NWA-Delta merger seen likely to pass U.S. scrutiny

  • Article by: KEVIN DIAZ , Star Tribune
  • Updated: January 20, 2008 - 9:17 AM

U.S. Rep. Jim Oberstar of Minnesota has voiced concern about a possible deal. But in the end, he may be unable to stop it.


Rep. Jim Oberstar, D-Minn., in August

Photo: Susan Walsh, Associated Press

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WASHINGTON - If Northwest Airlines and Delta Air Lines agree to merge, the deal could be headed for turbulence in Congress but ultimately find a safe landing both among lawmakers and the Bush administration's Justice Department.

A merger faces the prospect of opposition from Rep. Jim Oberstar, D-Minn., one of the nation's most influential lawmakers on aviation. And the Justice Department, which has the authority to block mergers that reduce competition, raise fares and hurt consumers, is widely regarded as a more serious hurdle than Congress.

Oberstar, who has said he opposes the potential combination, could use the powerful House Transportation Committee, which he chairs, to attempt blocking measures. But any steps he proposes would ultimately need the sign-off of both the House and the Senate and the pro-business Bush administration.

"They can't stop it," Patrick Murphy, a Washington-based aviation consultant, said of lawmakers. "What they can do is jump up and down and call attention to things."

Oberstar, in an interview Friday, said he already has asked his committee's staff to gather data on the merger and scrutinize the two carriers' routes.

"Each day on the floor, members have been coming to me and expressing concern," he said.

But if Northwest and Delta try to merge, the capital's attention would focus more urgently on the Justice Department's antitrust division, which has let most proposed airline mergers of recent years fly by.

While some analysts say a deal would get friendlier treatment under a Republican administration, others say it matters little who's in the White House.

"Since deregulation [in 1978], Justice has never turned down a live merger -- one that was going to go through," said Michael Boyd, founder of the Boyd Group air industry consultants.

In 2001, early in the Bush administration, the Justice Department took a tough antitrust stand against a proposed United Airlines buyout of US Airways. By the time Justice weighed in, however, the two carriers were calling off the deal.

Since then, the Bush administration has let through a number of airline mergers and acquisitions: American Airlines' purchase of TWA in 2001; America West Airlines' acquisition of US Airways in 2005 and SkyWest Airlines' buyout of Atlantic Southeast Airlines in 2005.

"We look at the competitive effect of the transaction and how it would affect consumers," said Gina Talamona, a spokeswoman for Justice's antitrust division. "We just want to ensure that there's competition."

What the Justice Department never looks at, Oberstar said, is the deal's effect on the industry overall, which he fears is headed toward a wave of mergers and consolidation.

"Justice only looks at the deal at hand," he said. "They don't look at the domino effect -- the consequences. We know that when one merger or acquisition happens, other carriers, in self-defense, look for partners."

He told Cox News Service that people in Georgia and Minnesota should "be on the same page'' in opposing a Delta-Northwest combination.

Oberstar isn't the only politician raising his voice. Concerns have been raised by state delegations from Georgia, Michigan, Ohio and Tennessee, states in which Northwest and Delta maintain hub airports.

Both Minnesota Sens. Norm Coleman, a Republican, and Amy Klobuchar, a Democrat, have vowed to keep a close eye on the deal. On Friday, Klobuchar requested formal oversight hearings in the Senate Commerce Committee.

For Minnesota lawmakers and Gov. Tim Pawlenty, concerns focus on keeping Northwest's hub at Minneapolis-St. Paul International Airport, as well as its headquarters in Eagan.

Minnesota Republican Rep. John Kline, whose district includes Eagan, praised Northwest on Friday for its recent emergence from bankruptcy, a reorganization it completed with its pensions largely preserved. He added: "I am closely monitoring any merger developments and hope Northwest can continue to build on its history in Minnesota."

While parochial interests would play little part in a Justice Department review, they inevitably will be front and center in any congressional debate. Northwest, for example, operates a call center in Oberstar's hometown of Chisholm, where it is viewed as a significant Iron Range jobs program and a political favor to Oberstar.

Meanwhile, U.S. Sen. Johnny Isakson, R-Ga., has said that Delta executives are assuring him that the airline's headquarters will not leave Atlanta in any merger.

Airlines are silent on merger talks

Neither airline has publicly acknowledged merger talks, although Oberstar said he was briefed on them last week by Northwest executives in Washington, where Oberstar is sometimes called "Mr. Aviation."

Of broader political concern would be the threat of closing Northwest's Twin Cities hub, which could ripple through the entire state's economy. But most analysts discount that possibility because it would also undermine chances for winning support of the Air Line Pilots Association, which represents both Northwest and Delta pilots. Closing a hub, the union has said, could threaten some pilots' jobs. The Twin Cities hub also is seen as too profitable for a merged airline to seriously consider shrinking.

Labor peace is not important only in the political arena, but also on Wall Street. Investors in the financially brittle airline industry have little stomach for a new round of protracted battles with the industry's unions.

"The most important element is that the leadership of the unions [is] in agreement before it's proposed. That's the critical piece," said Julius Maldutis, who runs the New York consulting firm Aviation Dynamics.

Labor buy-in is particularly important to a prospective Northwest-Delta deal, he said. Unlike the situation in many of the other mergers and acquisitions of recent years, neither company is tottering on a financial precipice, and therefore likely to jettison jobs without a deal.

But Maldutis, a veteran Wall Street and political analyst, sees no insurmountable antitrust concerns to such a merger, since Northwest and Delta have their strengths in different areas: the South and East and transatlantic routes for Delta, the Midwest and Pacific routes for Northwest.

"Most likely," he said, "Justice will approve it."

Still, nobody is discounting the pain that a bruising congressional battle could inflict on a potential Northwest-Delta merger, which would form the nation's largest airline. "Congress is going to play an important role," Maldutis said.

Going a step further, Boyd said it's possible the two carriers' executives could propose a marketing alliance rather than a full-blown merger, avoiding a congressional free-for-all led by the pro-labor Oberstar. "If you don't integrate the crews, and you don't integrate maintenance, then you don't have to integrate Oberstar," he said.

Kevin Diaz • 202-408-2753

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