Air Merger To Test Its Blue Sky on Hill Skeptics
Thursday, April 24, 2008
Since announcing their proposed merger last week, executives at Delta Air Lines and Northwest Airlines have been promising the world -- in more ways than one.
They have assured investors that the combined carrier, which would be the world's largest, will post healthy profits by generating massive amounts of revenue and benefiting from about $1 billion in cost savings.
Meanwhile, even as they battle sky-high fuel prices, the executives have pledged not to lay off employees, eliminate hubs or reduce flying more than they have already proposed.
This dual sales strategy, which will be on full display today during back-to-back hearings before the House and Senate Judiciary committees, is a key component of the executives' efforts to win regulatory approval, reduce the chances of congressional intervention and limit the potential for labor problems, according to a dozen interviews with analysts, lawmakers, former government officials and former airline executives.
So far, the strategy has met with limited success.
The bottom-line argument has taken a drubbing on Wall Street, where investors seem concerned about the limited cost-cutting in the carriers' plans, according to analysts. In the week after the merger announcement, Delta's stock dropped 22 percent and Northwest's fell 19 percent.
Though some carriers' stocks were up marginally yesterday, Northwest shares fell another 5 percent and Delta slumped 4 percent more, as investors reacted to more than $1 billion in losses by the nation's major carriers in the first quarter. Delta and Northwest announced that they posted combined losses of $465 million, excluding costs and charges associated with bankruptcy protection, which both carriers exited last year.
And the argument that the new carrier won't shed jobs or routes hasn't fared well on Capitol Hill.
Pro-labor Democrats have blasted the merger. Rep. James L. Oberstar (D-Minn.), an influential lawmaker on aviation issues, called the proposal "probably the worst development in the history of aviation since deregulation."
Even pro-business Republicans say they are dubious about the sales pitch. "Mark me down as skeptical," said Sen. Christopher S. Bond (R-Mo.), who cited the experiences of consumers and workers in St. Louis after the takeover of TWA by American Airlines in 2001. American had promised to keep up flights in St. Louis, where TWA was based, but later cut them substantially.
"In my experience, there are going to be some losers, and those are employees and consumers," Bond said. "How are they going to cut costs, based on my past experience, without significant disruptions" to consumers and workers?
Sen. Kay Bailey Hutchison (Tex.), the ranking Republican on the Senate aviation subcommittee, said she spoke with the airlines' leaders on Tuesday but still had concerns.