By Soyoung Kim
NEW YORK/ATLANTA (Reuters) - US Airways Group Inc and American Airlines vowed on Wednesday to fight the federal government's anti-trust lawsuit in court by arguing their proposed $11 billion merger would promote competition.
The U.S. Department of Justice, six state attorneys general and the District of Columbia challenged the proposed merger on Tuesday saying the creation of the world's largest airline that would result would stifle competition, drive up airfares and reduce services.
To underline their determination to fight for the merger, the airlines introduced their three high-powered lawyers who said they would argue the proposed deal would promote competition.
The lawsuit, filed in a Washington D.C. federal court, is likely to delay final approval of the bankruptcy exit plan of American Airlines' parent company, AMR Corp, which is still planned for Thursday. It also is almost certain to delay, if not derail, the merger, which the airlines had expected to conclude next month.
The lawyers said the U.S. government's case, laid out in a 56-page complaint, was weak.
"If they are going to convince the court that the sky is falling, which essentially is what they are trying to do here, they are going to have to have more meat than they've shown us so far," said Joe Sims, a partner with Jones Day who was hired by American Airlines. Sims was lead counsel in the $13 billion merger of XM Satellite Radio Holdings and Sirius.
US Airways hired Richard Parker, a partner with O'Melveny & Myers LLP who is a former director of the Federal Trade Commission's competition bureau, and Paul Denis, a partner with Dechert LLP.
Parker said the government "got this one very wrong. Both of these companies are looking forward with confidence to our day in court."
Denis, a veteran antitrust lawyer who once worked in the Justice Department's antitrust division, represented Medco Health Solutions in securing clearance for the company's $29.1 billion merger with Express Scripts last year.
American, based in Fort Worth, Texas and US Airways, based in Tempe, Arizona, would be weaker rivals if the merger did not take place, an outcome that would not be good for consumers who deserve more choices, the lawyers said.
The airlines said a merger would increase competition by adding a viable competitor to two dominant carriers, Delta and United Continental, both the result of recent megamergers.
"They will neither individually be as effective a competitor to United, Delta and Southwest and all the other smaller low-cost carriers that are in the industry today," Sims said. Southwest acquired AirTran in 2011.
Airline executives and antitrust lawyers learned that the Department of Justice was suing to block the merger on Tuesday morning, Denis said.
The Justice Department said on Tuesday that it had explained its concerns to the airlines and given them a chance to present their views.
"I don't think it was a surprise to the parties," said Bill Baer, the head of the Justice Department Antitrust Division.
The government argues that the merger of US Airways Group and AMR would reduce the number of large U.S. airlines to three, and said past practices showed the major airlines "increasingly prefer tacit coordination over full-throated competition."
Legal experts unconnected to the lawsuit said the government had a strong case.
"The government has a very good argument" because the cost of air travel has not come down, said David Newman, a partner at the New York law firm Day Pitney, which has represented international airlines.
Investors remained skittish about the deal. US Airways stock fell 1.2 percent to $16.17 on the New York Stock Exchange on Wednesday. AMR shares, which had been down nearly 17 percent, had recovered somewhat to end the day at $2.72, down 13.6 percent. Airline stocks fell about 6 percent after the lawsuit was filed on Tuesday, and were down 0.2 percent on Wednesday.
(Reporting by Soyoung Kim,Additional reporting by Karen Jacobs, David Ingram; Editing by Alwyn Scott and Leslie Gevirtz)