Thursday, February 08, 2001

Delta boss endorses moratorium

Airlines forced to merge to compete, chairman says

By Derrick DePledge
Enquirer Washington Bureau

        WASHINGTON - The chairman of Delta Air Lines said Wednesday he endorses a pause on airline mergers until the federal government can measure the impact on competition.

        The Atlanta-based carrier, which operates its second-largest hub at Cincinnati/Northern Kentucky International Airport, has been in preliminary merger talks with Continental Airlines.

        Delta's Leo Mullin told a hearing of the Senate Judiciary Committee that Delta's merger interests were in response to its competitors.

        United Airlines, the nation's largest carrier, has sought to merge with US Airways, while American Airlines wants to acquire failing Trans World Airlines and purchase gates, slots and aircraft from US Airways. American also has agreed to become a partner with United and operate half of the popular US Airways Shuttle between New York, Boston and the capital.

        The U.S. Department of Justice is investigating whether the mergers violate federal antitrust laws, which limit companies from engaging in anti-competitive business practices or unfairly dominating an industry.

        Mr. Mullin said the mergers, if approved, would give United and American about half the domestic airline market and force Delta and other carriers to make similar moves to survive.

        “I propose we pause to aim before we fire,” he said. But the government should not interfere with other mergers if it backs United and American, he said.

        Yet the comments by Mr. Mullin, which were echoed by Continental chairman Gordon Bethune, were received with skepticism by one airline industry expert.

        “The likelihood is that both sides are doing this to slow down federal approval of the other mergers,” said Aaron Gellman, director of Northwestern University's Transportation Center. “They probably won't go through with it.”

        Sen. Charles Schumer, D-N.Y., asked the Justice Department Wednesday for a nine-month moratorium so the department can study how airline mergers influence competition.

        The senator also urged the department to consider the cumulative effect of consolidation in the airline industry during the past decade. Gina Talamona, a Justice Department spokeswoman, said the department had received Mr. Schumer's request but could not comment until it was reviewed.

        Some lawmakers have expressed doubts about the mergers and potential harm to consumers if only a few carriers dominate.

        Sen. Mike DeWine, R-Ohio, chairman of the Senate antitrust subcommittee, said consumers already face higher prices at hub airports dominated by a single airline — such as Greater Cincinnati. Labor disputes, such as a potential pilot strike at Delta, also would be more problematic if the number of carriers dwindles.

        “We already have seen the serious congestion and frustrating delays that passengers face when one of the major airlines has labor difficulties,” Mr. DeWine said. “I shudder - I shudder - to think of the impact on the flying public if a merged United/US Airways should face a work stoppage.”

        Airline executives appeared before the Senate for the second time in two weeks as lawmakers attempt to understand the ramifications of proposed mergers. The Senate Commerce, Science and Transportation Committee had a hearing last week on the American-TWA deal.

        Mr. DeWine and other senators generally agree that American's acquisition of TWA would save a bankrupt company and 20,000 jobs, many of which are concentrated around the company's St. Louis headquarters. Mr. Schumer's moratorium would not apply to the TWA acquisition.

        But several lawmakers have reservations about American's interest in US Airways and a 49 percent investment in DC Air, a fledgling airline based in the capital that was originally part of the United-US Airways merger.

        Mr. Bethune said United and American basically have agreed to work together to drive out competitors and dominate the most lucrative markets. He also said the Justice Department had prevented Northwest Airlines from owning more than half of Continental's voting stock for competitive reasons.

        “The vast majority of passengers will have no choice but to suffer what United or American may want to offer,” he said.

        United and American executives defended the mergers, insisting consumers would benefit.

        James Goodwin, United chairman, testified that the deal with American to divide US Airways would enhance competition and increase choices at hub airports. Donald Carty, American's chairman, said the airline was trying to prevent United, its main rival, from dwarfing other airlines.

        Both Mr. Mullin and Mr. Bethune said under questioning that they would prefer their airlines remain intact but were ready to consider mergers if the government approves the United and American pacts.
       Staff writer James Pilcher contributed to this report.



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