The Texas attorney general’s decision to drop its challenge to the proposed merger of American Airlines and US Airways is positive step in the eyes of analysts, but the deal is far from out of the woods.

“It’s encouraging that there are discussions and that there is willingness to settle,” says Savanthi Syth, an analyst at Raymond James who covers US Airways. Other states may be willing to take the same path, for example Florida, but that still leaves the US Department of Justice’s (DOJ) challenge to the merger, she says.

Bill Baer, assistant attorney general for the antitrust division at the agency, came out firmly against the deal when the DOJ filed its challenge in district court on 13 August. “We think the right solution here is a full-stop injunction,” he said when asked about the possibility for a settlement.

“The DOJ [US Department of Justice] itself is a little different,” says Syth. “Maybe if one-by-one of the attorney generals fall off that may push the DOJ to make an agreement.”

However, getting other attorney generals to drop their opposition to the merger may be tough to achieve.

Texas attorney general Greg Abbott dropped his opposition to the deal in exchange for guarantees that the resulting airline would continue flying to 22 cities in the state and maintain its headquarters in Fort Worth for three years. However, it is still unclear why he opposed it in the beginning, though he said that he had “uncertainties” regarding these issues.

Many industry observers see the merger as a potential boon for the lone star state. Since American and US Airways’ February announcement, they have said that the resulting carrier would be based in Texas and maintain all of its current routes including a large hub at Dallas-Fort Worth International airport.

In addition, Abbott is running for governor of Texas and his support of the merger could help him sway the votes of the roughly 25,000 American and US Airways employees in the state.

“The Texas attorney general having an issue with this was the most irrational of all,” says Hunter Keay, an airline analyst at Wolfe Research, on the irrational aspects of the DOJ’s challenge. “He was essentially fighting job growth, better travel options, higher wages for middle and upper middle class workers and shareholder wealth creation.”

Discussions with other attorney generals are possible. Tom Horton, chairman and chief executive of American, said on 1 October that he would "like to think this is a template for discussions" with other attorney generals regarding dropping their suits but declined to comment on whether American or US Airways is in discussions with any other states.

Florida is likely the easiest state after Texas to bow out of the suit, says Syth. She cites American’s significant employee base in the state and large hub at Miami International airport.

The Florida attorney general’s office says that they remain part of the DOJ’s challenge.

Conversely, Virginia and Washington DC may be two of the toughest to change. Both jurisdictions are served by Ronald Reagan Washington National airport where American and US Airways are widely expected to have to give up slots in order to close their merger under either a favourable judge’s ruling or a settlement.

Most analysts see the DOJ’s concern with the airlines controlling 69% of the available slots at the airport as valid, though the number of slots they would have to divest is unknown.

Considering the carriers’ inability to provide service guarantees similar to those in Texas to either Virginia or Washington DC, an agreement with either jurisdiction would likely be difficult to uphold.

Both the attorney general’s offices in Virginia and Washington DC say that their position on the merger remains unchanged and decline to comment further.

Arizona is also maintaining a hard line against the deal. It stands to lose an airline headquarters – not to mention the associated economic benefits – under the deal as US Airways management would leave Tempe for Fort Worth.

“We remain convinced that the airline merger between US Airways and American Airlines is harmful to competition, and to Arizonans,” says Tom Horne, the Arizona attorney general, in a statement.

“Arizona will continue the fight to promote competition in order to produce more service and reasonable prices for the people of Arizona,” he adds.

The offices of the attorney generals in Michigan, Pennsylvania and Tennessee did not immediately respond to requests for comment.

The Texas deal shows that the door for concessions by the airlines is open, possibly improving the chances – if ever so slightly – of the merger closing. Keay says the probability of this is about 70%, Syth puts it at between 50% and 70% while Helane Becker, an airline analyst at Cowen Securities, says that the likelihood is 60%. None of the analysts has changed their expectations following the Texas deal.

“I definitely think there is opportunity to negotiate a settlement,” says Becker. “The focus is to do this one day at a time and not get overly aggressive.”