After months of setbacks and delays, the merger of American Airlines and US Airways to create the world’s largest airline became all but certain on Tuesday after the airlines reached a settlement with the Justice Department just two weeks before a scheduled trial.
The deal paves the way for the creation of a third major global airline that can compete with United Airlines and Delta Air Lines, which completed their own mergers in recent years, and sets the structure for the domestic airline industry for years to come.
The combination caps a tumultuous decade for the airlines, which have been hobbled by high fuel prices and plagued by several bankruptcies, including American’s.
It also opens a chapter in the history of the airline industry’s deregulation, leaving a handful of airlines to control most domestic and international flights — American, Delta, United and the domestic giant Southwest Airlines.
The Justice Department said the agreement would foster competition at busy markets like Washington and New York, opening opportunities for lower-cost carriers.
But analysts questioned how much competition would be created. George Hoffer, a transportation economics professor at the University of Richmond, said the merger effectively took one major competitor out of the market. That could result in subtle fare increases in many markets and fewer flights, he said.
Mr. Hoffer added that “the Justice Department was in an indefensible position. Once you created a super-Delta and a super-United, you had to create a super-American. So the outcome was inevitable.”
Investors cheered the deal, sending airline stocks higher after the announcement.
The settlement still needs to be approved by the Federal District Court in the District of Columbia and by the judge overseeing American’s bankruptcy proceeding. But the airlines are confident they can now close their merger by mid-December.
Airline executives have argued over the years that consolidation and pruning of unprofitable routes was the only way to return a beleaguered industry to health. The process has led to a string of mergers since 2005, including the combination between Delta and Northwest, United and Continental and, more recently, Southwest and AirTran.
While all those mergers were approved by antitrust regulators, with few or no objections, the planned combination of American and US Airways hit a major stumbling block this summer when the Justice Department, along with some state attorneys general and the District of Columbia, filed a legal challenge, contending that fares would rise if another merger went through.
But in the face of an effective lobbying campaign by the airlines and their employees, particularly with local and state officials, as well as the perceived weakness of their own case, government regulators dropped their suit in exchange for some divestitures.
Under the proposal, American and US Airways agreed to sell 104 takeoff and landing slots at Ronald Reagan National Airport in Washington, and 34 slots at La Guardia Airport in New York to lower-cost carriers. They also agreed to sell the rights to a pair of terminal gates and associated ground assets at five other airports — Chicago O’Hare International, Los Angeles International, Boston Logan International, Dallas Love Field and Miami International.
The airlines also addressed a concern of the attorneys general that had joined the suit, agreeing to maintain hubs at Kennedy Airport in New York; in Charlotte, N.C.; Chicago; Los Angeles; Miami; Philadelphia; and Phoenix for a period of three years “consistent with historical operations.” In a separate agreement with the Department of Transportation, the airlines agreed to maintain current service to small and midsize communities from Reagan National.
Robert Mann, an aviation consultant, said the deal was “basically a face-saver” for the Justice Department, which dropped its earlier objection over the possible loss of a low-fare program run by US Airways.
“But they did get a pound of flesh, or couple of ounces, at La Guardia and Washington National,” he said.
Airline executives, as well as labor groups that backed the merger, praised the deal. The slots to be sold represent about 15 percent of the combined slots at both airlines. Even after the divestitures, the new airline will have more flights from Reagan than US Airways, the current leader there, did before the merger and will remain the largest carrier there, said Doug Parker, the chairman of US Airways.
After the merger is completed, the airline will operate 6,700 flights per day. The sale of slots in New York and Washington, on the other hand, amount to 112 daily flights. “It’s pretty modest,” Mr. Parker said.
After completing the sale of its assets, the merged airline will operate 44 fewer daily departures from Reagan National Airport and 12 fewer daily departures at La Guardia than the two airlines together offer now. American and US Airways have 290 departures every day from Reagan National and 175 from La Guardia.
Selling the rights to airport gates would also have a small impact, analysts said. American has 69 gates at O’Hare and US Airways has three. The sale of two gates will not impair its ability to keep its current schedule.
The market value of the combined company has now reached $17 billion, up from $11 billion when the deal was announced in February, based on US Airways’ current share price.
William J. Baer, assistant attorney general for the antitrust division, defended the deal on Tuesday, telling reporters that it “opens up the marketplace as never before.” He said it would “disrupt today’s cozy arrangements” among the largest carriers, lower fares on crucial routes and provide consumers with more flight choices.
He said that in the past, even modest opportunities for low-cost carriers to gain more slots have made a difference for consumers. When Southwest Airlines acquired 36 slots at Newark Liberty International Airport as a condition of the United-Continental merger, it added six nonstop flights from Newark with connections to 60 other cities. Fares dropped by 10 percent on the nonstop routes and passenger traffic rose by 36 percent, he said.
He said that JetBlue’s lease from American of 16 slots a day at Reagan National had saved consumers $50 million a year on fares. At Reagan National, JetBlue and Southwest will be given a chance to buy the slots they lease from American.
But analysts disputed the idea that the Justice Department had extracted much from the airlines.
“This deal is simply to get Department of Justice off the hook from a lawsuit,” said Michael Boyd, an aviation consultant. “American Airlines and US Airways can easily reduce 44 daily departures,” He said the most likely losers would be places like Akron, Ohio; Chattanooga, Tenn.; and Bangor, Me., because the airlines in line to get those slots do not have small planes to serve smaller communities.
Mr. Mann, the aviation consultant, added that Southwest’s fares had been rising and it was no longer the low-cost competitor it once was. “The really low-fare carriers now, Spirit and Allegiant, don’t have deals for these slots,” he said, referring to the gates at Reagan National and La Guardia.
The Obama administration has taken a tougher approach to antitrust than the Bush administration and challenged various proposed mergers. It blocked the AT&T takeover of T-Mobile and extracted the divestiture of beer brands before allowing the merger of Anheuser-Busch InBev with Grupo Modelo of Mexico.
In most of those cases, however, antitrust watchdogs have faulted the administration. “Some of the settlements ended up compromising to the point that I don’t think consumers were benefited,” Bert Foer, president of the American Antitrust Institute, said.
In the airline merger, he said, all of the airlines involved will benefit, and consumers in some areas will be better off. But other consumers, in markets scattered around the country, will “have to pay more,” particularly on one-stop flights.