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.