After the Department of Justice’s filing yesterday of its bombshell lawsuit to block the US Airways-American Airlines merger, the focus shifts to a Manhattan courtroom tomorrow where a hearing is still scheduled for 10 a.m. to consider confirmation of AMR Corp.’s bankruptcy plan.

Judge Sean Lane, as of this writing, at least, is slated to weigh giving final approval to the Debtors Second Amended Joint Chapter 11 plan, and to hear a bunch of objections from entities as diverse as former TWA pilots, and the U.S. Trustee, who believes AMR CEO Tom Horton’s proposed $20 million severance is way over the top and inconsistent with bankruptcy law.

Horton’s severance, though, may be a moot issue for awhile.

With the whole situation being very fluid, what’s next regarding the merger process and prospects?

Bankruptcy Proceedings

  • The contentious US Airways-American Airlines merger is central to American Airlines’ reorganization, and the closing of the merger and AMR Corp.’s exit from bankruptcy was supposed to happen simultaneously, so it’s anyone’s guess how the proceedings will play out tomorrow, and in coming weeks and months.

If the merger is eventually cancelled, you can expect it to take an extended period for American to emerge from bankruptcy as the entire reorganization plan would have to be rewritten.

The Airline Integration Process 

  • Call it bluster, public relations or prudence, but US Airways CEO Doug Parker, who was to lead the new American, conducted a conference call yesterday with the key figures in the so-called Integration Management Office, telling them to proceed with their work. Parker characterized the lawsuit as a bump in the road and expressed confidence that the merger will come to fruition.

Parker believes the merger will still close in 2013, a few months behind schedule.

The Lawsuit and Negotiations

  • Judge Colleen Kollar-Kotelly has been assigned to handle the civil lawsuit by the DOJ and state attorneys general. Although some observers believe that DOJ is resolved to block the merger, you can expect that there will be plenty of negotiations, although the talks obviously didn’t lead to an agreement that was palatable to regulators.

Giving away a few slots at DCA will obviously not be enough to resolve DOJ’s anti-competition concerns.

Lobbying and Bolstering Support 

  • Expect American Airlines and US Airways to make a gargantuan effort to bolster support in Congress, in the media, and among key influencers to generate support for the merger as the last and best hope to save the U.S. airline industry. Industry insiders, those who love checked bag fees as a way to stem airline red ink, have been rallying against the DOJ litigation.

And, along those lines, USA Today issued an editorial today, arguing the merger must be approved.

Frenemies

  • Frenemies of the would-be merger partners, namely Delta and United, are outspoken advocates of U.S. airline industry consolidation as a way of “right-sizing” the sector, but they probably aren’t inconsolable about the prospects of competing against a weaker American and US Airways.

Other Dance Partners?

  • What if the — until yesterday — unthinkable happens and the merger is blocked? US Airways could survive as a standalone airline, although its global network issues wouldn’t be resolved in isolation, says airline consultant Scott Hamilton of Leeham Co. “I have far less confidence in American Airlines,” Hamilton says, adding that the same management would be in place that drove American into bankruptcy. American would argue, on the other hand, that there has been a raft of management changes.

Either US Airways or American could look for a new merger partner, such as JetBlue or Alaska Airlines, which might fill in some West Coast gaps, but these sorts of tie-ups wouldn’t address the larger, global-network issues for both airlines, Hamilton says.

Hamilton’s in the camp that’s arguing that the merger should, and will, prevail.

Says Hamilton: “I think this is a form of legal blackmail. DOJ didn’t get what they wanted in negotiations, and they sued to block it.”

Photo Credit: U.S. Airways CEO Doug Parker, when he announced the merger with American February 14, thought everything was in hand, and that the deal would close in the third quarter. Now the whole deal is in question. Mike Stone / Reuters