Wednesday, October 29, 2008

Delta/Northwest Merger Gains Unconditional Antitrust Approval from Justice Department

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The proposed merger of Delta Air Lines Inc. and Northwest Airlines Corporation will not be challenged by the Department of Justice Antitrust Division. The Justice Department concluded after a six-month investigation that the proposed transaction is not likely to substantially lessen competition.

In an October 29 statement, the Justice Department said that the combination of the nation’s third and fifth largest airlines is “likely to produce substantial and credible efficiencies that will benefit U.S. consumers.”

The Justice Department offered few specific reasons for its unconditional approval of the transaction. It did, however, point out that the carriers “currently compete with a number of other legacy and low cost airlines in the provision of scheduled air passenger service on the vast majority of nonstop and connecting routes where they compete with each other.”

The statement also noted that “the merger likely will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers.”

“Premier Global Airline”

In April 2008, Delta and Northwest announced their plans to create America’s “premier global airline.” The combined company will operate under the Delta name and be headquartered in Atlanta. Stockholders of both companies overwhelmingly approved the pending merger back in September.
According to the Justice Department, Delta and its domestic regional affiliates offer service to more than 300 destinations in 58 countries, while Minneapolis-based Northwest serves 239 destinations in 21 countries in North America, Asia, and Europe.

Department of Justice Authority

Since deregulation of the airline industry in the late 1980s, the Justice Department has been responsible for reviewing the competitive aspects of airline mergers. The Department of Transportation still has the authority to consider the impact of the transaction on the public interest.

Congressional Response to Transaction

Congressional lawmakers had called on the Justice Department to take a close look at the merger. Both companies’ CEOs testified before Congress and cited the unprecedented rise in fuel costs and increased international competition as key factors behind their proposed merger.

In April, Delta CEO Richard H. Anderson told the House Judiciary Committee's antitrust task force that "oil is a game-changer.” Northwest CEO Douglas M. Steenland told lawmakers that a merged carrier would maintain all of Delta and Northwest's hubs and serve more domestic and international destinations than any other carrier, while also serving 140 small communities in the United States.

In June, Senator Herb Kohl (Wisconsin) sent a letter to Thomas Barnett, Assistant Attorney General in charge of the Antitrust Division, urging the Justice Department to “evaluate critically the airlines' claims to merger efficiencies” and to “consider the proposed Delta/Northwest merger in light of the many predictions of further consolidation in the airline industry.”

European Commission Approval

U.S. antitrust approval follows the approval of the European competition authority. The European Commission (EC) announced in August that it had cleared the Delta/Northwest transaction after concluding that it would not significantly impede effective competition in Europe. The EC found the companies' activities to be mainly complementary. The carriers offer competing direct flight services for only three transatlantic routes. At the time, Delta flew to 32 cities in the European Union (EU), and Northwest flew to 15 EU cities.

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