WHEN CONGRESS PASSED the airline deregulation bill last year, almost everyone predicted it would set off a round of mergers. It did. National Airlines is being pursued by three, maybe four, suitors. Continental and Western want to merge. So do North Central and Southern, as well as two cargo carriers, Flying Tiger and Seaboard World.
But the merger movement was jolted last week when administrative law judge William H. Dapper recommended that the Civil Aeronautics Board disapprove the efforts of Pan American and Texas International to take over National. Either combination, he ruled, would be anticompetitive. If his recommendations and his interpretation of the deregulation act are adopted by the CAB and sustained by the courts, the merger boom is likely to be replaced by a struggle for survival among the weaker airlines, most notably Pan Am.
The curious part of Judge Dapper's opinion is not so much what he concluded as where he began.He thinks Congress last year gave the CAB more power over mergers than it had before. That seems to contradict-exactly-the purpose of the act: to push the airlines out of their highly regulated environment and into the world of competition and free enterprise.
The problem is that no one knows how many airlines the country needs to ensure the kind of vigorous competition Congress wanted to create. Judge Dapper thinks any reduction in the present number of airlines might reduce competition and defeat the purpose of deregulation. That's because he thinks a large number of small airlines are likely to compete more vigorously for passengers and freight than a smaller number of large airlines. Most airlines argue, however, that a reduction in the number of carriers will actually increase competion. That's because they think big and financially strong companies can fight harder than small companies, especially those that are financially shaky.
No one knows which side in this argument will be proved right. The Department of Transportation wanted Judge Dapper to approve both merger proposals in the National-Texas Internationa-Pan Am case while the Justice Department wanted him to disapprove both. But it is certainly fair to say that what Congress had in mind was leaving the fate of individual airline companies up to the marketplace. Whether or not the marketplace can handle the airline industry adequately won't be subjected to a fair test so long as decisions-like that of Judge Dapper-reflect a belief that every merger is bad.