By Diane Bartz
WASHINGTON (Reuters) - The U.S. Department of Justice, fighting a proposed merger of US Airways Group Inc (LCC) and American Airlines parent AMR Corp (AAMRQ.PK), lost a bid to delay the case on Tuesday, and share prices for both companies jumped on perceptions that prospects for the deal had brightened.
In Dallas, Texas Attorney General Greg Abbott said his state was dropping out of a U.S. Justice Department lawsuit seeking to block the merger, a move some experts called a crack in the united front of those opposing the creation of the world's largest airline.
US Airways shares closed up 3.9 percent at $19.69 on Tuesday, while AMR closed up 8.3 percent at $4.45.
Texas was one of several states that joined the Justice Department lawsuit, filed in August, that has sought to stop a deal it said would lead to higher airfares and less competition.
The other states are Arizona, Florida, Michigan, Pennsylvania, Tennessee, Virginia. The District of Columbia also opposes the deal.
One airline expert called the Texas decision good news for the deal's prospects of completion.
"This is a positive development for American and US Airways," said George Hamlin, an airline consultant in Fairfax, Virginia. "The suit was presented as a united front between the federal government and a number of states. The front is no longer united."
In Washington, developments in the long-running merger case met head-on with the day's biggest news - the shutdown of the U.S. government in a partisan dispute over healthcare reform.
The Justice Department requested a delay after many of its attorneys and support staff were placed on furlough.
"This is creating difficulties for the department to perform the functions necessary to support its litigation efforts," the department said in a court filing.
Merging companies usually oppose delays because they make it harder to hold deals together. So it was good news for the airlines when Judge Colleen Kollar-Kotelly turned down the request in an order issued on Tuesday.
A lawyer for the airlines expected the trial to begin as scheduled in late November.
"From what the judge said in there, and I think everybody heard, we're going to trial on November 25," Richard Parker said after a pretrial hearing. "We are planning on a November 25 trial date."
Parker said a settlement resolving the fight was still possible.
"We are interested in a reasonable settlement in this case," he added.
Any settlement would mean asset sales, which in turn would require approval from the judge overseeing American's emergence from bankruptcy.
TEXAS SECURES CONCESSIONS
Under the agreement announced on Tuesday, the Dallas/Fort Worth International Airport would remain a hub for the combined carrier, whose headquarters would be in Texas. Almost two dozen small Texas airports would continue to get daily service, the Texas attorney general's office said.
Antitrust experts said that losing Texas from the suit was unlikely to affect the Justice Department's ability to litigate to stop the deal.
"The case will proceed without Texas and it will have no impact on the government without the state. I don't think it will matter one way or another," said Jonathan Lewis, an antitrust expert with Baker Hostetler.
The airlines have defended the deal in court filings, saying it would create $500 million in savings to consumers annually by creating a stronger competitor to Delta Air Lines Inc (DAL) and United Continental Holdings Inc (UAL).
But the Justice Department has said the merger would be bad for consumers. Its complaint focused on Reagan National Airport, which serves Washington D.C., where the two carriers control a combined 69 percent of takeoff and landing slots. It also listed more than 1,000 different routes where, between them, the two airlines dominate the market.
The case at the U.S. District Court for the District of Columbia is No. 1:13-cv-1236.
(Additional reporting by Karen Jacobs in Atlanta; Editing by Ros Krasny, Meredith Mazzilli, Lisa Von Ahn and Andre Grenon)