A Delta merger would face tough antitrust review

By John Crawley - Analysis

WASHINGTON (Reuters) - Delta Air Lines (DAL.N) would face an unprecedented airline antitrust review if it decides to propose a merger with either Northwest Airlines NWA.N or United Airlines parent UAL Corp (UAUA.O).

Industry consultants, lawyers, and former government officials agree either merger would present the U.S. Justice Department with its toughest airline test. And with a crucial election year underway, Congress would certainly weigh in.

"None of this is going to be easy," said Darryl Jenkins, a Virginia-based airline consultant. "This is an awfully big merger. No matter who does it, it will be looked at very carefully."

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 polled by Reuters 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.

James Burnley, a former U.S. transportation secretary under President Ronald Reagan, said there is merit in rolling out something soon to ensure scrutiny by Republicans, but "that doesn't mean anyone gets a free pass."

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 an 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 Group Inc (LCC.N) last year.

Two aviation heavyweights in the Democratic-run House of Representatives, Reps. James Oberstar of Minnesota, where Northwest is headquartered, and Jerry Costello of United's home base of Illinois, are both skeptical of big mergers. They have signaled in recent months at hearings and in interviews that the industry should proceed carefully.

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 (AMR.N) 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.