* AMR Corp shares spike up 24.5 percent
* US Airways stock reaches highest level in nearly 6 years
* Holder - could resolve merger concerns before scheduledtrial
By Diane Bartz
WASHINGTON, Nov 4 (Reuters) - The U.S. Justice Departmentwants US Airways and American Airlines to divest landing andtake-off slots at Reagan National and other "key" U.S. airportsas a condition to drop its effort to block a proposed merger,Attorney General Eric Holder said on Monday.
Share prices in the airlines jumped as Holder seemed tooffer a path to an agreement, three weeks before the scheduledstart of a trial on Nov. 25.
The bankrupt AMR Corp, parent of AmericanAirlines, closed up 24.5 percent in heavy volume, while those ofUS Airways at one point rose more than 5 percent totheir highest in almost six years before retreating to close up1.2 percent.
Holder said that talks with the companies were ongoing andhe hoped for an agreement before the trial is due to start.
The Justice Department's complaint focused on the carriers'dominant position at Reagan National, outside Washington, and onmore than 1,000 city pairings that American and US Airways nowdominate. It said the merger would reduce choice for travelersand lead to higher fares.
Holder would not elaborate on Monday about whether thegovernment has a specific number of slots in mind that thecarriers need to sell to advance the deal. There were a "numberof ways" to address the government's concerns, he said.
"What we have tried to focus on is to make sure that anyresolution in this case necessarily includes divestitures offacilities at key constrained airports throughout the UnitedStates," Holder said.
"We hope that we will be able to resolve this short oftrial, but if we do not meet those demands that we have, we arefully prepared to take this case to trial," he said. "We willnot agree to something that does not fundamentally resolve theconcerns that were expressed in the complaint."
Experts said it is unusual for an attorney general tocomment at length in the middle of antitrust battle.
"I think it's a positive sign (of potential settlement), butit's important not to over-read it," Herbert Hovenkamp, anantitrust expert who teaches at the University of Iowa's Collegeof Law, said of Holder's comments.
Several antitrust specialists were surprised by the shareprice increases, which suggested that investors saw Holder'sutterances as a tipping point in favor of the merger.
Three said Holder essentially backed up previous commentsfrom his antitrust deputy, Bill Baer, by insisting that themerger created antitrust problems in a number of marketsnationally.
"Bill Baer can now sit there and say "'You heard from theboss. What can I do?'...This is a message to the parties," saidSteve Axinn, a Justice Department veteran now at the law firmAxinn Veltrop and Harkrider LLP.
Seth Bloom, a former staffer for the Senate JudiciaryCommittee's antitrust subcommittee, agreed the comments did notnecessarily signal that a quick settlement was in the works.
"He's saying you need divestitures nationally...and so theairlines have to make a fundamental change in their mergerproposals," he said. "It's a very difficult case to settle."
Three weeks before the scheduled start of the trial, USAirways and American Airlines can agree to a package ofdivestitures, prepare to litigate, or abandon a merger that hasbeen years in the making, Hovenkamp said.
"The government is asking for a lot and the parties want togive up as little as possible," Hovenkamp added.
DOMINANT AT REAGAN NATIONAL
The two carriers control a combined 69 percent of takeoffand landing slots at Reagan National, an airport used by manymembers of Congress to fly to their home districts.
Roughly 55 percent of slots at the airport are held by USAirways and 14 percent held by American. Airline officials havesaid privately that they are willing to cede some slots, but notscale back by the equivalent of the entire 14-percent Americanshare.
US Airways declined comment on Holder's remarks. AmericanAirlines did not respond to requests for comment.
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