The U.S. Department of Justice’s surprise suit to block the proposed merger of American Airlines and US Airways stirs memories of another “line in the sand” the government drew 15 years ago.
In 1998, Lockheed Martin struck a deal to acquire Northrop Grumman for $11.6 billion ($16.6 billion in current dollars). It was the latest in a string of mega-mergers that had been encouraged by the Pentagon, which was seeking to consolidate its supplier base during a post-Cold War budget decline. Boeing had already acquired McDonnell Douglas, Lockheed and Martin Marietta had merged and then picked up Loral’s defense electronics business, Raytheon had scooped up Hughes Aircraft. And as far as the U.S. government was concerned, that was enough.
As this Aviation Week article detailed, the Justice Department’s position was backed by the Pentagon, which was concerned the merger of its largest and third-largest suppliers would create “unprecedented anti-competitive concerns.” In the face of such opposition, the two companies ultimately abandoned the merger.
Concerns have been expressed that US Airways may not be viable as a stand-alone airline in the long run if it cannot merger with American. Similar worries were expressed about Northrop Grumman in 1998. But Northrop has done just fine, in part due to its 2002 mega-merger with TRW, the last big deal of the defense mega-merger era. It will be interesting to see how US Airways fares if the Justice Department prevails in its current case.