The aviation world has witnessed two astonishing weeks that are certain to change the industry: Middle Eastern carriers announced orders for 361 widebody aircraft in a single day, and following an out-of-court settlement between US Airways, American Airlines and the U.S. Justice Department (DOJ), the world's biggest airline is about to be created, likely before the end of the year.

The two events have little—if anything—to do with each other. But the strong growth of the Persian Gulf carriers may well have an impact on whether or not consolidation will continue among U.S. carriers,or even with foreign airlines. The competitive pressure may be such that if an airline does not have the money for record-breaking aircraft orders to achieve organic growth, management has to find other ways to keep up.

“Given that we have joint ventures and very elaborate code-share agreements in place, there's only one place left to go, and that is to permit cross-border ownership,” says William Swelbar, an aviation research engineer at the Massachusetts Institute of Technology. “It might be the aggressive growth by the carriers in the Middle East that begins to cause some people to think differently. And certainly I would think the pressure to do so would come more from the European side than originating in the U.S. There's definitely a move on to thwart the growth of Emirates.”

But even if the Persian Gulf carriers are left out of the merger equation, it is not certain that the U.S. legacies' consolidation has finally reached its end. In fact, George Hamlin of Hamlin Transportation Consulting argues that “tripartite competition tends not to be stable. Sooner or later, one of them decides that instead of running along with the pack they want to be better than the other two.” Hamlin's prediction is that the three will become two “sometime in the future, 5 to 10 years from now.”

JetBlue's CEO Dave Barger agrees. “I don't think it is over,” he says. He argues that Delta has launched an aggressive expansion campaign in the Seattle market, the home turf for Alaska Airlines, A growing number of observers (including Barger) believe that Delta is trying to inflict so much pain on Alaska that the airline's shareholders will eventually succumb to the pressure and agree to a takeover.

Michael Derchin, an analyst at CRT Capital Group in Stamford, Conn., argues that not a lot of takeovers have taken place in the low-fare market other than the Southwest/AirTran combination and “there is a possibility that segment could consolidate at some point. Spirit, Frontier, potentially JetBlue, Virgin America, that is the grouping of carriers.” On the other hand, he believes that “most of the consolidation, certainly the meaningful amount, is done now. American-USAir is the final big piece of the equation.”

There is also a debate about how significant the AMR/US Airways merger actually is. Derchin describes it as a “watershed event.” He argues that “the industry has gone through a lot of pain, and a lot of value has been destroyed along the way. We are now at a point where the airline stakeholders, including management, employees, shareholders, creditors, everybody is going to reap the benefits of this going forward.” In his opinion, “passengers will benefit too, when you have more profitable airlines. Airlines that are going bankrupt are not going to spend money on passenger services, they are not going to be upgrading their fleets or keeping up with the ones in Asia and Europe.”

Michael E. Levine, a former airline executive now at the New York University School of Law, could not disagree more. He argues that the initial DOJ complaint “correctly identified the merger as combining two firms with incentives different from United's and Delta's into one, that could participate in a tight three-firm oligopoly whose behavior was enforced tacitly by parallel incentives and mechanisms for retaliation. It identified problems of concentration at several airports, but correctly pointed out that even relieving some of that would not eliminate the merger's negative impact on competition.”

But, he continues, “after a concerted political campaign by the airlines, unions, hub cities and Wall Street, all of whom hoped to share in the monopoly profits the merger will create, the Department of Justice threw in the towel and surrendered, trumpeting divestitures that have already been identified by the merger parties and Wall Street as not material.” Levine also argues that the merger not only creates benefits for the big three, but also for low-cost carriers, and not the public. “These divestitures will have the effect of strengthening the stability of the pricing umbrella that protects the “fellow travelers”—Southwest, JetBlue and others—and will bind them to the oligopoly by making it more predictable and disciplined. This will limit the oligopolists' response to their pricing as long as it remains “responsibly” close to the oligopoly level, making it more profitable for these LCCs to coordinate with the oligopoly than to compete aggressively with it.”

George Hamlin has yet another view. “I have not been a big fan of consolidation. I know why the carriers are doing it,” he says. “My problem is, we are now going to have six legacies reduced to three, and in theory this will give consumers good access to low fares, but these are the high-cost carriers, so there's a bit of a disconnect there.” Also, “the economic philosophy of creative destruction says you have to clear out the underbrush and the deadwood from time to time for an ecosystem to regenerate itself. If all you keep doing is putting carriers together in their entirety, that's not optimal from the standpoint of economics.”

Following the settlement with the Justice Department, AMR Corp. and US Airways are now likely just weeks from finalizing their proposed merger that will create the world's biggest airline, moving ahead of Delta. The agreement calls for a surprisingly limited divestiture of slots at Washington Reagan National Airport and New York LaGuardia Airport, as well as gates at Boston Logan International, Chicago O'Hare International, Dallas Love Field , Los Angeles International and Miami International airports.

The surprise deal came three months after DOJ and six state attorneys general filed a court motion to stop the merger, based on claims it would restrict domestic competition. That trial was due to start Nov. 25, but has now been superseded by the settlement.

The merger now awaits the approval of this divestiture agreement by AMR's bankruptcy judge, which is expected in the coming weeks. AMR has asked for an expedited hearing to discuss the settlement; that has been scheduled for late November. However, the accord must also be approved by a U.S. district court in Washington. If both courts grant approval, the merger is likely to be concluded by mid-December.

Southwest and JetBlue are the initial beneficiaries of the agreement, which Justice promotes as “guaranteeing a bigger foothold for low-cost carriers at key U.S. airports.” Under the deal, JetBlue will take ownership of the 16 slots it currently leases from AMR at Washington National, while Southwest obtains the 10 slots its leases from AMR at LaGuardia.

The new American also must divest an additional 122 slots, including another 88 at National (where it will still control 57% of the total) and 34 at LaGuardia, which will be bundled and offered for sale at a time not yet disclosed by the DOJ. “Preference will be given to airlines at each airport that do not currently operate a large share of slots or gates,” the DOJ notes, adding that other low-cost carriers will be preferred should JetBlue or Southwest not take the slots assigned to them.

But the low-cost airlines will face competition from Delta, which just minutes after the deal was announced that it “welcomes the settlement agreement, and looks forward to the opportunity to acquire slots that will be divested under the agreement, particularly at Washington Reagan National Airport.”