American merger creates political firestorm

Dave Montgomery Austin Correspondent

AUSTIN – Attorney General Greg Abbott, the most prominent contender for governor in 2014 and a fierce opponent of federal overreach, frequently reminds voters of the 28 lawsuits he has lodged against the feds on policies ranging from the environment to Obamacare. “I go into the office, I sue the federal government and I go home,” the state’s top lawyer is fond of saying. But in a stunning disruption from his long history of Washington-bashing, Abbott is now teamed with the Obama Administration in a suit to block the merger of American Airlines and US Airways, a move that has ignited a fierce pushback in the Dallas-Fort Worth area.

The lawsuit has put the Republican attorney general at odds with many state and local political leaders who have endorsed the merger, including the man he hopes to succeed, Gov. Rick Perry. It also has created a potential issue for state Sen. Wendy Davis, the Fort Worth Democrat who is deciding whether to run for governor. “It’s political suicide to adopt a position that essentially runs contrary to preserving good jobs in the state of Texas,” said First Officer Tom Hoban, communications chairman for the Allied Pilots Association, which represents more than 8,000 American pilots and vigorously supports the merger. Davis issued strong support for the airline merger, calling on the Justice Department to reconsider its lawsuit. “This is about protecting Texas jobs and ensuring competition through the viability of a major player in the industry,” Davis said in a statement to the Fort Worth Business Press. “The merger is the last, critical piece to returning American Airlines as a strong competitor in the commercial airline marketplace. Allowing the merger plan to proceed would help preserve nearly 60,000 jobs worldwide, including those of thousands of hard-working Texans.”

Davis, who became a national media celebrity after her Senate filibuster against a Republican-backed bill restricting abortions, is considering whether to run for governor or seek re-election to the Senate. She is expected to announce her decision shortly after Labor Day, Sept. 2. The Texas Democratic Party and affiliated groups have launched an Internet campaign urging Davis to enter the governor’s race, depicting her as the best hope for Democrats to regain an office they haven’t held since 1995. “Everywhere we go, we hear taxpayers say they want Wendy to run,” said Tanene Allison, communications director for the Texas Democratic Party.

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The Fort Worth Chamber of Commerce has estimated that Fort Worth-based American Airlines employs more than 20,000 people in the Metroplex alone and supports up to175,000 more jobs for vendors, contractors and others who do business with the airline. The merger with US Airways is considered critical to American’s reorganization plan as it emerges from bankruptcy. Federal Bankruptcy Judge Sean Lane said during an Aug. 15 hearing in New York that he had “lingering doubts” about approving the plan while the merger is being challenged by the government. Abbott, the state’s attorney general since 2002, acknowledges that he has raised questions by joining the Justice Department and five other states and the District of Columbia to try to block the suit. But he said he had no other choice, asserting that the merger will undercut airline competition and result in higher fares and reduced service for millions of air travelers. “Why in the world would Texas file a legal action challenging the merger of American Airlines with US Airways?” Abbott said in a statement on his website. “The answer is simple: We believe that actions by the airlines and their officials violate antitrust laws. In fact, the legal violations appear so overt that it would offend my oath of office not to take action.”


Nevertheless, Abbott has come under immense pressure to reverse his position. Fort Worth Chamber of Commerce President Bill Thornton joined his counterpart at the Dallas Chamber, Jim Oberwetter, in urging Abbott to change course and support the measure. “By any stretch of the imagination, having what the press refers to as ‘the World’s Largest Airline’ based in Texas, makes our state more competitive,” the two chamber leaders wrote in an open letter to Abbott. The Allied Pilots Association has also run two large ads in The Dallas Morning News questioning Abbott’s position. “Are you opposed to having a leading global carrier in Fort Worth? Considering everything at stake – including the large number of jobs and the tax revenues they generate – that doesn’t make any sense,” the pilots said in their ad. “We are keenly aware of the role American Airlines plays in Texas,” said the attorney general’s spokesman, Jerry Strickland. “However, this action is based on the law and not politics. We will continue to work with all of the parties involved and address legal concerns related to the proposed merger. We hope to work toward a win-win solution that benefits all Texans, American Airlines employees and their customers.” Nevertheless, with the 2014 election season already heating up, the lawsuit could complicate Abbott’s reach for votes in the Metroplex, the fourth largest metropolitan region in the country.

Although Abbott is heavily favored to win the Republican gubernatorial nomination, his lone Republican opponent so far, Tom Pauken of Dallas, calls Abbott’s legal position a “game changer’” that could send legions of Abbott defectors into Pauken’s campaign. “This will cost tens of thousands of jobs,” said Pauken, a former chairman of the State Republican Party. “There’s clear movement of people away from Greg Abbott. I’ve had calls from American workers, including people who have worked for Greg Abbott in the past and were planning on supporting him [and] have now withdrawn that support and are now supporting me.” American officials say the merger has drawn bipartisan support from nearly 40 officials and organizations in Texas, including state leaders, mayors and lawmakers. Perry endorsed the merger in March in a letter posted on an airlines website to promote the multi-billion-dollar deal. “The letter speaks for itself and nothing has changed,” said Perry spokesman Josh Havens when asked whether Perry still supports the merger. “No matter which way you look at it, this is the right move for Texas and for our nation,” Perry said. He predicted that the merger will result in a “more competitive international carrier” and “an efficient, robust company positioned for sustained success.” Nearly all of the six U.S. House members who represent Tarrant County have also reaffirmed their support for the merger and expressed opposition to the lawsuit, although Republicans trained their objections on the Justice Department without mentioning Abbott’s role. “I was surprised and disappointed in the decision,” said Rep. Kay Granger (R-Fort Worth). “Having followed the merger for months, I believe it would save thousands of jobs and be good for Fort Worth-based American Airlines and for Dallas/Fort Worth International Airport.”

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“The Justice Department’s position is wrong,” said Republican Rep. Roger Williams, a former Weatherford car dealer. “Government shouldn’t be in the business of picking winners and losers, and it certainly shouldn’t block this airline merger because of mere speculation it will violate antitrust laws.” U.S. Rep. Marc Veasey of Fort Worth, the only Democrat in the Tarrant County delegation, has also called on the Justice Department to drop its opposition to the merger. “American Airlines has been able to recover and regroup,” Veasey said. “But for the long-term viability of the carrier, the merger is not only necessary, but will be good for consumers as well as D-FW jobs and the local economy.” Rep. Michael Burgess (R-Lewisville) said the Justice Department action could “hurt thousands of airlines employees” and vowed to “do everything within my power to assist these employees … and stop the federal government’s misguided interference.” Arlington’s congressman also chimed in favoring the merger. “My main concern has always been protecting jobs in the Metroplex and the merger of these two airlines does that,’’ said Rep. Joe Barton (R-Arlington). “… If there are any local market antitrust issues, those can be handled as a condition of the merger. I think we need to get out of the way here and let the free market work.”

The 56-page anti-trust suit was filed on Aug. 13 by attorneys for the Justice Department, Texas, Arizona, Florida, Pennsylvania, Tennessee, Virginia and the District of Columbia. Strickland, Abbott’s spokesman, said Abbott’s office has “been in contact with other attorneys general and the Department of Justice for some time” but he declined to disclose any discussions that may have occurred between Abbott and Perry in advance of the lawsuit. “We communicate with a variety of lawmakers and state leaders about multiple subjects ,” Strickland said, “but we don’t share details about those conversation.”

The suits

The suits cite a series of consolidations that have shrunk the number of major airlines from nine in 2005 to five in 2013 – Delta, United, American, US Airways and Southwest. After the merger, said the suit, there would be four majors accounting for more than 80 percent of domestic scheduled passenger service. The merged airline, which would operate under the American brand, would be the biggest airline in the world. “Because of the size of the airline industry, if this merger were approved, even a small increase in the price of airline tickets, checked bags, or flight change fees would cause hundreds of millions of dollars of harm to American consumers annually,” said the suit. The Texas attorney general said he joined in the suit because of the potential for reduced airline service to several of Texas’ smaller airports that are currently served exclusively by American Airlines and American Eagle. He also expressed concern that the merger will result in less competition and increased fares. “ My history of taking on the Department of Justice is well-documented,” Abbott said in the statement on his Website, which was also published as an op-ed in the Dallas Morning News. “ I would not join with the federal government in a legal action if the merits did not command it. In this instance, the facts compel action to ensure the rule of law is enforced.” Abbott said that evidence such as internal emails, investor presentations and other comments by top executives of the airlines “reveal their thinking about how shrinking competition in the airline industry — and, hence the merger — will allow the airlines to pile even more bag fees, ticket change fees and increased fares on customers.

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“American and US Airways compete directly on thousands of heavily traveled routes. The merger would allow the new company to shed that competition and distort the marketplace — while harming competition for nearly 200 Texas routes,” Abbott said. The merger will have a sharp impact on Reagan National Airport, which serves Washington, D.C., said the suit. US Airways currently holds 55 percent of the slots at Reagan, and the merger would give the new airline a monopoly of 63 percent of the nonstop routes served out of the airport. Reduced competition could also make it easier for airlines to impose increases on fees for ticket changes and checking baggage , which have become a growing source of revenue for airlines since 2008, said the suit. In 2012, fees for checked bags and flight changes generated over $6 billion for airlines, said the suit. “Even a small increase in these fees,” said the suit, could cost consumers millions of dollars. The two airlines have vowed to vigorously fight the lawsuit in federal court, declaring that the Justice Department “is wrong in its assessment of our merger.”

”Contrary to their position,” American and US Airways said in a joint statement, “ the merger of our two airlines will be good for competition, consumers and choice. “Integrating our complementary networks to benefit passengers is one of the motivations for bringing our airlines together. The new American will provide millions of passengers better travel alternatives, including by creating over 1,300 new connecting opportunities and the potential to access numerous cities worldwide served by one carrier but not the other. “The widespread support the merger has received underscores the fact that this is the right path forward for both airlines, our employees, financial stakeholders and the customers,” said the airlines.