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US moves to block airlines merger

The US federal government and six states have taken legal action aimed at blocking a gigantic merger between American Airlines and US Airways.

The deal would create the world's biggest airline, worth 14 billion US dollars (£9 billion) on paper. The two airlines had expected to cruise towards a merger and were stunned by the lawsuit, which claims it would hurt competition and cost consumers hundreds of millions of dollars a year in higher fares and extra fees.

Antitrust regulators had done little to interfere with three other big airline mergers in the past five years, so they were not expected to stand in the way. But this deal would leave four airlines controlling more than 80% of the US air-travel market.

"By further reducing the number of legacy airlines and aligning the economic incentives of those that remain, the merger of US Airways and American would make it easier for the remaining airlines to cooperate, rather than compete, on price and service," the lawsuit said.

The Justice Department turned the words of US Airways leaders against them. The 56-page complaint filed in federal district court in Washington, DC, was peppered with quotes from internal emails, investor presentations and public comments in which top executives noted that previous mergers had helped lead to higher fares and higher fees to check a bag or change a ticket.

Shares of both companies have plunged, and executives vowed to challenge the lawsuit. "We will fight them," said US Airways CEO Doug Parker, who would run the combined company. Paul Denis, a Washington antitrust lawyer hired by US Airways, said it would be the Justice Department's "best day" in the matter. "They got to hold their press conference. Now they've got to try their case in court," he said.

Tom Horton, CEO of American Airlines parent AMR, said the companies had spent months trying to convince the Justice Department that the merger would help customers and boost competition by creating a tough new rival to larger airlines United and Delta.

AMR has been operating under bankruptcy protection since November 2011. It has cut labour costs, renegotiated aircraft and other leases and earned 220 million dollars (£142 million) profit in the second quarter - its first profit in the April-to-June period in six years. It is forging ahead with an order for hundreds of new planes.

The company had expected the highlight of this week to be a hearing tomorrow in which a federal bankruptcy court judge would approve its reorganisation plan, including the merger. That would be one of the final steps before AMR could exit Chapter 11 protection by the end of September.

The hearing is likely to go ahead, and the judge could approve AMR's turnaround plan on the condition that the Justice Department's opposition is resolved. But AMR is unlikely to come out of bankruptcy for at least a few more months while it fights the lawsuit, officials at the companies said.

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