Why Texas Won't Mess With American Airlines

Why Texas Won't Mess With American Airlines

When the Department of Justice filed its lawsuit against the merger between US Airways and American Airlines parent company AMR, the Department was joined by the attorney generals of Texas, Arizona, Florida, the District of Columbia, Pennsylvania, Tennessee, and Virginia. But in an announcement on Oct. 1, Texas has changed its position on the merger and settled with the airlines. We'll take a look at what this could mean for other possible settlements.

Why Texas?
Although US Airways is technically the acquiring party in the proposed merger, the merger plans call for American Airlines to be the surviving name, and for the new company to be headquartered in AMR's current Fort Worth, Texas home.

And American is quite a big player in Texas, too. Besides calling the state home, American's largest hub is the Dallas Fort Worth International Airport. With so many jobs on the line, it's not too surprising that state officials would have an interest in further examining the situation.

Bargaining position
The easiest path forward for the airline merger may lie in a negotiated settlement between the DOJ, the state AGs, and the airlines. In Texas, officials and the airlines have settled the state lawsuit in a manner similar to how the settlement-oriented analysts have been predicting. Guarantees of maintaining services are a standard for airline merger concessions, and are the key points of the Texas settlement.

In the end, a primary point of the concessions was the continuance of service to smaller airports in Texas, where officials were concerned about military personnel who needed American Eagle flights to get to their bases.

Industry comparisons
Although every merger is a unique case, the closest comparison to the US Airways-AMR merger would be the 2010 merger between United Airlines and Continental Airlines that created United Continental Holdings . Although the DOJ didn't file suit to challenge that merger, the carrier gave up some of its Newark slots to ensure the deal went through.

Like the US Airways-AMR merger, some state officials were uneasy about allowing it. But in Ohio, the carriers managed to get state support by agreeing to maintain a hub in Cleveland, along with guarantees for service. The solution of maintaining service in return for governmental support creates a close comparison between these two airline mergers.

Other states
As a whole, the settlement in Texas is a very positive sign for this airline merger. It shows that at least some officials filed a lawsuit with the intention of a settlement, rather than a complete blockage. It also provides further indications that out-of-court settlement negotiations are happening, and that some have a realistic chance of succeeding.

Now that Texas has come to a settlement with US Airways-AMR, it is important to see how settlements could play out elsewhere. While Texas would get the new American Airlines Group's headquarters, not all states can get this honor. In my next article, we'll see whether US Airways' home state of Arizona is likely to be as welcoming as Texas.

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Editors Note: this article previously stated American Airlines was headquartered in Dallas Texas; this has been corrected to Fort Worth Texas. The Motley Fool apologizes and regrets this error.

The article Why Texas Won't Mess With American Airlines originally appeared on Fool.com.

Alexander MacLennan owns shares of Air Canada, AMR, Delta Air Lines, and Gol Linhas. He is also long the following options: $22 January 2015 Delta calls, $25 January 2015 Delta calls, $30 January 2015 Delta calls, $17 January 2015 US Airways calls. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published