Copyright 2000 The Washington Post
The Washington
Post
June 3, 2000, Saturday, Final Edition
SECTION: FINANCIAL; Pg. E01
LENGTH: 1280 words
HEADLINE:
States Jump Into Merger Debate; Attorneys General Fear United-US Airways Deal
Will Mean Less Service, Higher Fares
BYLINE: Frank
Swoboda , Washington Post Staff Writer
BODY:
The attorneys general in key states served by United
Airlines and US Airways are becoming aggressively involved in the
proposed merger of the two carriers, according to interviews
with state officials.
"We've begun collecting evidence and we're
preparing subpoenas," said Connecticut Attorney General Richard Blumenthal, who
chairs the antitrust committee of the National Association of Attorneys General.
New York Attorney General Eliot Spitzer said his office already has
begun "hearing discussions" with representatives of the two airlines. Spitzer is
scheduled to meet with officials of the airlines Friday in Manhattan.
There is substantial interest in the merger proposal among a number of
states already worried about airline competition and concentration, said an
official from one state attorney general's office who asked not to be
identified. They worry that the combination could lead to fewer airlines, higher
fares and less service to cities in their states. "If this merger moves forward,
then it's open season for further consolidation," the official said.
Discussions about the airline merger already involve the state attorneys
general in New York, Pennsylvania, Massachusetts, Connecticut, Virginia,
Maryland and Delaware, according to Pennsylvania Attorney General Mike Fisher,
who is scheduled to meet Tuesday in Philadelphia with top officials of both
airlines to discuss his state's concerns about the merger. Fisher said he
expected more states to become involved.
There were news reports
yesterday that American and Northwest airlines were talking about a possible
merger. Both sides declined to comment, but sources at Northwest said there had
been some discussions between the two, though not necessarily about a merger.
United last month proposed an $ 11.6 billion acquisition of
Arlington-based US Airways, combining the nation's biggest airline with the
sixth largest to create a global airline with nearly twice as many flights as
the next largest carrier.
The merger must be reviewed by the Justice
Department, which oversees antitrust laws, and the Transportation Department,
which approves international route changes. The two airlines already have begun
a vigorous lobbying campaign to win approval of the merger.
State
interest in the airline merger is an outgrowth of their increasing involvement
in federal antitrust matters as a result of both the increasing shift in power
from the federal government to the states and what some state attorneys general
see as an enforcement vacuum at the federal level. Picking their spots carefully
to stretch often meager budgets, states in recent years have become active in
antitrust cases involving companies such as Bell Atlantic and GTE, Exxon and
Mobil, and Microsoft.
It was unclear precisely what specific powers the
states could exercise over an airline merger beyond the right to have a voice in
any settlement negotiations or court actions.
"We haven't had a case
that dealt with the airlines," said one state official who has dealt extensively
with antitrust issues. He said the states do have the power to change the terms
of an antitrust agreement as it applies to their state--usually adding
conditions--but it's "unclear where the lines are drawn." Most often the power
of the states is to influence the course of any settlement negotiations with the
federal government through their collective political power, the source said.
Both United and US Airways said this week they welcomed the state
scrutiny. United, in a statement issued by its public relations firm, said, "The
[state] attorneys general review is a natural shadow of any Department of
Justice review" and that United was working with the states and all other
regulators involved in the merger.
Larry Nagin, executive vice president
and general counsel for US Airways, said that since Chairman Stephen M. Wolf
took control of the airline four years ago, "We have taken very seriously the
role of the state attorneys general and have met with them to hear their
concerns and views on causes that are important to them." Nagin said the airline
fully intends to hear the state concerns and that the state attorneys general
"have a role in the process we respect."
New York Attorney General Eliot
Spitzer, in a Law Day speech last month, said the devolution of power from the
federal government to the states provides "a tremendous opportunity for legal
ingenuity and innovation" on the part of the states.
"Where the most
important political, social and legal issues used to be hashed out only in
Washington, they are now being confronted at the state level," he said, largely
the result of a series of U.S. Supreme Court decision in the last five years.
As a result, Spitzer said in an interview this week, any state
intervention in the proposed airline merger is "very much part of a trend toward
seeing states take part in what in the past had been federal territory." He said
the trend is toward "increased activism by state attorneys general."
Pennsylvania's Fisher noted that federal law does not preempt state law
in antitrust matters, and states can act individually to protect their
consumers. As an example, Fisher said there have been a number of mergers in
recent years in which the federal government was prepared to bless the deal but
the states forced additional changes.
In the Exxon-Mobil merger, for
example, Fisher said Pennsylvania forced the two sides to agree to give the
states the right to review the purchasers of the 500 gasoline stations being
divested under federal order.
Fisher said Pennsylvania is particularly
concerned about the fate of US Airways' two international hubs in Pittsburgh and
Philadelphia. US Airways is the largest private employer in the western half of
the state and the airline serves almost every commercial airport in the state.
"The big issue from an antitrust standpoint is whether or not we will
continue to have competition for air travel in Pennsylvania," he said.
A
spokesman for Virginia Attorney General Mark Earley said he could not comment on
the state's involvement in the proposed merger. State sources, who asked not to
be identified, said Virginia considers the merger issue very important to the
state, but the process was just beginning and it was too early to say how active
the attorney general would become. Dulles International Airport, which United
dominates, and US Airways' headquarters are both in Virginia.
Ellen
Cooper, the Maryland assistant attorney general in charge of the antitrust
division, said Maryland was just at the beginning of its investigation, but
would be taking a close look at the merger proposal, particularly its impact on
Baltimore-Washington International Airport, where US Airways is a major carrier,
as well as Reagan National and Dulles. "We have concerns about the size [of the
merger]," Cooper said.
Cooper said the proposed airline merger was
analogous to the combination last year of Exxon and Mobil, the two oil industry
giants. In that case, states focused most of their efforts on the ownership of
gasoline stations in their areas.
Delaware Attorney General Jane Brady
said that while Delaware does not have a commercial airport in the state, most
people who live in the northern half of the state use the Philadelphia airport.
"The impact of the merger will be directly felt by my constituents," she said.
As a result, Brady said she has told Pennsylvania's Fisher of Delaware's
interest and pledged to work closely with him in studying the merger.
"I
do believe we should have discussions and look with some scrutiny at the
proposal," Brady said.
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