Airline mergers can't afford delays
Washington (AP) - While talk of a combined Delta-Northwest and other airline mergers seems to be in a holding pattern, further delays could jeopardize carriers' chances of getting regulatory clearance under the business-friendly Bush administration.
Antitrust experts say any such combination will take several months to gain Justice Department approval, and that a decision likely would be needed before Election Day or the airlines will have to roll the dice with whomever follows George W. Bush into the White House. "The Bush administration has rarely met a merger it didn't like," said Darren Bush, an associate professor at the University of Houston Law Center who worked in the Justice Department's antitrust division from 1998 to 2001. But the airlines "have to get it done by the end of April if they have any hope of getting it (approved) under the Bush administration," he said.
The carriers are convinced the Bush administration is more supportive of their "business efficiencies argument" than the "constituency argument" that may play better with a Democrat or John McCain in the White House, said Michael Waxman, a professor at Marquette University Law School in Milwaukee. Since talks began a few months ago, lawmakers have railed against the proposed combination of Northwest Airlines Corp. and Delta Air Lines Inc., seeing it as competition-killer and ticket price-hiker. Many in Congress have promised hearings if any mergers are announced, but antitrust review responsibility ultimately falls to the Justice Department.
A spokeswoman for the Justice Department's antitrust division would not comment on how long a review could take. Agency officials previously have said airline merger reviews focus on ensuring that competition is not lessened in any market by examining city pairs where both carriers provide service, and likely will in the future, to gauge how market share will be affected. Andrew Steinberg, who until mid-January was assistant secretary for aviation and international affairs at the Transportation Department, said a deal could be approved "relatively quickly" -- in a matter of months -- if the two sides were well prepared and willing to compromise. That could leave the companies some wiggle room, but not much.
"By the summer, they're running out of time," he said.
Antitrust concerns have grounded potential deals before. In July 2001, more than a year after it was proposed, an attempt to merge UAL Corp.'s United Airlines and US Airways fell apart amid concerns that the combined carrier would control too much of the Washington, D.C. market and dominate several other key routes. But in the case of Eagan, Minn.-based Northwest and Atlanta-based Delta, there is little overlap in most markets. And that, say observers, makes it more like the America West and US Air combo -- which won Bush administration approval in June 2005, a month after it was proposed." The ones that get through quickly are end-to-end mergers," Steinberg said.
Fundamental changes in the airline industry may also smooth the regulatory road for Delta and Northwest. Low-cost carriers are gaining market share at the same time that record-high oil prices are threatening to wipe out slim profit margins. Many on Wall Street are pushing for consolidation as a way for the industry to shed additional domestic capacity and shore up its pricing power. Fewer seats in the system means higher ticket prices.
But the Delta-Northwest deal seems to be taking its cue from so many tarmac-stuck flights: going nowhere soon. Last week, Delta's pilots union rejected going into arbitration with its counterpart at Northwest to break a deadlock over the integration of seniority lists. Delta has said no seniority protection means no deal. If the two can work out their differences, the deal still could get rebuffed given its precedent-setting potential.
Industry observers see a Delta-Northwest deal as starting a chain reaction that would knock out at least half of the six traditional carriers. The significance of the "tectonic shift" to the nation's air travel system won't be something regulators will rush through, said airline consultant Robert Mann." These aren't small deals," he said." There's no putting the genie back in the bottle after it's out."
The Justice Department may ask the merged airlines to give up some gate space at certain airports they both serve or where one has a particularly large presence as a condition for approval, said Waxman. But by the time Justice turns it back over to the carriers to divvy up gates, there may be a new and less merger friendly passenger on Air Force One.