Rep. Oberstar wants to ground NWA merger

While Rep. Oberstar opposes the Northwest-Delta merger, industry analysts say Congress would not get very far in blocking a transaction.
Photo courtesy of Boeing

U.S. Rep. Jim Oberstar says he invited Northwest executives to his office to discuss recent media reports saying Delta has entered into separate merger talks with both Northwest and United. Oberstar says company officials confirmed there are formal discussions underway. Neither Delta nor Northwest would comment on the matter.

Oberstar says the Northwest officials spelled out some of the reasons why the carrier could combine well with Delta. For example, Northwest has a strong Pacific route network where Delta is weak, and Delta's trans-Atlantic presence is more robust than Northwest's.

But at this point, Oberstar remains unpersuaded of the potential benefits.

"I don't think mergers are in the public's best interest, and that includes this one. You reduce competition, you reduce service to communities, typically communities lose service, and those are usually the smaller communities at the end of the spoke in the hub and spoke system."

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But airline mergers are largely the purview of the Department of Justice, rather than Congress. So the question is, how much difference would Oberstar's opposition to a merger make?

Patrick Murphy is a former top official in the US Transportation Department, and now an aviation consultant in Washington, D.C. He says since Congress does not have a formal role in approving transactions, Oberstar's position on mergers might have limited influence.

"However, in the real world of Washington, Mr. Oberstar is known as Mr. Aviation in the Congress, and the most knowledgeable Congressman about airlines, and his views are given a lot of weight, and the Congress can put indirect pressure on the executive branch and these airlines and hold hearings and make life somewhat difficult."

But Murphy thinks Congress would not get very far in blocking a transaction, especially with a republican executive branch that is widely believed to be more sympathetic to airline mergers.

That is also the view of Joel Chefitz, a Chicago-based lawyer who represented TWA on antitrust issues in its sale to American Airlines in 2001. Chefitz says that merger drew scrutiny from Congress, but it was not the only hoop to jump through.

"We had to deal with multiple Congressional hearings, as well as a Department of Justice investigation into the merger, as well as state antitrust authorities investigating the merger, as well as non-U.S. merger regimes investigating the acquisition. Congressional hearings, I would say, are the least important of them."

Chefitz thinks the Department of Justice will be persuaded of the need for airline consolidation by the rising cost of fuel and by the threat of more competition down the road. Chevitz says that competition will become especially pointed due to the Open Skies agreement, a recently negotiated treaty between the United States and the European Union.

The agreement would allow any U.S. or European airline to operate to and from any airport in the U.S. or in the EU. Chefitz worries all those new entrants into the U.S. domestic market will make things tough on U.S. airlines.

That is, in effect, the opposite view of Congressman Oberstar, who sees not a multiplication of carriers in the future but a tidal wave of consolidation. Part of his opposition to a Delta-Northwest or Delta-United merger is that he believes more mergers will follow and collapse the industry into a few mega carriers.

"The question I have from a national policy standpoint is not just this merger but ones that will follow."

Aviation Consultant Patrick Murphy thinks Oberstar's concern about multiple mergers could gain traction in an antitrust review. He says there is a theory if one merger is approved, the industry becomes more concentrated. Each subsequent merger then diminishes competition further.

"Then the second merger would be reviewed on its merits, and then the second merger would be more difficult. So in theory, you do them one by one, and it's more difficult for the third merger."

Murphy says he is not sure that is how the Justice Department would indeed proceed. It may well be the kind of concern that is prompting Northwest to get its foot in the door earlier rather than later.