Delta Faces Antitrust Scrutiny On Proposed Merger

A Delta merger review would include serious scrutiny of large international route networks. It would also test a popular assumption that the merger parties would get more favorable treatment from the Bush administration compared with a possible Democratic one in 2009. Antitrust lawyers said none of the leading presidential candidates was considered an antitrust maverick, although Democrats have had a reputation for being more aggressive than Republicans in challenging mergers. Delta management wants to begin formal merger talks with Northwest and United, the Wall Street Journal reported last week. The airlines have not commented.

For sheer size and reach, No. 3 Delta hooking up with either No. 2 United or No. 5 Northwest is only comparable to an earlier bid by United to swallow US Airways. That attempt collapsed in 2001 after a lengthy antitrust review, completed by the Bush Justice Department, raised serious competition concerns. All experts agreed Congress would seek to have influence. Lawmakers, worrying about the impact on airline service to their districts, jobs, and ticket prices, could not halt a merger outright. However, they could pressure the White House and antitrust enforcers. Delta appealed to lawmakers in its successful effort to turn back a hostile merger bid from US Airways last year.

The most comparable period for consolidation, experts say, was the mid 1980s when a flurry of merger activity involving healthy or relatively healthy companies. A merger between Delta and Northwest, or with United, would be unprecedented, because of their size and the fact that all three carriers are financially stable. The Bush administration has approved two big airline mergers: American Airlines' acquisition of TWA in 2001 and the merger of US Airways and America West in 2005. Both involved financially distressed companies, US Airways and TWA, a situation that generally gets a more sympathetic government review.

The paramount concern for the government would be the market share of a United-Delta or Northwest-Delta combination. Delta and United together comprise nearly a quarter of domestic service based on passenger traffic. Delta and Northwest account for about 18 percent, the latest Transportation Department figures show. Dominance on specific routes and at key airports would also be carefully scrutinized. Delta commands 53 percent of business at its Atlanta hub and a third of flights at Salt Lake City and Cincinnati. United's share at Chicago's O'Hare Airport is 40 percent; 42 percent at Denver and San Francisco, and 21 percent at Washington Dulles. Northwest has 66 percent of the business at Minneapolis, 60 percent at Detroit, and half of all flights at Memphis. Antitrust officials characteristically would seek divestment at certain airports, depending on the merger combination, and target overlapping routes.

It is unclear, however, how the Justice Department would view the potential combination of international routes as well as the carriers' deep alliances with foreign carriers. Both Delta and Northwest have close ties to Air France-KLM, while Delta and United are members of competing global alliances.

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