TWA deal far from complete: Nevada senator wary of mergers

Philip Dine and Cynthia Wilson

Wednesday, March 14, 2001 | 11:22 a.m.

The Trans World Airlines-American Airlines deal is still far from takeoff.

Having secured approval of a U.S. Bankruptcy Court for their $4.2 billion deal, TWA and American must now focus on the remaining hurdles. Chief among them are legal, legislative and labor matters.

American won't be able to acquire TWA unless federal antitrust regulators at the Justice Department sign off on the deal. Their review has begun, and the fact that TWA faces liquidation without American will boost the companies' case, experts say.

Yet, it is also clear that given the size of this proposed deal as well as the number of aviation mergers under discussion, regulators will not simply wave through the TWA-American transaction.

The Justice Department already has taken the step of requesting more information from both TWA and American, following initial submissions.

"That's certainly a sign that the government thinks there may be some issues," said Tom Barnett, a Washington attorney who has handled antitrust aviation cases. "I think it will get a close scrutiny."

Meanwhile, members of Congress have filed several bills to curb mergers and acquisitions.

Among the bills is the Aviation Competition Restoration Act, proposed by Sens. John McCain, R-Ariz., and Fritz Hollings, D-S.C. It would require the secretary of transportation to also apply a "public interest test" to any proposals involving large airlines.

At a Commerce Committee hearing Tuesday, Sen. Jean Carnahan, D-Mo., sought to exempt the TWA-American deal.

Sen. Harry Reid, D-Nev., one of the co-sponsors of McCain's legislation, said the proposal would protect Nevada consumers.

"If this bill had been in effect (two years ago), we would have had more of a say in things when American Airlines came in and stole all of Reno Air's business," Reid said in reference to American's 1999 acquisition of the Reno-based carrier.

Other members of Nevada's congressional delegation said they would comment when they see specifics of the bill. Sen. John Ensign, R-Nev., said a markup of the McCain legislation is due later this week. In the House, a companion bill has not been introduced, but Rep. Shelley Berkley, D-Nev., is on the Aviation subcommittee that would review any new proposal.

None of the delegation have been contacted by investor Carl Icahn, whose Las Vegas-based Lowestfare.com stands to be hurt by the proposed American-TWA merger.

Icahn sells discounted tickets from the Internet site and an estimated 70 percent of the ticket inventory is on TWA flights. The U.S. Bankruptcy Court judge who approved the American-TWA merger also canceled Icahn's deal with TWA. Icahn responded with a suit against American for interfering with his ticket contract with TWA and he also said he would appeal the judge's ruling.

Lowestfare.com employs more than 500 people in Las Vegas.

The International Association of Machinists, TWA's largest union, has yet to agree to the transaction, though negotiations are continuing.

The key indication of whether the Justice Department will closely examine a proposed deal occurs when the companies notify officials of the transaction.

At that point, Justice Department officials have a simple choice: They can approve the request or they can seek more information and begin an investigation of the antitrust implications.

TWA and American gave their "pre-merger notification" to the Justice Department on Jan. 24. Since then, "They've asked a set of questions, and we're working through all the issues with them," said Al Becker, American's chief spokesman.

Once the government finishes its gathering of information, it has 10 days to decide whether to approve the transaction or go to court to block it.

In its bid to gain approval, TWA's use of the "failing company" argument will help, says Robert Litan, co-director of the Joint Center for Regulatory Studies.

"They're going to look at this route by route, by cities, to see how much overlap and how much concentration on these routes there is," Litan said. "Bankruptcy clearly favors a completion of the merger, and it may in fact even diminish the appetite of the department in insisting on divestitures."

But even the failing company provisions in antitrust law compel regulators to "try to find the least anti-competitive outcome," said Albert Foer, president of the American Antitrust Institute. "Merely going into bankruptcy does not end the inquiry."

The Sun's Richard N. Velotta

contributed to this report.