NWA-Delta merger seen as unstoppable

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NWA-Delta merger seen as unstoppable

By LIZ FEDOR, Star Tribune

August 30, 2008

U.S. Rep. Jim Oberstar vociferously opposed the merging of Delta Air Lines =
and Northwest Airlines even before it was proposed in April. But even he no=
w concedes that it's a "foregone conclusion" among Washington and industry =
insiders that federal regulators won't block the combination.

The Minnesota Democrat and the Northwest ground workers union have continue=
d to argue that a merger would hurt air travelers and workers. But a conflu=
ence of factors -- including high oil prices, the lack of a broad-based coa=
lition of opponents and the fact that no other big airline mergers are pend=
ing -- has left most industry watchers expecting government approval of the=
 merger within the next few months.

"Some of the early concern was that this [deal] would set off a wave of mer=
gers. That clearly didn't happen," said Patrick Murphy, an aviation consult=
ant who previously dealt with competition issues as a Department of Transpo=
rtation administrator. Continental Airlines poured cold water on the consol=
idation movement in late April when it chose not to merge with United Airli=
nes, which is battling its unions and is on shaky financial ground compared=
 with Continental.

Murphy testified during a merger hearing that there is healthy competition =
among carriers in the U.S. market. Many U.S. senators peppered Delta CEO Ri=
chard Anderson and Northwest CEO Doug Steenland with questions about the me=
rger. But Murphy said, "I didn't see any senators falling on their swords a=
nd saying, 'This deal can't happen.'"

In the weeks following congressional merger hearings, the price of oil cont=
inued to break records, reaching $147 a barrel.

"The argument about fuel price problems has taken the edge somewhat off the=
 merger" deal, Oberstar said in an interview. Instead of raising more quest=
ions about how the merger would affect fares and routes, some members of Co=
ngress have joined with airline executives to fight speculators who, they a=
rgue, have forced up oil prices. And the tenor in the industry went from co=
nsolidation to survival as airlines scaled back flights, fleets and workers=
.

"Concern in Congress focused less on the particulars of the Delta-Northwest=
 merger than on the question of whether it would be the first of a series o=
f dominoes falling," Northwest general counsel Ben Hirst said last week.

The reality that the Justice Department is reviewing only one big merger "a=
ccounts for how peaceful the scene is" in the political arena, he said.

Delta and Northwest have satisfied the regulators' second major request for=
 data about their current businesses. Hirst said there continues to be dial=
ogue among the parties, especially between the government's and the airline=
s' economists.

Although "the Justice Department has not indicated that they are leaning in=
 any direction," Hirst said the carriers are confident that the department =
will allow the merger to occur. To stop it, federal regulators would have t=
o seek an injunction, and they would have to make a legally compelling case=
 that the merger would substantially reduce competition.

Indeed, if an airline merger was ever built for federal approval, it is thi=
s one. The carriers both provide nonstop service on only 12 of their more t=
han 800 domestic routes. The merger also would marry Delta's network in Eur=
ope with Northwest's prominence in Asia.

"This is really the opportunity for the U.S. airline industry to compete on=
 a global basis," Anderson said when he testified before a Senate Commerce =
Subcommittee. "When we look at the traffic in the United States today, the =
majority of the traffic carried to and from Asia, Europe, the Middle East a=
nd Africa is carried on foreign-flag carriers."

Oberstar, chairman of the House Transportation and Infrastructure Committee=
, said that around Labor Day he may "prod the Justice Department to look fu=
rther, to look deeper and be more anticipatory about what happens after the=
y approve this merger." He's concerned that other carriers will use the Del=
ta-Northwest merger as a model for how they can get their own deals cleared=
 for takeoff.

Diverging unions

Northwest unions have taken different tacks in reacting to the merger. Nort=
hwest's pilots union withdrew opposition to the merger in June after Delta =
and Northwest pilots negotiated a new contract that gives them 4 to 5 perce=
nt annual pay raises over four years.

Meanwhile, Northwest flight attendants have shifted their focus from immedi=
ately demanding job protections and wage increases -- a demand unmet by Del=
ta executives -- to attempting to unionize Delta attendants, who earlier th=
is year voted down a union.

"It doesn't appear that we'll be able to stop the merger," said Kevin Griff=
in, president of the Northwest branch of the Association of Flight Attendan=
ts (AFA).

So in mid-August, Griffin sent a letter to Northwest attendants to inform t=
hem that a joint AFA campaign has been launched "to secure union representa=
tion at a combined carrier," under the banner "Two traditions, one global a=
irline."

That left leaders of the International Association of Machinists and Aerosp=
ace Workers, which represents ground workers, fighting largely alone. The u=
nion has urged Congress to use political pressure to try to block the merge=
r, largely because it forecasts job losses for Northwest employees.

Some Minnesota politicians also are fearful of how many Minnesota jobs may =
be lost through a merger. Under the proposed deal, Delta's Atlanta headquar=
ters would be retained and Northwest's Eagan headquarters -- where about 1,=
000 people work -- would be closed.

"We don't have what it takes to avoid this merger," said Steve Murphy, chai=
rman of the Minnesota Senate Transportation Committee. "I would hope that w=
e can work through this and get commitments to keep as many jobs as possibl=
e in Minnesota and keep as much [flight] capacity here as possible."

Minnesota's U.S. senators, Democrat Amy Klobuchar and Republican Norm Colem=
an, also have raised concerns about preserving jobs and service.

Coleman said he has "yet to receive detailed information from either Northw=
est or Delta officials as to the potential negative impact on jobs as a res=
ult of the merger."

Loan covenants between the Metropolitan Airports Commission and Northwest r=
equire the airline to keep its headquarters and hub in the Twin Cities as w=
ell as certain employment levels in Minnesota.

Delta's Anderson, once the CEO of Northwest, has pledged to maintain a hub =
in the Twin Cities and said that no "front-line" Northwest employees in Min=
nesota will lose their jobs as a result of the merger.

But the MAC could require the new Delta to pay $230 million in a lump sum t=
o retire Northwest's bond debt when the Eagan headquarters closes. Under th=
e current agreement, Northwest would pay off that debt by 2022.

Klobuchar supports a MAC renegotiation of the conditions on that debt, beca=
use it would allow Minnesotans to extend airline job and service commitment=
s for several years. "I will continue to push for the best deal we can get,=
" Klobuchar said.

Sen. Murphy said that he's been "angry and frustrated" by the expected loss=
 of the headquarters, but said the Minnesota Legislature can't stop it beca=
use "we don't have much of a fire to put their feet in."

Liz Fedor =E2=80=A2 612-673-7709

=C2=A9 2008 Star Tribune. All rights reserved.


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