of the merger.

Three said Holder essentially backed up previous comments from his antitrust deputy, Bill Baer, by insisting that the merger created antitrust problems in a number of markets nationally.

"Bill Baer can now sit there and say "'You heard from the boss. What can I do?'...This is a message to the parties," said Steve Axinn, a Justice Department veteran now at the law firm Axinn Veltrop and Harkrider LLP.

Seth Bloom, a former staffer for the Senate Judiciary Committee's antitrust subcommittee, agreed the comments did not necessarily signal that a quick settlement was in the works.

"He's saying you need divestitures nationally...and so the airlines have to make a fundamental change in their merger proposals," he said. "It's a very difficult case to settle."

Three weeks before the scheduled start of the trial, US Airways and American Airlines can agree to a package of divestitures, prepare to litigate, or abandon a merger that has been years in the making, Hovenkamp said.

"The government is asking for a lot and the parties want to give up as little as possible," Hovenkamp added.

The government's complaint, filed in August, focused on Reagan National Airport outside Washington. The two carriers between them control about 69 percent of takeoff and landing spots at the airport - roughly 55 percent now held by US Airways and 14 percent held by American.

Airline officials have said privately that they are willing to cede some slots at Reagan National but not scale back by the equivalent of the entire 14-percent American share.

The federal government also listed more than 1,000 city pairings where the two airlines dominate the market and where a merger could conceivably drive up prices or cut the number of flights.

US Airways declined comment on Holder's remarks. American Airlines did not respond to requests for comment.

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