After almost two years in Chapter 11 bankruptcy reorganization, American Airlines' restructuring plan has finally received court approval. But the bigger challenge lies ahead: convincing another court that its planned merger with US Airways is not anti-competitive.

U.S. Bankruptcy Judge Sean Lane, sitting in the Southern District of New York, approved American's reorganization plan Sept. 12, writing that it “is feasible if the merger succeeds” and would be put at unnecessary risk by delayed confirmation of the merger. The U.S. Justice Department is challenging the merger with an antitrust lawsuit scheduled to go to trial beginning Nov. 25 in U.S. District Court in Washington.

American and US Airways are also reportedly asking their boards to extend the current internal Dec. 17 merger deadline, although neither would confirm this. Such a move seems logical, as the antitrust trial presents a major delay to the merger plans, at the least, and is prolonging American's Chapter 11 bankruptcy restructuring beyond the original Sept. 30 deadline.

If the carriers are allowed to merge, US Airways shareholders will own 28% of “New American,” while AMR Corp. creditors, shareholders, employees and their representatives will control 72%.

Should the merger be blocked in the November trial, American would have to present a new reorganization plan as a stand-alone entity

The two airlines have filed separate rebuttals to the Justice Department's complaint, foreshadowing what is likely to be a bitter battle in federal court. American writes in its filing that the government's case is “ignoring the realities of the airline industry in the 21st century.” It further asserts that “this transaction, viewed through the lens of the actual U.S. airline industry today, rather than some idealized vision of the past, does not violate the antitrust laws.”

American argues that “the [Justice] complaint presents no coherent rationale supporting its challenge to the merger. . . . Rather, it cobbles together a collection of ad hoc contentions based on anecdotes involving small numbers of passengers and historical emails and other documents irrelevant to this transaction, while ignoring the central facts and economic realities of today's airline industry.”

U.S. authorities have approved earlier mergers—of Delta Air Lines and Northwest Airlines, United and Continental Airlines and Southwest Airlines and AirTran—with few concessions. In those cases, the Justice Department scrutinized mostly nonstop services, but this time it argues that the combined American-US Airways would reduce competition in close to 1,000 connecting markets.

The two carriers's filings both assert two key points: First, there is still sufficient competition in the connecting markets referenced in the lawsuit and, second, the complaint fails to take into account low-cost carriers' (LCC) role in the U.S. airline market.

American's response points out that the number of overlapping nonstop and connecting markets involved is comparable to recent transactions that, the Justice Department has argued, would actually increase competition. The 994 connecting routes on it's list compare to 13,000 that American and US Airways serve.

“The merger would have very little effect on the bulk of even that minority of routes,” American states. On almost half the routes, the airline notes, either it or US Airways flies less than 10% of the passengers, 90% of passengers would still be able to choose between at least three airlines after the merger and 85% could choose an LCC. “Virtually none of the routes have any barriers to new entry,” argues American.

Stressing the importance of LCCs, US Airways notes in its filing that “Southwest . . . is now the country's largest domestic airline, carrying more passengers last year than any legacy carrier and more than US Airways and American combined.”

Jonathan Lewis, an antitrust lawyer with Baker Hostetler in Washington, says the airlines' filings “make passing references to low-cost carriers, calling them mavericks—but they don't say how these upstarts compete effectively against Delta and United, or how they'll continue to do so after the merger.” He adds that this “may be a question best addressed at trial.”

American asserts that the U.S. airline industry is “intensely competitive today and would remain so after this transaction.” Air travelers “receive more service to more places at lower prices (properly adjusted for inflation and other relevant factors) than ever before,” it adds.

With Adrian Schofield.