American Airlines and US Airways filed a m0tion for a speedy trial today (or what amounts to speedy, I guess for DOJ). You can read the full motion here. The government wants 6 months to prepare for trial. American/US Airways think it’s reasonable to start in 90 days. Before getting into the document in detail, I ‘ve got to say I’m surprised American and US Airways would be willing to wait 90 days for a trial to commence. I’m not saying that it’s unworkable but I did think this would be more of a short-term negotiation/abandonment type strategy. Here are some excerpts from the document and my thoughts:
American’s ongoing bankruptcy proceedings compound the costs and uncertainties associated with the delays caused by the government’s lawsuit, including approximately $500,000 in bankruptcy-related professional fees alone every day that the bankruptcy continues.
Holy schnikeys, Batman. That means roughly $45 million in bankruptcy related fees just for a 90-day wait to go to trial? If that figure is a true figure for the entire BK proceeding (which would stretch to 2 years if the trial concludes in November) that’s over a quarter billion (with a B) in BK fees? Those are just hard numbers to wrap my head around.
The suit also references the other DOJ merger cases over the past 13 years to illustrate how quickly the government usually goes to trial:
I’m taking this information at face value. If these really are the actual timelines for DOJ objections to trial timelines this decade, they don’t seem particularly unreasonable. DOJ asking for 180 days to prepare does seem unreasonable. It’s seems especially arduous when you consider, as the lawsuit outlines:
Plaintiffs’ claim that they need six months to prepare for this case is hollow. They have been investigating the merger for over 16 months already.
The motion goes on to layout some of the damages delaying/blocking the merger will produce:
The prospective employees of New American also await final resolution because, for many, their jobs are in a holding pattern and their new compensation and benefits, worth collectively an additional $400 million annually, and which have already been negotiated and are contingent upon the merger, are being delayed. So too is American employees’ receipt of an equity stake that was worth approximately $2 billion before the DOJ suite was filed.
Until this lawsuit was filed, many American and US Airways’ employees were on the cusp of new roles, new assignments, and new locations with a new and improved airline. Simultaneously, other key employees who had announced their departures prepared for new jobs elsewhere. This lawsuit has changed that and is having considerable negative effect on employee energy and morale, two important and perishable assets.
If there’s anyone I feel truly bad for, it’s the middle and upper management folks who have made real life decisions based on what American and US Airways has told them about their future with the company. Some have elected to leave, some asked to leave. Others are considering relocating. We’re getting ready to start the school year, so those with young kids may be trying to make decisions on where their kids will go to school yesterday. I don’t really blame DOJ for that. In my opinion, that blame rests firmly on the shoulders of American and US Airways management. It was a calculated gamble to move forward with these decisions and announcements prior to more TLC for the “i”s and “t”s, one I would normally expect them to win. They obviously didn’t.
I was initially surprised to see the DOJ lawsuit. While DOJ may ultimately be correct that a merger is too damaging, it didn’t appear from the text of the complaint that they had really nailed this one down. It seemed sloppy. And, if the information about timeframes referenced in the New American motion are correct, the DOJ continues to appear sloppy, heavy-handed (we’ll start the trial when we’re darn good and ready) and out of sync with the reality that they may actually have to go to court to win this one.
The motion also brought to light a new data point for me, that both American and US Airways can walk away in mid-December if the merger has not cleared all the hurdles. If the DOJ does get its way with a 6-month trial prep, one of the two airlines could walk away with no penalty, though I don’t see a likely scenario where US Airways does so. They truly believe the merger with American is their best shot at a level playing field with their legacy competitors.
The whole process still seems a bit out of step to me. I could see a settlement, though one with more serious concessions than slots at DCA. I could see American walking away and trying to emerge from BK as a stand-alone entity (or not walking away and still trying to emerge now on its own).