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Democrat Senator Issues Warning About Airline Mergers December 16, 2006

Posted by notapundit in Congress, Economic News.

WASHINGTON (Dow Jones)–A senior Democrat senator Friday expressed concern about the impact on competition from potential consolidation in the U.S. airline industry.

Sen. Frank R. Lautenberg (D-NJ) said he is concerned that renewed speculation the industry is about to embark upon another round of takeover activity could leave consumers shortchanged.

“What matters to me is to see if this proposal is good for the flying public, if it makes air travel more convenient, less expensive and with higher quality service,” Lautenberg said in a statement Friday.

Last month, Delta Air Lines Inc. (DALRQ) rejected an unsolicited $8 billion approach from U.S. Airways Group Inc. (LCC), saying the company was on track to emerge from bankruptcy protection in early 2007 on its own.

Airline shares then moved up sharply on Wednesday with the AMEX airline index increasing 3% on word of private discussions between the chief executives of UAL Corp. (UAUA), parent of United Airlines, and Continental Airlines Inc. (CAL) about a possible tie-up.

Also Wednesday, shares in regional carrier MidWest Air Group Inc. (MEH) shot up 22% – commensurate with the amount of a hostile takeover offer from AirTran Holdings Inc. (AAI).

Analysts have long predicted that the industry needs to go through a wave of consolidation in order to cut costs and duplication of services. The sector was hard hit by the steep drop in the numbers of people flying in the wake of 9/11. Airlines also struggled to swallow the spike in oil prices earlier in the year which led to a dramatic rise in their costs.

Once news of U.S. Airway’s approach for Delta was made public, the Department of Justice quickly made it clear its antitrust unit would investigate any potential transactions in the sector.

Lautenberg said that, in addition to the concerns he had about ensuring sufficient competition in the sector, he also wanted to seek reassurances that, were there to be a deal, there would be assurances given about protecting employees’ jobs at the two airlines.

“I also want to know more about plans for employees who have worked at Delta and U.S. Airways for many years, and employees who are near their retirement. What happens to them,” his statement said.

Lautenberg said that were actual consolidation in the industry to materialize, he “would ask serious and thoughtful questions in the Senate Commerce Committee about this proposal. Too much is on the line here to give it a rubber stamp.”

He said he wouldn’t hesitate from holding oversight committee meetings into airline consolidation.

Lautenberg sits on the aviation subcommittee and could possibly become its chairman once the party takes control of Congress in January. A spokesman for Lautenberg’s office would only say that the subcommittee chairman roles won’t be decided until January.

Staff members for other Democrat lawmakers said they share Lautenberg’s concerns but are waiting to see how any consolidation plays out before they commit to staging oversight hearings.

By Corey Boles, Dow Jones Newswires


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