<B>CO-NW Renew Thru 2025</B>
By Jay Campbell
At first glance, last week's announcement of Continental and Northwest Airlines' deal to settle the suit brought against them by the U.S. Department of Justice would seem to bode badly for United Airlines and US Airways in their planned merger.
Justice would be hard-pressed to rationalize attacking a Continental-Northwest merger and not United-US Airways, when United alone is bigger than Continental and Northwest together.
But the results of last week's presidential election could change a lot with regard to federal antitrust enforcement. The final result before press time appeared to be a Bush victory, in which case it is important to note that Republican-led administrations traditionally have a laissez-faire approach to airline consolidation.
Bush likely would reverse Justice's more aggressive antitrust stance under the Clinton Administration, making less of a long shot out of United-US Airways.
But that merger could be too much even for the Republicans to handle, and the Bush Administration certainly would take into account the massive pilots' union that such a merger would create. Furthermore, some Republican leaders in Congress, such as Arizona Senator John McCain, are outspoken opponents of the United-US Airways deal.
"Typically, the Democrats are more vigilant on antitrust and are pro-union," said Kevin Mitchell, chairman of the Business Travel Coalition in Lafayette Hill, Penn. "You can flip those for the Republicans, but even if a Bush Administration went in with a jaundiced view of the way the Clinton Administration has interpreted antitrust law, that's canceled out as the Republicans saw the stranglehold the United pilots had this summer."
Elsewhere in the airline industry last week, consolidation activity went in both directions as TWA received a second, more lucrative buyout bid from Global Airlines, which is not an airline. Global said TWA, which did not comment, has until Nov. 12 to respond.
Meanwhile, Virgin Atlantic shelved plans to take a stake in Air India, in which Air France and Delta reportedly now are interested, and British Airways revealed it would be selling its Go low-cost unit.
Continental and Northwest reached an agreement for Northwest to sell back to Continental most of the stock it owned following the investment announced in 1998 that gave Northwest voting control over Continental (BTN, Feb. 23, 1998).
But if DOJ and the Court approve--and Justice already has expressed its support--Northwest still would own some of Continental and would have the right to veto any attempted takeover of it. Justice is happy it has blocked an all-out merger, which could have happened by 2008 under the two carriers' original deal.
As part of their arrangements, the two carriers' alliance would be extended to 2025. It remains to be seen whether DOJ will make any ruling on their signing of joint corporate agreements. Sources thought it unlikely, but DOJ has made specific reference to corporate volume agreements in prior antitrust-related decisions, including its approval of immunity for the defunct Delta-Sabena-Swissair partnership.
According to Northwest vice president of sales and customer relations Faye Beauchine, there is no indication that the latest agreements would affect joint corporate agreements. "There are agreements in progress and it's business as usual," she said last week.
Continental and Northwest expect the business transactions to close approximately two months after the parties sign definitive agreements, which they anticipate this week. "The issues that bring Northwest and Continental together are far stronger and more compelling than those that divided us on this issue," said John Dasburg, Northwest president and CEO, in a press statement.
U.S. District Court Judge Denise Page Hood granted the carriers a delay in the court proceeding to allow them to conclude definitive agreements, which will require the approval of the boards of both airlines. If necessary, the trial would restart Nov. 14.