Delta, Northwest Take Case to Congress

Various members of the House Judiciary Committee voice support for minimizing job losses, protecting organized labor, assuring adequate customer service and keeping existing hubs in place.
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The proposed merger between

Delta

(DAL) - Get Report

and

Northwest

(NWA)

had its first Congressional hearing Thursday, and while the reception wasn't exactly harsh, at least some legislators didn't appear ready to wholeheartedly embrace the deal just yet.

Various members of the House Judiciary Committee voiced support for minimizing job losses, protecting organized labor, assuring adequate customer service and keeping existing hubs in place, but there was little sense that the concept of an airline merger ought to be strongly resisted.

Rep. John Conyers, D-Mich., and committee chairman, opted for a cautious approach. "This is a momentous matter," he said. "We have an antitrust division that approves mergers left and right. If this merger were approved, it could simply result in a cascade of mergers."

Possible transactions, Conyers suggested, could take place between United parent

UAL

(UAUA)

and

Continental

(CAL) - Get Report

, and between American owner

AMR

(AMR)

and

US Airways

(LCC)

.

United is also talking with US Airways about a merger, according to a person familiar with the matter.

Conyers did note, though, that if the Delta and Northwest deal is rejected by the Justice Department, "we could end up with more carriers in bankruptcy, more workers out of jobs."

Meanwhile, Rep. Steve Cohen, D-Tenn., said his main interest is in seeing the Northwest hub in Memphis maintained. Representatives from Cincinnati and Salt Lake City also sought, and received, assurances that hubs in those cities would be protected.

Later, in a hearing before the Senate Judiciary Committee, Sen. Herb Kohl, D-Wisc., was told that Milwaukee-based

Midwest Air

, in which Northwest has a stake, would continue to provide high-quality hub service.

New York Sen. Chuck Schumer called the Delta and Northwest merger "a good one" and said the "negatives seem more benign" than in other transactions. Still, he said that "anyone that supports this merger does not indicate a general support of mergers in the airline industry."

Besides assuring legislators no hubs will close, CEOs Richard Anderson of Delta and Doug Steenland of Northwest continued to make the case they have pressed since the proposed $3.6 billion deal was announced on April 14. They said rapidly rising fuel prices threaten the industry, the carriers overlap on just 12 of 800 nonstop routes, no front-line employees will lose their jobs, and foreign carriers are already merging.

"This really creates the first real U.S. global airline," said Anderson, who added that foreign airlines carry more passengers between the U.S. and Europe, and between the U.S. and Asia, than domestic carriers do. Additionally, U.S. carriers have just 5% of the orders for new widebody aircraft. A merger "gives us the ability to compete and win vs. foreign flag carriers," he said.

On the labor front, Rep. Betty Sutton, D-Ohio, repeatedly asked Anderson if Delta is opposing an effort to unionize its flight attendants. "We support a democratic free election with plenty of information for everybody," Anderson said, not specifically responding. Sutton concluded: "I will take your answer as not really answering my question, as the answer."

Tom Buffenbarger, president of the International Association of Machinists, opposed the deal, saying airline executives "want to use this merger as a weapon" to eliminate the union representation that exists at Northwest. The IAM represents 12,500 agents and ramp workers at Northwest. Most Delta workers are not represented by unions. The combined carrier would be expected to hold union elections.

"If there were only two airlines left in the country, I am convinced their CEOs would be complaining about overcapacity and looking to merge," Buffenbarger said.

Meanwhile, on a US Airways earnings conference call, CEO Doug Parker said that he supports the Delta and Northwest deal and that US Airways will "investigate consolidation possibilities." Parker said consolidation, capacity reductions and additional fees are all methods for responding to the current crisis over high fuel costs, but "of these levers, the most powerful, we believe, is consolidation."