States, including Nevada, fight against United-US Air merger

Tuesday, Sept. 19, 2000 | 11:33 a.m.

SUN STAFF AND WIRE REPORTS

UAL Corp.'s $11.6 billion acquisition of US Airways Group Inc. is likely to be challenged in court by as many as 20 states concerned that increased airline consolidation will reduce competition and lead to higher fares, officials said Monday.

That opposition is likely to include Nevada, where state officials have opposed the merger from the start.

The states are increasingly concerned about reduced competition in city-to-city routes flown by both United and US Airways as well as consolidation of dominance in hub airports, they said.

"There are people serious and willing to go forward," said Minnesota Attorney General Mike Hatch. The states' resolve has been bolstered by a review of documents and interviews of witnesses, he added. "The more documents they review, and look at and talk to the witnesses, the more committed" the states are to suing to block the takeover, Hatch said.

He predicted the states would go forward even if the U.S. Justice Department decides to permit the combination, a development he said is unlikely.

"United-US Air ends up with absolute dominance in the airlines east of the Mississippi," Hatch said. "This acquisition was to acquire market share. By definition it bucks right into the antitrust concerns of the states and I think the federal government."

Those concerns are shared by Nevada's state and federal officials, who are vocal opponents of the proposed merger.

In Senate Commerce Committee hearings on the merger in July, Sen. Richard Bryan, D-Nev., called the deal the first step in "a major consolidation of the airline industry with the consumer getting the short end of the stick."

Bryan argued that a combined United-US Airways would have more than 50 percent market share at six major hubs -- including a 91 percent share at Charlotte, N.C. -- and would be able to quash competition.

"To create such giants in such an aggressive industry would be like matching up Tiger Woods with your average weekend duffer; (smaller airlines) just won't be able to compete in certain markets," Bryan said. "If we are not careful, the only loser in this deal will be the American consumer." United was the No. 3 carrier at McCarran in July, with an 8.73 percent market share in flights. US Airways ranked No. 13, with a 1.68 percent share.

Even a combined United/US Airways, however, would fall far short of McCarran's No. 2 carrier America West Airlines, which controlled nearly 20 percent of the McCarran market in July.

Tim Hay, consumer advocate with the Nevada Attorney General's office, said the state would "take a serious look at" suing to block the merger, but said a decision hasn't been made yet. He said that Nevada hasn't been contacted by other states about such an initiative to his knowledge.

"Our overall concern is that ... if this merger is approved, it will trigger other mergers in the airline industry, and won't be beneficial to air service in Nevada, particularly in Northern Nevada," Hay said. "Even at McCarran, it would be less likely you'd be able to get economical travel deals."

The Justice Department's chief antitrust enforcer, Joel I. Klein, has already signaled in congressional testimony his doubts about the combination, particularly United's proposal to sell US Airways slots at Washington's Reagan National Airport to a startup called DC Air.

Klein told a Senate committee that his agency carefully scrutinizes such arrangements to make sure the new company wouldn't pull its competitive punches or manipulate prices and supply to quash competition. The Justice Department declined to comment on its review.

The states have had "serious discussions" with the airlines and with Robert L. Johnson, the United director and founder of Black Entertainment TV Inc. who will head DC Air, said Tam Ormiston, deputy attorney general of Iowa. They are trying to determine whether the startup carrier will be a "seriously viable airline," he said.

DC Air is "extremely dependent" on United for planes and crew, and "is probably a company destined to fail even with additional divestitures," Hatch said.

United spokeswoman Susana Leyva declined to comment on the states' specific concerns, except to note that the merger would eliminate competition in only four city-to-city routes.

The companies are committed to working with the Justice Department to preserve competition on those routes, which include flights between Philadelphia and Denver and Philadelphia and San Francisco, she said. "This is very much a process," Leyva said. "It is still going forward. We are committed to it."

Antitrust enforcers are also concerned that the combination could spur ever more consolidation of the airline industry, possibly reviving discussions between AMR Corp.'s American Airlines and Northwest Airlines Corp., Hatch said.

With six carriers serving 80 percent of the U.S. market, "if United acquires US Air, the other four will merge up into two," Hatch said.

States investigating the transaction include New York, Pennsylvania, Maryland, Illinois, Iowa, Michigan, Minnesota and Connecticut, Ormiston said.

The transaction was worth $11.6 billion when it was announced on May 24.