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How Budget Cuts are Helping the AMR Corporation (AAMRQ) – US Airways Group Inc (LCC) Merger

For the most part, federal budget cuts caused by the 2013 “sequester” have been bad for business. Airlines felt the impact in April when FAA furloughs briefly snarled U.S. air traffic, leading some travelers to avoid flying. However, the airline industry is now poised to benefit from the sequester.

Last week, a federal judge set a Nov. 25 trial date for the antitrust case that could block the proposed merger between AMR Corporation (OTCMKTS:AAMRQ)’s American Airlines and US Airways Group Inc (NYSE:LCC).

American Airlines and US Airways are looking to merge (photo courtesy of AMR)

This expedited trial date gives the two companies a big advantage over the Department of Justice, which has been struggling through a multiyear hiring freeze. The DOJ may feel pressure to settle in order to conserve resources. This could pave the way for the merger to be approved with relatively few concessions.

Long hiring freeze

The Department of Justice first implemented a hiring freeze in early 2011, after congressional deadlock forced the DOJ to hold its budget at prior-year levels . The DOJ has become increasingly short-staffed since then, unable to fill positions that open up as employees leave.

The DOJ’s budget problems were worsened by the sequester that hit most federal government agencies earlier this year. The DOJ’s share of the 2013 budget cuts amounted to $1.3 billion . Through a variety of “extraordinary measures,” the organization was able to avoid furloughs. That said, Attorney General Eric Holder stated in April that the department was likely to run out of options by the beginning of FY14 — which starts Oct. 1 — forcing employee furloughs.

Attorneys at the DOJ are thus under considerable pressure due to short-staffing, and furloughs could soon worsen this problem. To ease the staffing burden, the DOJ has gone so far as to recruit “special attorneys” for one-year unpaid positions, according to a ProPublica report.

Time to compromise?

Last week, the DOJ requested a March 3 trial date in order to have ample time to prepare its case. This came shortly after the two carriers suggested a Nov. 12 trial date . While lawyers for AMR Corporation (OTCMKTS:AAMRQ) and US Airways Group Inc (NYSE:LCC) have tried to frame the government’s proposed timeline as obstructionist, it’s far more likely that staffing issues are the problem. (Furthermore, the judge’s calendar is already filled in January and February for another trial.)

Now that the judge has scheduled the trial to begin in less than three months, DOJ lawyers will have to scramble to prepare their case. If they are forced to cut corners due to staffing constraints, AMR Corporation (OTCMKTS:AAMRQ) and US Airways Group Inc (NYSE:LCC) will gain a big advantage. .

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