Saturday, April 19, 2003

DHL deal faces regulation maze

By James Pilcher
The Cincinnati Enquirer

Before DHL Worldwide Express' proposed $1.6 billion purchase of the ground assets of Airborne Express can go through, there are a lot of regulatory hurdles to clear.

And there already have been attempts to make those hurdles higher. Sen. Ted Stevens, R-Alaska, chairman of the Senate Appropriations Committee, inserted a last-minute provision in the supplemental war appropriations bill signed this week by President Bush that directly affects DHL. Some say it could affect the Airborne deal.

The amendment bans any military contracts to an airline that derives more than 50 percent of its revenue from foreign sources, although military officials are given leeway if there are no other options available. It also requires the Department of Transportation to appoint an administrative law judge to review the ownership of locally based DHL Airways.

That airline carries freight domestically for DHL Worldwide Express, which operates its lone U.S. hub at the Cincinnati/Northern Kentucky International Airport.

Its minority ownership of DHL Airways already has been the subject of at least two regulatory reviews, done over the last three years at the request of U.S. shipping giants United Parcel Service and Federal Express.

Those informal reviews found no violations of the law that foreign interests own no more than 25 percent of a U.S. airline's voting stock, and no more than 50 percent of equity in the airline. Also, the president and two-thirds of the board need to be U.S. citizens and the airline must be "effectively controlled" by U.S. citizens.

DHL is based in Brussels, Belgium, and is a subsidiary of Deutsche Post, the German mail service.

A previous version of the Stevens amendment restricted any U.S. airline from operating commercially under the same revenue standards put in place for the military.

Transportation Department officials would not comment directly on the new law, but late Thursday the department said it would hold a hearing as required and instructed the judge to make a final recommendation by Sept. 2.

Transportation Secretary Norman Mineta also wrote a letter to Stevens soon after the first version of the amendment was inserted, saying that not only was the Bush administration against the restrictions on carrying military cargo, but that changing the current ownership restrictions "could have serious, unintended consequences."

Airborne chairman and chief executive officer Carl Donaway, who will lead the company created by the proposed merger, said that the new law should not affect the deal, since Airborne's airline ABX Inc., will be spun off into a separate publicly-traded company.

"We ask if you want to go after one company, is this the best way to do it, with a last-minute insertion?" Donaway said. "By rifleshooting one company, you could open a whole box of unintended consequences."

Still, there are some, including officials at politically-powerful UPS and Federal Express, who would like to see the administrative judge also look at the new deal while the DHL Airways case is reviewed. They cite Transportation Department Inspector General Kenneth Mead's recent review of the DHL Airways issue. Mead issued a letter in early March regarding the DHL case that raised questions about the review process. They say that the "effective control" clause is key, since DHL Airways derives more than 90 percent of its revenue from shipments by foreign-owned DHL.

"We would be here anyway regardless of the ABX issue or the Airborne issue, because we feel we're going up against a foreign state-controlled company, and this is a larger issue than just this deal," said UPS spokesman David Bolger. "But the new ABX company will have more than 90 percent of its revenue controlled by DHL.

"We feel that it was Congress' intent that the Department of Defense standards should apply to all facets of the business."

Donaway accused both UPS and FedEx of pulling political strings to "protect their duopoly." He said the timing of Stevens' resolution was suspect, coming less than two weeks after the proposed merger was announced. He also said others in Congress do not agree that applying the standards to the deal was the intent of the resolution.


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