US Airways Group and American Airlines will be allowed to merge to become the world's largest airline after they agreed to give low-cost competitors more access to several key US airports, including in New York and Washington.
The agreement, subject to court approval, ends a US Department of Justice lawsuit filed in August.
The US government had opposed the merger of US Airways and AMR Corp, parent of bankrupt American Airlines, on the grounds that it would hinder competition and lead to higher fares.
US Department of Justice officials termed the settlement a major boost to the competitiveness at key major airports.
Some analysts said the number of flights affected - only about 112 out of about 6,700 daily flights - indicated that the change would be incremental.
Shares of AMR soared 26% on the settlement. The merger, now expected to close in the first half of December, is central to American's effort to emerge from a two-year bankruptcy process.
The two airlines agreed to give up 52 pairs of takeoff and landing slots at Reagan National Airport, just outside Washington DC, and 17 pairs at New York's LaGuardia Airport, both busy airports with limited capacity.
The two airlines currently control about 69% of the slots at Reagan, an airport used by many members of Congress to travel to their home districts. After giving up the slots, they will have about 57%, according to analysts.
The Justice Department will select which airlines are eligible to buy slots that the airlines must sell as part of the proposed settlement, according to a source close to the deal.
The government has said the divestiture at Reagan National and LaGuardia would deliver "substantial additional benefits," specifically to Southwest Airlines and JetBlue, and that low-cost carriers would be able to acquire spots at the Washington and New York airports, as well as Boston Logan, Chicago O'Hare, Dallas Love Field, Los Angeles International and Miami International.
US Airways chief executive Doug Parker, who will lead the new combined carrier, hinted that the divestitures would mean some routes now flown by smaller aircraft would be scrapped. "We now have a constrained asset," he said.
