The Justice Department's antitrust division and the Transportation Department's public counsel adopted differing positions yesterday on whether United Airlines' proposed acquisition of Pan American World Airways' Pacific routes would adversely affect competition.
If the transaction is approved, Justice said in a filing with the Transportation Department, the effect "may be substantially to reduce competition for scheduled air passenger service between the U.S. and Tokyo." It called for Transportation to require that United spin off a route between the West Coast and Tokyo as the price of approving the agreement.
Transportation's public counsel disagreed. "No party has shown that this transaction will reduce actual or potential competition in any U.S.-Pacific market," the counsel said. The public counsel's position is equivalent to a staff recommendation in a proceeding before the now-defunct Civil Aeronautics Board. United and Pan Am have said from the beginning that their proposed transaction is an all-or-nothing deal. Their joint filing with Transportation yesterday reiterated that position.
The decision rests with Transportation Secretary Elizabeth Hanford Dole, but President Reagan can overrule her on grounds of national security or defense.
Under the proposal, Pan Am would sell to United for $715.5 million its entire Pacific division, including routes, airplanes and employes. The transaction would give United a long-sought strong presence in the Pacific and would give Pan Am the cash it needs to be a bigger player in the Atlantic and Latin America.
The public counsel said the deal will create "a competitive structure in which there are three strong carriers United, Northwest Orient and Japan Air Lines that will aggressively compete for traffic to Japan and the Far East. At the same time, this transaction will bolster Pan Am's financial position and enable it to be a more effective competitor in its remaining transatlantic and Latin American operations. . . . "
The primary objectors to the transaction are Northwest Orient and American. The latter is considered a possibility to get one of three new Japan-U.S. routes that are scheduled for award later this year. American would like to serve Tokyo from its hub at Dallas-Fort Worth.
Justice's primary argument is that if United purchases Pan Am, it will eliminate itself as a thorn in the side of the present carriers across the Pacific, where route authority requires bilateral international treaties and fares are set through the International Air Transport Association, acting as a legal cartel.
Since United acquired its Seattle-Tokyo route in 1983, it has "served as a disruptive rival" through creative fare-cutting, Justice said. "After the transaction, however, United will cease to be a fringe competitor. With a large market share, its profit-maximizing strategy will be very different -- it will then have both the incentive and the ability to maximize profits by colluding and restricting output, rather than by discounting and expanding output."
Pan Am and United said that "imposition of any condition that would preclude transfer to and operation by United of the Los Angeles-Tokyo, San Francisco-Tokyo or beyond-Tokyo routes, each of which is a material and important element of the overall network being acquired, would cause a termination of the proposed transaction."