The Atlanta Journal-Constitution
Published on: 02/16/08
Washington — A long-awaited merger between Delta and Northwest airlines could be announced this week, but the marriage will be far from consummated.
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Any deal would need to win the approval of the U.S. Department of Justice, which enforces antitrust law, and it must survive a political minefield. Congress and unions could apply considerable political pressure to block or shape the deal. Competitors and consumers could weigh in, too.
Delta's board is expected to meet Wednesday to consider a merger that could create the world's largest airline, with 79,000 employees in mainline operations. It would have major hubs in Atlanta, Detroit and Minneapolis and numerous routes to Asia and Europe.
The contemplated stock-swap agreement could still fall apart or be delayed. The pilot unions at both carriers are in talks that appear to be aimed at devising a playbook on how to meld the seniority lists of their 11,000 members.
The airlines hope such a side deal now between the two units of the Air Line Pilots Association would ease integration of the carriers later.
A pact with the pilots also could help mute some of the political opposition likely to be spawned by a megamerger.
Big airline mergers typically bring howls from lawmakers concerned about reduced air service for their districts. They also fire up labor leaders who oppose job cutbacks and consumer advocates who fear higher fares.
If Atlanta-based Delta and Minneapolis-based Northwest announce plans to combine, the Antitrust Division of the Justice Department would kick into action. The division would launch a review to determine whether the merger would violate laws designed to preserve industry competition.
For advice, the Justice Department would turn to the U.S. Department of Transportation, which would examine a range of public-interest factors including routes, marketing arrangements with other carriers, fairness of business practices and economic fitness.
The Transportation Department also would examine the merger's impact on international routes and the United States' trade position in the global air transportation system. In addition, it would conduct a "fitness" review of the combined airline's management condition and financial soundness.
Finally, the Transportation Department would review whether a proposed merger would protect the rights of consumers by providing them with reasonable notice and an opportunity to adjust to changes in their frequent-flyer programs.
The findings would be turned over to Justice, where officials would decide whether to launch a legal challenge to block the merger.
Investors who support mergers are urging the airlines to act quickly, fearing the next president may take a tougher stance on antitrust law.
But there is precedent for an airline review to drag out over two administrations. During the Clinton administration, a Justice Department review was launched when UAL Corp., which owns United Airlines, announced plans in May 2000 to take over US Airways.
The review was not completed until July 2001, when the Bush Justice Department concluded the acquisition "would reduce competition, raise fares, and harm consumers on airline routes throughout the United States." The carriers then called off the deal.
If Justice reviews a Delta-Northwest deal, it will hear from lawmakers.
At a recent press briefing, House Transportation Committee Chairman James Oberstar, a Democrat from Minnesota, flatly proclaimed his opposition to any attempt by Delta to merge with Northwest, headquartered in his home state.
Oberstar said his position on any major airline merger is "hell no."
Oberstar fears that one big combination would trigger an avalanche of consolidations, resulting in higher fares and less service for many communities. He has promised to hold hearings to generate as much public outcry as possible to pressure the Justice Department into blocking a Delta-Northwest deal.
Congress applied pressure last year when US Airways proposed a hostile takeover of Delta. Many lawmakers were outraged, saying it would result in reduced service and competition east of the Mississippi River, where both carriers were based.
Initially, it appeared the deal might win the blessing of the Bush administration. Transportation Department assistant secretary Andrew Steinberg told a Senate Commerce Committee: "We must allow failing firms to exit the business if market forces decide that assets should be reallocated to more efficient firms."
That statement reflected the general views of the Bush administration, which did not oppose American Airlines' acquisition of Trans World Airlines in 2001, America West Airlines' purchase of US Airways Group in 2005, SkyWest Airlines' purchase of Atlantic Southeast Airlines in 2005, or an agreement reached last year for the sale of Midwest Airlines to TPG Capital and Northwest Airlines.
But those smaller deals did not pose as much of a threat to jobs and service as a US Airways-Delta deal could have. At the Senate hearing, lawmakers not only criticized the proposed takeover, but threatened new regulations for the industry.
Those political attacks helped chill deal-making enthusiasm by Delta's creditors as the airline emerged from bankruptcy. The US Airways' bid was opposed by Delta executives and roundly criticized on Capitol Hill by Georgia Republican Sen. Johnny Isakson. The deal ultimately fell apart.
Competitors, consumer groups and unions also could stir up political pressures to try to stop or at least shape a Delta-Northwest deal. Earlier this week, Bob Fornaro, chief executive of Orlando-based AirTran, said in a speech in Washington that he would not object to airline mergers.
But, he said, he would insist antitrust officials require the transfer of gates, facilities and slots away from any large newly combined airline.
The AFL-CIO, a labor umbrella organization, recently held a meeting of its aviation union leaders to develop a strategy for responding to airline mergers.
"We will use any and all options — including deployment of legislative, political and capital strategies — to leverage the strength of working people to ensure this latest merger mania doesn't harm this industry, its employees, passengers and communities," AFL-CIO Secretary-Treasurer Richard Trumka said in a statement.
Even the unions representing Delta and Northwest pilots, who are expected to get stock in the combined company, along with executives and other employees, aren't completely onboard yet.
Union representatives are working overtime to hammer out a "conceptual" agreement on some of the thornier issues, such as seniority and pay.
And even if the pilots come to an understanding, Northwest has thousands of other employees represented by unions. And Delta's 13,000 flight attendants last week took the first steps toward unionizing.
They all are likely to want their say about any airline deal that travels a path through Washington.
— Staff writers Russell Grantham and Jim Tharpe contributed to this article.



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