Wednesday, April 16, 2008

Congress Pledges to Vigorously Scrutinize Delta/Northwest Merger Proposal

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

Congressional leaders pledged to vigorously scrutinize the proposed merger of Delta Air Lines and Northwest Airlines after the two carriers announced they plan to merge into a combined carrier worth $17.7 billion.

While Congress does not have the authority to halt a merger, it can force the Department of Transportation (DOT) and the Department of Justice (DOJ) to consider issues and evidence before making a final decision on the deal.

DOJ spokeswoman Gina Talamona said the department “is interested in examining the proposed transaction. The Antitrust Division will look at the competitive effects of the transaction and how the merger would affect consumers.”

Plans for Hearings

In an April 15 statement, Senate Antitrust Judiciary Subcommittee Chairman Herb H. Kohl (D-Wis.) said he plans to hold hearings to carefully examine the impact of the proposal, and possible further airline consolidation, on competition and consumers. While acknowledging the financial pressures on airlines, Senator Kohl said it was “vital” that consolidation does not lead to fare increases and service reductions.

Rep. James L. Oberstar (D-Minn.), Chairman of the House Transportation and Infrastructure Committee, described the merger proposal as “probably the worst development” in aviation history in the aftermath of deregulation. The merger would create a “globe-straddling mega-carrier” that would likely result in a further “cascade of mergers.” Rep. Oberstar said his committee will hold hearings on the matter, and will compile a record of factual information that will be presented to the DOJ.

“We will marshal all the forces we can within the Congress—and the communities served by existing carriers—to insist that the department does a very thorough, meticulous, workman-like analysis of this merger proposal,” Oberstar said in an April 15 release.

Route Overlap, Hub Concentration, Service Issues

A joint statement from Oberstar and House Aviation Subcommittee Chairman Jerry F. Costello (D-Ill.) urged the DOJ to focus on route overlap, hub concentration, and service to smaller communities in order to determine any anti-competitive impacts. The DOJ should also consider the potential domino effect of a merger, Oberstar and Costello said.

Meanwhile, House Judiciary Committee Chairman John Conyers (D-Mich.) announced that the committee’s Taskforce on Competition Policy and Antitrust Laws will hold a hearing on “Competition in the Airline Industry” on April 24.

Impact Beyond Costs/Benefits to Airlines

Sen. John D. Rockefeller IV (D-W. Va.), Chairman of the Senate Commerce Subcommittee on Aviation Operations, Safety and Security, called the Delta-Northwest announcement a “watershed moment for the aviation industry,” and said it is “absolutely critical that federal agencies dig down into the details of this merger before signing off on the dotted line.” At the same time, Congress has to make sure that the deal “won’t be measured solely through the costs and benefits to Delta and Northwest,” he said on April 15.

Statement by Airlines

The two carriers said their new airline, to be called Delta, will provide a stable platform for future growth in the face of significant economic pressures from rising fuel costs and intense competition. Small communities will have enhanced access to more destinations, they claimed, while passengers would enjoy greater choice and competitive fares.

In a joint statement, the carriers said that, by combining forces, they would create a global U.S. flag carrier strongly positioned to compete with foreign airlines that are continuing to increase service to the U.S.

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