US Airways Group Inc (LCC), AMR Corporation (AAMRQ): Is American Airlines Helping DOJ Make Its Case?

American is already profitable enough to easily earn returns in excess of its cost of capital. If a merger  improves American’s profitability even further, it will be a clear indication that the company is benefiting from a dearth of competition.

Furthermore, AMR and US Airways have been pushing for a speedy trial to resolve the DOJ’s antitrust agreement. The two companies want the trial to occur in November so that they can complete the merger by year’s end (if they win). Part of their argument for a quick trial is that AMR is still under bankruptcy protection and that it would be “unreasonable” to prolong its stay there.

However, as AMR’s results show — and Horton’s memo emphasizes — American Airlines has never been in better financial shape than it is today. Not surprisingly, lawyers for the DOJ have already cited AMR’s record July profit in its request to set the trial for March 2014 — nearly four months later than the timeline AMR and US Airways Group Inc (NYSE:LCC) proposed. With AMR doing just fine in bankruptcy, it will be hard for the airlines to convince a judge of the need for an accelerated trial.

Foolish bottom line
AMR and US Airways can make a good case for why they should be allowed to merge. After all, DOJ allowed Delta Air Lines, Inc. (NYSE:DAL) to merge with Northwest, allowed United Continental Holdings Inc (NYSE:UAL) to merge with Continental, and allowed Southwest Airlines Co. (NYSE:LUV) to buy AirTran. Nevertheless, the case is not airtight. While it may seem unfair to prevent AMR and US Airways to follow in their competitors’ footsteps, some aspects of the merger would be clearly anti-competitive.

AMR’s management didn’t do itself a favor by highlighting how profitable it is as a standalone entity. It merely gave the DOJ further ammunition in its bid to delay the antitrust trial and ultimately derail the merger. Over the next several months, we’ll see just how much damage was done.

The article Is American Airlines Helping DOJ Make Its Case? originally appeared on Fool.com is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL). The Motley Fool recommends Southwest Airlines.

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