Hearing of the Subcommittee on Antitrust, Competition Policy and Consumer Rights of the Senate Judiciary Committee - An Examination of the Delta-Northwest Merger

Statement

Hearing of the Subcommittee on Antitrust, Competition Policy and Consumer Rights of the Senate Judiciary Committee - An Examination of the Delta-Northwest Merger

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SEN. RUSSELL D. FEINGOLD (D-WI): Well, first I'd like to of course thank the senior senator from my state, Wisconsin, chairman of the subcommittee, for calling this important hearing. I share Senator Kohl's -- I share his concerns and questions about how the proposed merger will affect the prices paid and the routes available to the flying public.

From the written testimony the companies estimate that the merger will result in over $1 billion in annual synergies.

While there seems to be savings from consolidation of headquarters, from more efficient allocation of planes, I fear that, quote, "synergies" may also be a euphemism for increased cost and reduced service in the long run.

So these are obviously serious concerns for my constituents, particularly the ones that read a recent Milwaukee Journal Sentinel article headline, "Northwest-Delta deal could yield fewer, costlier flights around state." And the impact would not just be felt in Milwaukee, where Delta and Northwest currently compete. The merger would also mean one fewer competitor in Green Bay, Appleton and Madison.

Smaller communities could be particularly vulnerable. For example, Appleton, Wisconsin, is currently served by only four airlines, including Delta's Comair service to Cincinnati and Atlanta and Northwest's Airlink to Minneapolis and Detroit. Despite the companies' expressed desire to retain all service there is speculation that service to some of the network hubs will be reduced. Specifically, Standard and Poor's suggests that some Cincinnati and Memphis hub traffic may be shifted to Detroit or Atlanta, respectively. That could leave my constituents in Appleton facing the very real possibility of fewer airlines, less competition, higher prices and fewer destinations.

Mr. Chairman, I'm also concerned about the impact this proposed merger would have on employees at Northwest and Delta Air Lines. A number of employees have expressed doubt that the proposed merger would improve their working environment. The Machinists Union, which represents thousands of employees at Northwest, has said, "We firmly believe that this merger is not in the best interest of passengers, employees and the communities these airlines currently serve."

The Association of Flight Attendants-CWA, which represents thousands of Northwest flight attendants and is working to organize thousands of Delta flight attendants, has expressed concern that while the executives of both companies have promised employees will not be laid off, the companies have refused to, quote, "put that commitment in writing," unquote.

The Northwest pilots union has also voiced concerns about the fact that Delta and Northwest engaged the Delta pilots union in reaching the merger deal while leaving the Northwest pilots union out of further discussions to date.

The fact that these concerns have not yet been addressed troubles me. All employees and their bargaining representatives must be included in pre-merger discussions, and I hope that the companies make a concerted effort to reach out to these employees and their representatives in the coming days and weeks.

Now, I understand that Senator Kohl has already asked some questions with regard to Midwest Airlines. I will not ask additional questions on that topic now, but I of course want everyone to know and to have the record reflect that I share Senator Kohl's concerns and support for our home state airline.

Now, Mr. Anderson, in your written testimony you state, "We have provided a written commitment to honor the existing Northwest collective bargaining agreements consistent with applicable law until any post-merger representation issues are resolved." The fact that you have provided this written commitment indicates that you may be unable to integrate the Delta-Northwest work forces prior to approval of the proposed merger and that you may have various work rules in place should the merger go forward. Various employees have voiced concern that differing work rules could cause resentment among employees and potentially result in less cooperation in a newly merged company.

If you're not able to fully integrate the different employee groups at Northwest and Delta, how do you plan to realize the synergies and the so-called substantial cost savings that you and Mr. Steenland have testified about today?

MR. ANDERSON: Well, the process under the Railway Labor Act, where you have two separate groups of employees, we have a legal obligation to -- and really a moral obligation to -- honor those collective bargaining agreements until the National Mediation Board completes a determination of a single carrier and completes a representation -- resolves the representation issues between the two carriers. So we have a legal obligation to do that. Our hope is is that we're going to be able to get that done with the pilots in pretty quick order.

Senator, to give you just a little bit of background, the way it's historically been done in the airline business is the merger is announced, goes through the approval process and is closed, and then the process commence. So if you go back to the North Central merger and the Republic merger, that's how it's always happened in the industry. And what we tried to undertake with our pilots -- the two pilot groups -- was very unusual. And we're -- we think we can get that done. I'm optimistic that between now and the time we close this transaction that we're going to be able to get that done with the pilot groups.

With respect to seniority protection, it's both federal law, it's a provision in the merger agreement and it is included in the resolutions of the company at Delta. So we have very clear protections on Allegheny-Mohawk seniority integration on the front line.

Lastly, we've set aside a very significant portion of equity in the new company for the employees, so that the employees share in the benefits that get created by the transaction.

So we believe that ultimately it provides a more stable place. And as I said earlier in my testimony, you know, the only true job security in the airline business is working for a financially stable and durable airline.

SEN. FEINGOLD: Well, Mr. Steenland and Mr. Anderson, I understand that both Delta and Northwest have affiliates that provide services as part of their networks. What are the plans with regard to the regional jet service? Are there any plans to merge their operations or shift capacity?

MR. STEENLAND: Northwest owns two regional carriers, Mesaba and Compass. We have a long-term contract with a third carrier called Pinnacle. We have -- as a result of this merger we have no plans to change those arrangements. Those three airlines will remain providers of regional service. There might be some back office functions that get made more efficient. But in terms of a separate entity continuing to operate the regional service that we provide, there'll be no change.

SEN. FEINGOLD: Mr. Anderson?

MR. ANDERSON: And we have a wholly owned subsidiary called Comair which is based in Cincinnati and operates a significant number of flights out of Cincinnati and JFK, and no change in that regard.

SEN. FEINGOLD: Thank you, Mr. Chairman.

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