US Senate Aviation Chair Not Against Delta Merger

May 8, 2008

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The chairman of the committee overseeing aviation affairs in the US Senate said on Wednesday he would not oppose the proposed merger of Delta Air Lines and Northwest Airlines.

Democrat John Rockefeller of West Virginia told the chief executives of both airlines at the conclusion of a hearing on the deal that he was not inclined to challenge the merger agreement.

"I'm not against a merger. I want very strong scrutiny by the Department of Justice and others with great detail, but I'm not convinced here that anyone is operating out of ill faith," Rockefeller said.

But he said the "stakes were enormous" and the aviation system was not working well for everyone. Rockefeller said he does not want to "go back to that day," but he would not "discount entirely" the prospect of re-regulating airlines, especially if service to small and medium-sized communities deteriorates severely.

Congress deregulated the airlines in the late 1970s, but still taxes the industry, imposes fees for airport improvement and security, and oversees safety.

Although Congress cannot block a merger, lawmakers can apply pressure to regulators and use the bully pulpit and other political levers to disrupt the timing of a deal or influence public sentiment. Outright congressional support, while not crucial, can help the two clear regulatory hurdles.

A leading voice in Congress, Rockefeller's support -- or his non-opposition -- as chairman of the Commerce Committee's aviation panel sends an important signal to other lawmakers.

Other key lawmakers in the Senate and the House of Representatives have put up little or no resistance to the proposal.

But senators at the hearing sought assurances from Delta's Richard Anderson and his counterpart at Northwest, Douglas Steenland, that the merged carrier would not reduce jobs or service to their communities.

The pair said there are no immediate plans to shrink the airline, but they could not predict how the company would look in the future if financial losses due to high fuel prices or a weaker economy continue.

"There are variables outside our control that could change the dynamic," Steenland said.

In April, Delta proposed an all-stock buyout of Northwest to create the world's largest airline. The industry is losing money and facing a bleak outlook due to fuel costs that pressed further into record territory on Wednesday.

"The combination of Delta and Northwest creates a company with a more resilient business model that can withstand volatile fuel prices more effectively than either could on a stand-alone basis," Steenland said.

Ray Neidl, an industry analyst with Calyon Securities, told lawmakers there are "major doubts" the industry can remain viable with fuel costs rising deeper into unchartered territory.

"Through consolidation, the industry will be in a better position to rationalize capacity, further cut costs and enhance revenues," Neidl said.

Unions, still stung by bankruptcies at Northwest and Delta between 2005-07, expressed skepticism with management and Wall Street. Flight attendants, baggage handlers and other workers are worried consolidation will lead to job cuts and reduced wages and benefits.

"I'm not so sure that we should rush headlong into supporting this call for greater consolidation without taking a very serious pause," said Patricia Friend, president of the Association of Flight Attendants.

The AFA represents attendants at Northwest and is trying to organize those workers at Delta, where pilots and a handful of other employees are unionized.

Friend accused Delta of "anti-union tactics" in the organization drive.

"Delta executives have not been shy about their efforts to prevent the employees from forming unions," Friend said.

Anderson said the company treated its employees well and has never had a strike. He said Delta would "respect" the organizing process, which is overseen by federal mediators.