US government will allow the merger of US Airways Group and American Airlines, creating the world's largest airline, after the companies agreed to give smaller rivals more slots at key airports in the country.

The US Department of Justice filed a lawsuit against the companies in August, claiming the $11bn (£6.9bn, €8.2bn) merger would hinder competition and result in higher air fares. Six US states had joined the lawsuit, as they feared that the merger would lead to loss of flights and jobs at their airports.

Meanwhile, the airlines argued the merger would increase competition by rivalling big players such as United Airlines and Delta Air Lines, which enlarged their operations through recent mergers.

The airlines will have to give up slots, gates and ground facilities to low-cost carriers at major US airports including those in New York and Washington in order to ensure healthy competition.

The companies disclosed their merger plan in February, creating a new company with 6,700 daily flights and annual revenue of roughly $40bn. The combination would create the world's biggest airline as measured by passenger traffic.

AMR, the parent of American Airlines, had filed for bankruptcy protection in November 2011. The potential deal would provide AMR creditors with 72% of the ownership in the new company and the rest to shareholders of the US Airways.

Better Competition

Department of Justice officials said the settlement would ensure more competition on non-stop and connecting routes throughout the country.

"This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key US airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country," Attorney General Eric Holder said in a statement.

"The department's ultimate goal has remained steadfast throughout this process - to ensure vigorous competition in airline travel. This is vital to millions of consumers who will benefit both from more competitive prices and enhanced travel options."

The deal now requires the approval of a federal judge in Washington before the planned merger can move forward. The companies intend to complete the merger in December.