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TheStreet) -- Once again, the potential for concentration at Washington Reagan National Airport is a chief concern in a
US Airways'(LCC) merger effort, and once again the airline has come up with an ingenious argument against antitrust actions.
In its 2000 effort to merge with
United(UAL - Get Report), US Airways proposed spinning off the National Airport operation to a well-connected African-American entrepreneur, Bob Johnson. That merger failed because United, put off by the high price it negotiated, lost interest and began to lobby against the deal it had made.
This year's effort to merge with
American(AAMRQ.PK), by contrast, has support from American and seems likely to succeed. On Friday, 99% of US Airways shareholders approved it at what was likely the carrier's final annual meeting. CEO Doug Parker reiterated at the meeting the carrier's argument that giving up slots at National would mean reducing service to small cities.
US Airways operates a hub at National, enabling it to serve small cities because it offers connections. Divested slots would go to carriers likely to serve bigger cities already served from National. The case seems compelling and has backing from more than 100 members of Congress who opposed divestiture in a letter.
Thirteen years ago, the case for anti-competitive dominance was far more realistic because the proposed merger would have brought together US Airways, which dominates National, with United, which dominates a second area airport, Dulles International.
Larry Nagin, who in 2000 was US Airways corporate attorney as well as the right-hand-man to CEO Stephen Wolf, had a penchant for politics. Nagin thought it would be difficult for regulators to reject spinning off the principal carrier at Washington's close-in airport to a successful minority businessman. He hoped for approval in 2000, before the Clinton administration left office.
At the time, Johnson was a US Airways director as well as the owner of entertainment company BET Holdings. In an August 2000 interview with
The Charlotte Observer, Johnson recounted what happened as he first learned he might enter the airline business. "When Steve Wolf first approached me, I said, `Steve, does it make money?' and he said, `It makes money,' and I said, `OK, I'll do it,'" Johnson said.
Johnson quickly called Hugh McColl, chairman of Charlotte-based
Bank of America(BAC - Get Report). "I said, `I've got a chance to buy an airline and I need some money.'" Johnson said. "He said, `Does it make money, Bob?' and I said, `Yes, it makes money.' He said, `I will get my A team on it.'"
The planned airline was first called Potomac Air, later changed to DC Air. Johnson said it would be built along the
Southwest(LUV - Get Report) model, with all flights point-to-point from National, rather than the hub-and-spoke model.
Johnson rebuffed the suggestion that he did not know enough about airlines to run one. "Stephen Wolf invited me to serve on the board because he respected my business acumen," he said. "I'm not from the airline business, but I do understand business. I understand management. I understand how to find people with the commitment to serve the public. And I understand how to market a brand."
A former US Airways executive, who asked not to be named, said Friday that in pursuing the merger, Nagin "had a war room. He had a number of attorneys from big law firms and they were in there all day." The group had confidence in the National spinoff strategy. Additionally, the former executive said, US Airways preferred to have a friendly competitor, rather than an aggressive major airline such as American or Delta or a low-cost airline such as Southwest or AirTran, at National Airport.
In 2006, US Airways attempted to merge with
Delta(DAL - Get Report). The effort was abandoned before the Justice Department would have reviewed it. National was not discussed much at the time. Rather, the key focus for media, as far as antitrust implications, was whether the Justice Department would possibly allow the only two meaningful Southeast hubs, Atlanta and Charlotte, to be operated by a single carrier. To many, that seemed as anti-competitive as anything ever attempted in the airline industry.
As for the current attempt, aviation consultant Robert Mann said, "It's hard to know what the standard is" for deciding whether to require divestiture at National. If the standard is the one that applied in 2011 when Delta and US Airways swapped slots at National for slots at LaGuardia, then divestiture could again be required, Mann said. In that case,
JetBlue(JBLU) won a bidding war for eight divested slot pairs. "The standard there was everyone who complained got something," Mann said. (Complaining carriers wanted divestiture and some wanted an auction.)
But the standard could be what happened at Newark International Airport in the 2010 merger between United and Continental. "In that case, after you divested slots to Southwest, United still had 80% of them," Mann said. By contrast, with no divestiture, the new American would have about two thirds of the National slots and about 50% of the seats, reflecting its use of smaller planes to serve smaller cities.
If the Newark experience provides the divestiture standard, Mann said, then "I would say that American/US Airways would not have to give up anything at National."
Follow @tedreednc-- Written by Ted Reed in Charlotte, N.C.
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