Analysts Worry Delta + AMR Might Be Too Big

As Delta Airlines, US Airways and a private equity firm called TPG Group appear to be mulling bids to take over struggling American Airlines, business experts are weighing in on who might prevail, and wondering if anti-trust regulators will go along.

The Wall Street Journal Thursday reported the interest by the three prospective bidders. Delta and US Airways have declined comment, but the Atlanta Journal Constitution reports we may be seeing the end game of airline consolidation which began in the US with deregulation in 1978. Richard Gritta, a University of Portland finance professor, tells the paper about 160 airlines have failed or been absorbed in mergers since the feds relinquished direct control over routes and fares.

When Delta merged with Northwest, it became the world's largest airline. That distinction lasted until United and Continental merged. With an acquisition of American, Delta would again be number-one, and control about a third of the US market and an extensive international network. That would raise the specter of a reduction in scheduled flights on some routes, and higher prices for consumers.

Gritta tells the AJC, “I would say the concentration in this industry is getting dangerously high. If I were [antitrust regulators] I would shoot it down.”

Bob Mann, an airline consultant based in Port Washington, NY, agrees that prices could rise, but notes American will almost certainly have to be acquired by a competitor to survive. "If American were to become smaller after a bankruptcy, it certainly raises questions as to its continuing viability. It’s not competitive with Delta’s or United’s network as it stands pre-bankruptcy, let alone as a smaller carrier."

George Hamlin, a consultant based in Fairfax, VA, worries that if Delta acquired American, it might become "too big to fail." He worries the company would represent such a big piece of the overall economy that financial trouble could require a federal bailout. “From a policy standpoint, this is going to require a really hard look.”

FMI: www.aa.com/i18n/amrcorp/corporateInformation/facts/amr.jsp