Northwest, Delta begin the task of gaining approval

Merger partners?
For about four years, Delta and Northwest have had a partnership in which they sell seats on each other's planes and integrate their frequent flier programs. But experts doubt such business ties between the two companies make a merger more likely.
Photo courtesy of Michael Carter

Northwest and Delta airlines don't see much risk the feds would nix or block their merger. But of course, they want this deal to go forward. Their vision may be selective.

But Northwest CEO Doug Steenland said the facts show the deal won't harm consumers by giving the combined airline a worrisome degree of power over airfare pricing and routes. He said there are only a dozen nonstop routes (city pairs market in airline speak) on which Northwest and Delta compete.

Northwest CEO Doug Steenland
Doug Steenland, president and CEO of Northwest Airlines, answers a question during a press conference Tuesday discussing the acquisition of Northwest by Delta Air Lines.
Chris Hondros/Getty Images

"The two airlines serve approximately 1,000 city pair markets. And out of that 1,000, there are only twelve where we overlap," said Steenland. "And of those twelve, eight have two or more competitors on them, which is clearly a definition of a competitive market. So, we're basically talking four markets out of 1,000 where there may be some issue of competition."

Indeed, the two airlines' domestic networks fit together nicely geographically. Delta is strong in the southeastern and eastern parts of the country, and Northwest is a powerhouse in the Midwest.

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With little overlap of their networks, aviation consultant Darryl Jenkins expects it's a pretty good bet Delta and Northwest will win Justice Department approval of their merger.

"I think this is going to breeze through the Department of Justice," Jenkins said. "Congress always throws a tizzy-fit over anything that happens. But it's the Department of Justice that makes the final decision. And I think for them this will be a very, very easy decision."

Key measures for Northwest and Delta
Combined, Northwest and Delta would be the biggest U.S. airline by several measures, including passengers and revenue.
MPR Graphic/Martin Moylan

Confident pronouncements like that have been common.

Even so, it's been widely reported that the companies want a review from the Bush Justice department, which might be more favorable than the next administration, especially if it's a Democratic administration.

But former U.S. Secretary of Transportation Jim Burnley said presidential influence won't save a merger that seriously impedes competition. And it won't kill a deal that merits approval.

"It matters on close calls. The core analysis would be the same regardless of administration. The antitrust division is populated with career lawyers and economists and they will do the heavy lifting on this," Burnley said. "But if it appears to be a close call after they finish their analysis, then they have to go to the assistant attorney general, who is a political appointee, and ultimately, the attorney general, who is obviously a political appointee."

Northwest employees in Minnesota
Northwest has cut some 9,000 jobs in Minnesota since 2000. But the airline still employs nearly 12,000 Minnesotans.
MPR Graphic/Martin Moylan

Burnley isn't sure whether the Northwest-Delta merger would be a close call or not.

He expects the Justice Department will look beyond competition issues, such as market share and pricing power, and consider the increasingly tough world in which airlines operate: Oil above $100 a barrel; stiffer competition from foreign airlines that have already combined to muscle up.

Consultant Andrew Steinberg agrees. Steinberg is a former chief counsel for the Federal Aviation Administration.

"You got to look at the fundamental economics of an industry as part of your deliberations. Because if you don't, then your deliberations are not well-informed. They will certainly will be looking at an industry where the fundamentals have been shifting in a very negative way over the last year," Steinberg said.


Steinberg agrees the merger shouldn't be deemed to be a slamdunk. But he does think it will win approval. "It's a little hard to tell, because you don't know what the evidence is going to show and these actually turn into investigations into what the parties intend to accomplish But on the face of things, I would think this would be approved after a thorough investigation," Steinberg said.

Northwest and Delta aren't ignoring the potential need to push some political buttons to get their deal approved.

They've created a Web site that touts the benefits of the merger And the airlines are asking merger fans to convey their support to Attorney General Michael Mukasey via their elected representatives.