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U.S. would likely approve a UAL/CAL merger
April 30, 2010 / 4:46 PM / 8 years ago

U.S. would likely approve a UAL/CAL merger

WASHINGTON (Reuters) - United Airlines UAUA.O and Continental Airlines (CAL.N) can expect to win U.S. government approval of any merger proposal as their combined operations do not appear to raise serious competition issues.

<p>A United Airlines Airbus A320 aircraft prepares to depart Phoenix International Airport in Phoenix April 8, 2010. REUTERS/Joshua Lott</p>

The Obama administration would likely approve a deal to create the world’s biggest airline but could first require the sale of certain routes or other assets to boost competition, antitrust attorneys and industry experts told Reuters.

“Given the nature of the airline industry, the antitrust regulators will not block this merger, in my judgment,” said antitrust expert Evan Stewart of the law firm Zuckerman Spaeder


But the carriers should not expect a Justice Department review to be as swift as the 2008 acquisition of Northwest Airlines by Delta Air Lines (DAL.N), which was deliberately timed to be considered by the business-friendly Bush administration.

“It will take a long time and there will be a lot of people complaining behind the scenes, especially the unions,” said John Briggs, an antitrust attorney with Axinn, Veltrop and Harkrider LLP.

Sources familiar with the discussions have told Reuters that United and Continental are close to proposing a merger for the second time in two years, and a deal could be announced within days. Discussions in 2008 ended with Continental walking away, concerned about bigger United’s financial health.

Neither United nor Continental have confirmed they are talking again.

Analysts have trumpeted such a deal as good for all U.S. carriers and the 700 million passengers they fly each year due to expectations the merged entity would remove excess capacity and prompt greater efficiency.

With passenger demand on the upswing in an improving economy, the timing of any deal is better than 2008 when airlines were in financial turmoil amid recession.

Although the Justice Department has deep experience analyzing airline merger proposals, the Obama administration’s top antitrust enforcer, Christine Varney, has not concentrated on traditional industries.

“She is focused on technology and those sorts of issues because that’s where America has competitive leadership. There’s some important issues here but I don’t think it’s her priority,” Stewart said.


United’s experience with the U.S. government has been anything but smooth since 2000.

A proposed merger with US Airways LCC.N in 2001 foundered over competition concerns. United’s bid for a federal loan guarantee in 2002 was rejected by a Treasury board, stunning the carrier and pushing it into bankruptcy.

United’s latest application, a waiver from antitrust law as part of an overseas alliance with Continental, was approved earlier this year by the Transportation Department over strong objections by Justice antitrust officials.

It is unclear if any concerns from the contentious antitrust waiver case would spill over into a merger review.

Antitrust review of a merger’s impact on consumers focuses on nonstop routes where parties compete directly, proximity of hubs and other big operations, and the potential for fare increases in concentrated regions.

Big airlines with merger aspirations argue that concerns about competition should be muted because of the fragmentation of the U.S. airline market where more than a dozen carriers and regional affiliates operate.

Airlines are no longer hemorrhaging financially but there are key players, like United Chief Executive Glenn Tilton, who believe consolidation is crucial for industry health. Airline mergers historically have an uneven success rate, but the Delta deal has generated cost savings, and the carrier has narrowed losses and expects to be profitable this quarter.

Continental flew more than 30 million passengers between February 2009 and January 2010, according to Transportation Department figures. Its two biggest hubs are Houston and Newark.

United flew 47 million passengers over the same period, more than half of them using hubs in Chicago, Denver, San Francisco, Washington Dulles and Los Angeles.

The carriers have no overlaps in their hubs or top 10 domestic nonstop flights, according to a review of their biggest operations.

“That is definitely a plus,” said Beau Buffier, an attorney with Shearman & Sterling LLP.

Another antitrust attorney said the Justice Department could require the carriers to give up some routes or other assets to boost competition, perhaps in the greater New York area, where operating rights to key airports is heavily regulated. Access there is coveted as a destination and jumping off point for premium domestic and international business travel.

“Because Continental controls Newark and United is not tiny at (John F. Kennedy) and LaGuardia, they could require something at those airports,” he said.

Reporting by John Crawley and Diane Bartz; Editing by Phil Berlowitz

Our Standards:The Thomson Reuters Trust Principles.
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