Delta For President?

 Today’s Courier Herald Column:

The Wall Street Journal reports that Atlanta based Delta Airlines is among those considering a bid for  AMR Corporation, the parent of bankrupt American Airlines.  Others identified as kicking American’s tires are USAir Group and TPG Capital.  A USAir takeover would make the combined company the largest US airline, bumping Delta down to third.  Delta, recently surpassed by United/Continental as the nation’s largest carrier, currently is the second largest.

Delta has apparently hired The Blackstone Group to advise them on a potential merger, and its possibility of approvals and success.  Because Delta is already the second largest carrier and would be far and away the largest domestic airline if it acquired American, the Justice Department would be expected to give the deal tough scrutiny to determine if the combined airline would constitute a monopoly and violate anti-trust regulations.

Because of the nature of anti-trust reviews, Delta’s merger would likely become contingent on the outcome of the 2012 Presidential race, and quite possibly become an issue in it.  The benchmarks to determine anti-trust concerns are nebulous and often situational, making it hard for companies to determine in advance what will likely get approved, and what will be rejected.  AT&T found this out first hand recently when it tried to acquire the mobile telephony assets of T-Mobile.  AT&T’s failure to get approval of the deal forced them to pay T-Mobile a $4 Billion breakup fee.

Anti-trust violations are judged against standards that are created on a deal by deal basis.  Similar to former Supreme Court Justice Potter Stewart’s definition of obscenity, the DOJ usually applies a “we know it when we see it” definition to determine if monopoly conditions would be created by a proposed merger.  As such, they have broad discretion in determining if a deal can be consummated, and can become creative if they choose to block a proposed merger.  Delta should not be expecting any favors from this Justice Department.

Delta has been a frequent target of ire from both the Obama Whitehouse and Senate Majority Leader Harry Reid over their mostly non-union employee base.  During the early days of the Obama administration, Delta was completing the integration of formerly unionized employees of Northwest Airlines into their non-union ranks.  Not a single group of employees who were previously non-union voted to join a union after Northwest’s employees were folded in.  This even after union organizing rules were changed by the administration to make it easier to recognize a union.

The battle over how unions are recognized spilled over to the re-authorization for the Federal Aviation Administration, with Reid specifically calling out Delta by name from the Senate when the FAA spent several weeks unauthorized because of the issue.

The administration has also made it clear that they are willing to change rules, policy, and regulation to support union activity.  Boeing was told they could not open an additional plant to build their new 787’s in South Carolina because the plant would employ non-union labor.  This, despite the fact that no union jobs at the company’s existing Seattle facilities would have been compromised.  After nearly two years of battle, Boeing was allowed to proceed with employing thousands of South Carolinians, but only after agreeing to make additional concessions to its unions.

Delta is among Georgia’s largest employers, and its ability to compete effectively within the airline industry is crucial to Georgia as its logistics center of the Southeast.  While the DOJ has a legitimate role in ensuring that monopolies are not created, Delta’s future should not be unduly hamstrung by an administration that has made Delta a poster child of non-union intolerance amid a mostly unionized industry.

Anti-trust reviews generally take quite some time to complete.  As such, any deal for Delta to acquire American will likely not be finalized until the Presidential term that starts a year from now.  A second term Obama administration is not likely to look favorably on Delta returning to the largest domestic airline, dominating routes to Europe, Latin America, and Asia along with most major US hubs.

A more business friendly Republican justice department would still likely require the merged airline to give up gates and routes, but would be more likely to find a balance that allows Delta to grow while still insisting on some consumer protections.

Should Delta decide it has a business case to pursue an acquisition of American, it would thus be making one concurrent decision.  Delta would be deciding that it was also effectively entering the 2012 Presidential race.


  1. benevolus says:

    If Delta can’t “compete effectively” unless they are #1, then their future is being hamstrung by something other than the DoJ.

  2. 22bons says:

    The idea that a merged Delta/American would constitute a monopoly is ridiculous. I have exercised my free choice to avoid Delta and American (worst airlines ever) for over a decade now. And I did it as a frequent flyer living in the respective hub cities supposedly dominated by these two airlines.

    That said, protecting access to gates and landing slots for current and potential competitors is important to ensuring competition and protecting consumers. Any “monopoly” problems can be solved by addressing this issue. Airlines should not be able to systematically monopolize a route for an extended period of time by contracting for and mothballing potentially competing gates and/or landing slots at publicly financed airports, period. If they want to do that, they need to build or buy their own airport.

  3. Harry says:

    1) Delta is not interested in a merger with AA. Delta dodged a bullet by being able to avoid unionization as an unwanted side effect from the Northwest deal, and still has all it can deal with coming from that merger, not to mention the DC games that would ensue from AA.
    2) Delta however would like to up the ante for the buyer of any eventual deal – and may pretend to be interested.
    3) AA has $4 billion cash and the unions would like to p*** it away over an extended time, rather than have AA come to quick resolution to either break up or sell.
    4) Hopefully (for AA’s sake) the judge and creditors will not allow the unions to prevail. If they do, it will be the nail in the coffin of AA.

    • Charlie says:

      Interesting theory, but the main thesis applies if 2 & 3 are correct. This administration has shown it will play hard on behalf of unions. If so, creditors be damned.

      As for #1, they dodged unions with Western. Again with Pan Am. Then with Northwest.

      It seems every time unionized workers are given the choice at Delta, they choose the same pay and better working conditions with no dues.

      • Harry says:

        AA mechanics etc. are nice people but hard union. One of the main issues for them is whether aircraft renovation and upgrade work would be offshored.

      • benevolus says:

        Delta’s non-union workers benefit from the unionized workers at other airlines. Delta still has to provide competitive compensation packages to those negotiated by other workers who have collectively bargained with their corporate employers.
        Delta may be an employer that chooses to offer superior compensation packages in order to keep and get superior employees, but not all companies are like that, and that is where unions are essential.
        It’s like having a benevolent dictator. it’ s great as long as they are benevolent.

        • Harry says:

          The US and Europe can’t afford unions in the global marketplace. As well as killing the private competitive economy, unions have exploded the federal and state deficits and are bankrupting the governmental sector. The result will be hyperstagflation. Unions have to die. Meantime, if you don’t wanna be exploited, then don’t work for the man or a man.

          • benevolus says:

            How can you deny a group of workers the right to negotiate as a group instead of as individuals? The shareholders/owners of a company appoint it’s managers to negotiate for them, why can’t the workers appoint someone to negotiate for them?
            It’s a free market, if a company doesn’t like the deal they shouldn’t sign it.
            Yes, unions have had their excessive moments, but so have corporations. Why do workers have to accept subsistence level wages while executives get huge salaries and bonuses? Shouldn’t those rewards be shared? Shareholders get dividends and usually couldn’t care less about the conditions of the workers, they just want their profit.

            • Harry says:

              The fact of huge executive compensation has more to do with governmental policies that foster quasi-monopolistic conditions rather than exploitation of workers by management. In true free market conditions there would be more jobs and more competition (equity) in the marketplace for goods and labor.

  4. Dave Bearse says:

    There are high barriers to ariline market entry (high capital investment, airport access, etc). Five airlines (United, Delta, AMR, US Airways, SW) collectively account for about two-thirds of the US market, a clearly oligopolic market structure. Publicly published airfares provide the means for tacit if not overt collusion. Significant consolidation would both cut competing routes and make collusion easier where routes compete.

    The other side of the market largely consists of a couple hundred million individual customers without bargaining power (beyond the limited power of travel marketers). Consolidation within this market clearly requires regulatory scrutiny.

    The party of the President in office during a review will matter, but Charlie, you’re selling short the people of both parties when you write “[b]ecause of the nature of anti-trust reviews, Delta’s merger would likely become contingent on the outcome of the 2012 Presidential race, and quite possibly become an issue in it.”

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