Mesa Airlines'

(MESA) - Get Report

hostile bid for

Atlantic Coast Airlines

( ACAI) is getting stickier, with a handful of government officials asking the Department of Transportation to investigate the bid to see if it would harm consumers, according to ACA.

Last Thursday, Rep. Joe Wilson (R., S.C.) and Rep. Gregory Meeks (D., N.Y.) wrote letters to Transportation Secretary Norman Mineta and Inspector General Kenneth Mead expressing concern that a Mesa takeover would hurt consumers by erasing ACA's plan to become a low-cost carrier that would serve the Washington, D.C. area, ACA said. Other Congressmen, including Sen. Gordon Smith (R., Ore.), have expressed similar concerns, according to ACA. ACA provided copies of the letters. Calls to the Congressmen weren't returned.

"I am concerned that there will be an adverse impact on competition and consumers if Mesa is successful in derailing

ACA's plan to offer low-fare service from Dulles," wrote Wilson in his letter.

Pointing out that ACA would be the first low-cost carrier based from Dulles, which would serve constituents in and around J.F.K. Airport in New York, Meeks asked Mineta to examine the competitive landscape if Mesa became the nation's largest regional airline by taking over ACA.

"I respectfully request that you investigate this situation. I would also appreciate your observations on the likely consumer benefits of the planned ACA operation for air travelers on the East Coast, including those in the New York area," wrote Meeks.

In an interview with

TheStreet.com

, Mesa CEO Jon Ornstein said the antitrust concerns are irrelevant and that the company's takeover bid will remain. "Given that all we're doing is maintaining the status quo, if there is an antitrust issue it should have occurred 14 years ago when ACA became a United Express carrier," said Ornstein. "The fact is Mesa and ACA have no routes that compete with each other."

While the Department of Transportation wouldn't comment on the letters, similar Congressional concerns over antitrust issues were expressed during a proposed merger between

US Airways

( UAIR) and

UAL

(UALAQ)

unit United Airlines. Due to antitrust concerns, the merger was shelved and both US Air and United entered Chapter 11 bankruptcy protection in the months that followed.

But the concerns over competition and the effect on consumers may be a moot point. Lately, some analysts have become concerned that ACA's plan to become a low-cost carrier is flawed and could be doomed to fail.

On Oct. 24, Goldman Sachs analyst Glenn Engel said ACA's forecasts for its low-cost unit were "too optimistic." On Tuesday, Deutsche Bank analyst Susan Donofrio expressed similar doubt, telling investors "we are skeptical that

ACA's low-cost carrier proposal will come to fruition."

For both analysts, the major issue facing ACA is costs, with a question looming over whether ACA can reduce expenses enough to be able to make regional jets work under the low-cost model. While ACA's pilots agreed to wage concessions and work rules if ACA proceeds as a low-cost carrier, Donofrio warned that the company would make just 20 cents in calendar 2004 vs. current expectations of a 76-cent profit.

"Applying a 15 to 25 times price to earnings multiple, the historical range for a low-cost carrier, to that estimate, it would assume a target price of $3 to $6, suggesting some downside risk if ACA would move forward with

the low cost scenario," wrote Donofrio.

Shares of ACA were up 9 cents, or 0.9%, at $10.54 Tuesday. Shares of Mesa, which have been trading in tandem with shares of ACA, were up 11 cents, or 1.1%, at $10.36.