Trust busted

Airline deal challenge should bust investor trust

An antitrust challenge to a mammoth airline deal should finally bust investors' trust. The US government's move to block the $11-billion merger of US Airways and American Airlines parent AMR sent the shares of both companies into a tailspin. Anheuser-Busch InBev and Nasdaq OMX suffered similar consequences. It's time for the market to start applying bigger antitrust discounts.

The US Airways-AMR transaction was in its final stages when the Justice Department announced on Tuesday it is suing, catching investors off guard. They should not have been so surprised. The prosecutors make a good case that the tie-up, which would create the world's largest airline, is anti-competitive.

Its completion would leave only four airlines controlling more than 80 percent of the US market, according to the lawsuit. At Washington's Reagan National Airport alone, the new behemoth would control 69 per cent of takeoff and landing slots and 63 per cent of nonstop routes. Already rising fares and fees could move even higher without US Airways' aggressive discount programme, squeezing passengers on service and price, the suit said.

Besides, Obama administration trustbusters have repeatedly warned - and shown - that almost any transaction is fair game. They have challenged major mergers like AT&T and T-Mobile USA's tie-up and small deals like online consumer review-company Bazaarvoice's recent purchase of rival PowerReviews.

Investors, however, persist in being shocked. When watchdogs sued in January to block AB InBev from acquiring Grupo Modelo, for instance, its shares dropped 6 percent, while those of Constellation Brands, which planned to own the distributor of Modelo's Corona beer in the United States, dropped 24 percent before trading was halted. Nasdaq slid 2.5 percent and NYSE Euronext 13 percent after Uncle Sam's threatened lawsuit caused the former to drop a hostile bid for its rival.

Granted, US Airways and AMR shareholders may have convinced themselves there was nothing to fear from another airline merger. After all, the Obama administration allowed United Airlines and Continental to merge in 2010 and Southwest and AirTran to do so in 2011.

Yet it was one deal too many. As the lawsuit makes clear, the Justice Department saw real danger in putting so much of the U.S. market in the hands of so few airlines. Challenging the merger makes sense for an administration that has often warned of an antitrust crackdown. Maybe investors will finally listen.