By Diane Bartz
WASHINGTON (Reuters) - The Justice Department wants US Airways and American Airlines to divest landing and take-off slots at Reagan National and other "key" U.S. airports as 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 to offer a path to an agreement, three weeks before the scheduled start of a trial on November 25.
The bankrupt AMR Corp <AAMRQ.PK>, parent of American Airlines, closed up 24.5 percent in heavy volume, while those of US Airways <LCC.N> at one point rose more than 5 percent to their highest in almost six years before retreating to close up 1.2 percent.
Holder said that talks with the companies were ongoing and he 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 on more than 1,000 city pairings that American and US Airways now dominate. It said the merger would reduce choice for travelers and lead to higher fares.
Holder would not elaborate on Monday about whether the government has a specific number of slots in mind that the carriers need to sell to advance the deal. There were a "number of ways" to address the government's concerns, he said.
"What we have tried to focus on is to make sure that any resolution in this case necessarily includes divestitures of facilities at key constrained airports throughout the United States," Holder said.
"We hope that we will be able to resolve this short of trial, but if we do not meet those demands that we have, we are fully prepared to take this case to trial," he said. "We will not agree to something that does not fundamentally resolve the concerns that were expressed in the complaint."
Experts said it is unusual for an attorney general to comment at length in the middle of antitrust battle.
"I think it's a positive sign (of potential settlement), but it's important not to over-read it," Herbert Hovenkamp, an antitrust expert who teaches at the University of Iowa's College of Law, said of Holder's comments.
Several antitrust specialists were surprised by the share price increases, which suggested that investors saw Holder's utterances as a tipping point in favor of the merger.
Three said Holder essentially backed up previous comments from his antitrust deputy, Bill Baer, by insisting that the merger created antitrust problems in a number of markets nationally.
"Bill Baer can now sit there and say "'You heard from the boss. What can I do?'...This is a message to the parties," said Steve Axinn, a Justice Department veteran now at the law firm Axinn Veltrop and Harkrider LLP.
Seth Bloom, a former staffer for the Senate Judiciary Committee's antitrust subcommittee, agreed the comments did not necessarily signal that a quick settlement was in the works.
"He's saying you need divestitures nationally...and so the airlines have to make a fundamental change in their merger proposals," he said. "It's a very difficult case to settle."
Three weeks before the scheduled start of the trial, US Airways and American Airlines can agree to a package of divestitures, prepare to litigate, or abandon a merger that has been years in the making, Hovenkamp said.
"The government is asking for a lot and the parties want to give up as little as possible," Hovenkamp added.
DOMINANT AT REAGAN NATIONAL
The two carriers control a combined 69 percent of takeoff and landing slots at Reagan National, an airport used by many members of Congress to fly to their home districts.
Roughly 55 percent of slots at the airport are held by US Airways and 14 percent held by American. Airline officials have said privately that they are willing to cede some slots, but not scale back by the equivalent of the entire 14-percent American share.
US Airways declined comment on Holder's remarks. American Airlines did not respond to requests for comment.
(Additional reporting by David Ingram in Washington and Karen Jacobs in Atlanta; Editing by Ros Krasny, Lisa Von Ahnn, L Gevirtz and Ken Wills)