The chief executives of Delta Air Lines Inc. and Northwest Airlines Corp. on Thursday tried to assuage skeptical lawmakers’ concerns about their proposed combination, defending it as the best way to cope with surging fuel prices.
Delta CEO Richard Anderson and Northwest CEO Doug Steenland said their airlines would be stronger together than they are apart, more competitive with large foreign carriers and better equipped to handle record fuel prices that led them on Wednesday to report a combined first-quarter loss totaling $10.5 billion. They reiterated that no hubs will be closed, no large-scale layoffs are planned and that the combination will create roughly $1 billion in cost savings.
“Oil is a game changer and this merger makes us stronger,” Anderson said.
Steenland agreed and said without a consolidation, Eagan, Minn.-based Northwest’s biggest challenge would be finding ways to offset fuel costs.
The cost of jet fuel in New York is more than $3.50 a gallon, compared with just over $2 a year ago.
After leaving the hearing, Steenland told reporters he had asked lawmakers earlier this week to do their part to keep fuel prices in check. He urged them to establish a comprehensive energy policy and said not buying oil for the Strategic Petroleum Reserve would be a good idea. The Bush administration’s policy of diverting oil into the government reserve when prices are at record levels also has been criticized by some Democrats.
House Judiciary Committee Chairman John Conyers Jr., D-Mich., said he was keeping an “open mind” on Delta-Northwest, but then blasted the Bush administration’s merger-friendly Justice Department and questioned whether airline mergers would lead to job cuts and higher fares for air travelers.
“We have an antitrust division that approves mergers left and right,” Conyers said. If Delta-Northwest is approved, he expressed concerned that it will “result in a cascade of other mergers,” including Continental Airlines-United Airlines and American Airlines-US Airways and lead to three mega-carriers competing only against each other.
Lawmakers from both parties also expressed concerns about how the proposed combination would affect employees in, and service to, their home districts in Orlando, Fla., Memphis, Tenn., San Diego and elsewhere.
The airline executives said market competition would continue to dictate air fares, flight options for travelers will rise and that only corporate jobs would be cut.
Anderson said no more than 1,000 positions will be eliminated and that “we’ll deal with that as respectively and judiciously as we can.”
Union representatives were unconvinced and said the deal would sacrifice the rights of Northwest workers. R. Thomas Buffenbarger, international president of the International Association of Machinists and Aerospace Workers, also was not swayed by the CEOs repeated references to fuel costs.
“The cost of a gallon of fuel for two individual airlines will be the same as for one large airline,” Buffenbarger said. “Consolidation is not the solution for this troubled industry — more competent management is.”
Still, Anderson and Steenland said they remain confident that Justice will not require them to give up any gates or slots on the 12 routes where the two overlap because ample competition exists in those cities. Steenland said the questions on international routes already have been answered by the Transportation Department.
The combined airline would be named Delta, be based in Atlanta and run by Anderson under the terms announced April 14. But antitrust concerns have sunk potential deals before. In 2001, an attempt to merge United and US Airways fell apart amid concerns that the combined carrier would control too much of the Washington, D.C., market and dominate several other key routes.
The carriers filed paperwork with Justice on Monday. But skepticism doesn’t appear to be limited to Capitol Hill.
Since the deal was announced, Wall Street has delivered stock declines that have shaved more than $1 billion off the value of the deal to Northwest shareholders, who would get 1.25 Delta shares for every Northwest share they own.