GAO Report Hits Proposed United-US Airways Merger

WASHINGTON — A congressional study released Wednesday found that the purchase of US Airways Inc. by UAL Corp.’s United Airlines would stifle competition, adding weight to perceptions that the deal must be changed if the companies hope to win antitrust approval.

The merged airline would carry 25% of the nation’s passengers and would earn $9 billion a year more than its nearest competitor, according to the report by the General Accounting Office.

“If the merger proceeds as proposed, it would significantly alter the current state of competition in the domestic airline industry,” the GAO said in its report.

Although Congress will not decide the fate of the merger, the study goes to the Department of Justice for consideration as the agency continues to examine whether the deal violates U.S. antitrust law.

Release of the report came as representatives of both United and US Airways were meeting with officials of the Justice Department’s antitrust division to discuss possible changes in the merger agreement to meet government competition concerns.

The deal would combine United, the world’s largest airline, with US Airways, the No. 6 U.S. carrier.

In New York Stock Exchange trading, US Airways Group shares slid $8.75, or 18%, to close at $38.95 and UAL rose 88 cents to close at $36.25.

Rep. James L. Oberstar of Minnesota, one of two Democrats who requested the GAO report, said the Justice Department should block the deal in any form because it would open the door to further industry consolidation and the possibility of just three big U.S. airlines.

GAO said officials of several larger airlines, which it did not identify, had told GAO that a larger United would have a significant advantage and they would be unable to compete unless their airlines also merged.

United and US Airways have said their combination will create the first truly efficient nationwide network, offering consumers seamless service at home and internationally that is not now available.

They have also pledged a moratorium on higher fares for two years following the merger.