Market Conditions Overrule Anti-Trust Concerns

Whenever two big airlines discuss merging, two big question marks are workforce integration and government anti-trust approval. While labor unions and many democrats in Congress are clearly are not happy about industry consolidation, at least one influential congressman predicts the US federal government will approve the merger of Delta and Northwest.

Reuters reports Congressman John Mica, a Florida Republican and former chairman of the House of Representatives aviation subcommittee, told a hearing on the merger proposal the deal does not appear anti-competitive.

Democrats have argued the merger would lead to service reductions, job cuts, and more mergers which would further narrow choices for consumers. James Oberstar, a Minnesota Democrat and chairman of the House Transportation Committee, said "In short, the pending merger places at risk the consumer benefits of airline deregulation."

But Mica said it's more than likely the enormous challenges facing the industry will convince officials at the Justice and Transportation departments to approve the deal. Antitrust and industry experts have predicted the same outcome.

Representative Jerry Costello of Illinois is the current aviation subcommittee chairman. He told executives of both airlines, "Previous airline mergers have rarely produced the projected benefits and efficiencies promised. This has frequently led to reduced competition and higher fares."

To industry executives, struggling to stem massive losses, reduced competition and higher fares probably sounds like exactly what's needed, although the hearing might have been an unwise time and place to say so. In recent financial reports, Delta and Northwest reported a combined loss 10-point-5-billion dollars just in the first quarter of 2008, much of it one-time "goodwill" charges related to their brushes with bankruptcy.

Delta estimates a merger with Northwest would produce cost savings and revenue gains of at least a billion dollars a year, and result in cuts of about a thousand management and administrative positions.

Assuming Justice Department approval for the merger, that would leave the two airlines to worry about the other big question. delta has reached an agreement with its pilots for a contract covering the post-merger era which includes stock in the airline. So far, Northwest pilots are not a part of it.

FMI: www.newglobalairline.com