Notes: I am leaving out redundant passages, which often occur in congressional hearings. Unless something is in quotation marks, it is a paraphrase of what a speaker is saying. Editorial comments are so noted.
The antitrust task force of the House Judiciary Committee is having a hearing to assess airline competition and the proposed merger between Delta and Northwest. Representative John Conyers (D-Mich.) is presiding. His opening remarks are meant to put the discussion in context. Claims to have an open mind. “We’ve had a recent history of widespread deregulation. . . . [Since deregulation,] We’ve gone from a highly competitive structure to an oligopoly.” Lists the typical litany of airline woes. “Culture where business executives have opted frequently to, resorting to bankruptcy to avoid their labor obligations” while enriching themselves. “So we live in a time when organized labor and the idea of collective bargaining are faced with some pretty stiff barriers to organization . . . aided and abetted by an administration that usually sides with business on major issues.” Mentions income inequality, lack of health insurance, poor retirees. [What does this have to do with airline competition? -ed.]
Conyers says that the antitrust division at the Justice Department approves mergers “right and left,” claims it has not blocked or modified any merger in the last seven years. “All I’m suggesting is we need to consider where this merger will take us. I’m afraid that if [it] is approved, it will result in a cascade of other mergers — United-Continental, American-US Airways. . . . If the merger is rejected, we could end up with more airlines in bankruptcy, negating more union contracts.”
Questions to be addressed: Is there a rush to process this merger? What guarantees can we give NWA pilots that they will not be disadvantaged by merger? How will merger affect hub communities, small communities, and the flying public.
Now we get to Steve Chabot‘s (R-Ohio) opening remarks. He praises Delta’s contribution to the Cincinnati-area economy and recites the litany of financial challenges to the airline industry. “Free market principles tell us that competition is what makes markets thrive.” (He adds that Cincinnati has the highest fares in the country. [Lack of competition -ed.].) Wants to talk about “fair pricing” policies.
Now Lamar Smith (R-Texas). Delta-Northwest would be one of the world’s largest airlines but would not dominate aviation. Gets the distinction between city pairs and nonstop city pairs wrong. (More on this later.) Steve Cohen (D-Tenn.), my old congressman, says that his main concern is the NWA hub in Memphis. “We lost our free throws; we don’t want to lose our hubs.” Jim Sensenbrenner (R-Wisc.) expresses his concern over NWA’s stake in Midwest Airlines, his popular hometown carrier.
Conyers introduces Northwest CEO Douglas Steenland. [Is it just me or does he look like Dr. Z? -ed.] Then John Lewis (D-Ga.), a merger fan, introduces Delta’s Richard Anderson.
Steenland begins. “This merger will not reduce competition. . . . Industry is at crossroads.” Recites the usual litany of airline business woes: competition from discounters, well-funded foreign airlines, high oil prices. Standalone airline won’t succeed in this environment. “The other choice is to merge with Delta.” Expanded network, financially resilient. “No hubs will be closed.” International routes are complementary. US DOT granted antitrust immunity to NWA and Delta on transatlantic routes. [Was it DOT or DOJ? -ed.] “The most important fact regarding competition . . . is that we serve 800 nonstop routes together . . . and we overlap on only 12.”
Domestic airline industry changed a lot in past decade — rise of LCCs. Past perspective: without mergers of Southern and North Central to become Republic and Republic with Northwest Orient to become NWA, none of those carriers would have survived.
Anderson begins his talk. “This really creates the first U.S. global airline. . . . We need to be in a position to compete against global foreign flag carriers.” Foreign carriers are consolidated. Asks for freedom to do what’s best for Delta-Northwest employees, passengers, and shareholders. Merger “gives us the ability to compete and win” on global scale. [This is novel: Congress is talking about domestic competition; Anderson and Steenland are thinking about the world scale. Totally different outlooks. -ed.]
No layoffs because this is “end to end” merger. Help employees enjoy “pay progression toward industry standards.” Airline will have cost structure “to make investments for customers.”
Conyers: American Airlines and TWA’s merger was not supposed to see hub closures? How do you answer that? [St. Louis didn’t lose a hub; it was just downsized -ed.] What about no furloughs? How do you answer these questions.
Anderson: TWA had historically been international only. It had been through bankruptcy three times since deregulation. Its St. Louis hub was not viable, unlike all of Delta-Northwest’s hubs. “All of these hubs are economically viable hubs.”
Steenland: Historically, mergers happen to airlines in financial distress. We’ve been through restructuring and have good balance sheets. But we’re in “uncharted waters” with the rising cost of fuel. Because of complementary structure, employees can be assured of their jobs. There might be some reductions with redundant administrative/executive staff. [Steenland may be among them -ed.]
Chabot: What’s going to happen with customer service?
Anderson touts some accolades from DOT, JD Power, etc., for Delta and NWA. He blames air traffic control for delays — “number one issue.”
Chabot: Would combined Delta-Northwest have more market power in buying fuel?
Chabot: Will the merger help my constituents avoid having to drive to Dayton or Indianapolis? What’s going to happen to Comair (Delta’s Cincinnati-based regional subsidiary)?
Anderson: There really won’t be any change. In usual antitrust analysis, you look for overlap, but there’s so little overlap with Delta and Northwest. Cincinnati has strong business traffic, and that’s why fares are higher there. He reminds Congress of the dramatic drop in real values of fares (30 percent) since deregulation.
Cohen: How important is FedEx’s presence in Memphis in keeping the NWA hub there?
Steenland: Very important; FedEx is a top customer. They share costs at Memphis International Airport, making MEM a financially competitive hub.
Cohen: Will Memphis get more international service?
Anderson: I can’t make that commitment.
Ric Keller (R-Fla.): Tough time for airlines, but your approval ratings are still higher than Congress’s. [laughter] What will this merger mean for Orlando?
Steenland and Anderson: Nothing that wouldn’t happen without the merger.
Keller: Impact of merger/non-merger on ticket prices, consumer options, job opportunities.
Anderson: Ticket prices under merger will still be set by market forces. Route options dramatically increased.
Steenland: Merger will make more international service possible throughout network.
Betty Sutton (D-Ohio): Only management will be laid off due to redundancies? What about labor protection?
Anderson: Only managers, and on labor, we’re working with all parties.
Sutton: “When you say that ‘we have committed,’ who have you committed to?”
Anderson: To all employees of both companies.
Sutton: What is the commitment?
Anderson: Mentions Allegheny-Mohawk labor protection provisions for merging seniority lists. Mentions McCaskill-Bond. Also, we wrote it into the merger agreement.
Sutton: Why is Delta is heading off organizing of flight attendants? [Wouldn’t you? -ed.]
Anderson: We would never engage in disruption of union organizing process. Democratic process.
Sutton: Are you neutral in the decision?
Anderson: [evasive] [evasive] [evasive]
Lamar Smith: I’m usually suspicious about mergers, but I see arguments in this one’s favor.
I’m incredulous that only “executives” will lose their jobs? [They earlier said “managers” -ed.]
Anderson: It’s headquarters functions that will be consolidated.
Smith: Estimate of total job losses.
Steenland: “We haven’t done that level of granular analysis yet.”
Anderson: “Under a thousand.”
Sheila Jackson Lee (D-Texas): “What is your commitment to helping us push a passenger’s bill of rights?”
Steenland: No objection to these sorts of requirements; we want to serve our customers well. [You see, it’s the job the airlines’ lobbyists to oppose the PBOR -ed.]
Lee: How would a moratorium on aviation/jet fuel taxes help you merge? [Wait till the guys at Common Tragedies hear this! -ed.]
Anderson: We would welcome a moratorium in fuel taxes. [Duh -ed.]
Lee: PBOR should be a “twin” to any merger.
Chris Cannon (R-Utah): Anderson’s predecessor Gerald Grinstein opposed US Airways merger. Why’s this different?
Anderson: That was a hostile takeover attempt. This is a “merger by agreement.” Also, it was a “merger of subtraction, not a merger of addition.” Would have caused lots of layoffs and reductions.
Cannon: We might go from six major carriers to three. “What’s going to happen to the market on the Internet” as a result of airline consolidation?
Darrell Issa (R-Calif.): “Deregulation has not been as logical in its selection of prices.” How will we see three to five carriers in every market?
Steenland: NWA serves San Diego (Issa’s hometown) through hubs — gives consumers great arrays of options. [It’s flawed thinking to neglect one-stop flights, but I suppose congressmen are so accustomed to nonstops they need not think about the full picture -ed.]
Issa: Would merger analysis be different if we were looking at a less healthy balance sheet? [uninteresting back and forth here]
Anderson: Yes, we’re financially healthier now.
Conyers closes the first panel. I need to work on something else, so this closes the liveblog, but I’m sure the second panel will be interesting.