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Political leaders lashed out Monday at a series of proposed transactions involving four of the country’s largest airlines, but antitrust experts said the deals could improve prospects that regulators will approve the acquisition of US Airways Group Inc. by UAL Corp., United Airline’s parent company. AMR Corp.’s American Airlines has tentatively agreed to acquire Trans World Airlines Inc. and buy a $1.5 billion stake in US Airways, which would include planes, gates at Reagan National Airport in Washington, D.C., a 49 percent stake in soon-to-be created D.C. Air, and half of the Boston-New York-Washington shuttle. The deals, which could be announced this week, would create a carrier nearly as large as a combined United-US Airways. It would control about 25 percent of the domestic air travel market, compared to 26 percent for the new United Airlines. It also would ensure that planes continue to fly on TWA’s routes. Despite TWA’s two bankruptcy reorganizations, the St. Louis carrier has not regained its financial footing. The deal got a stormy reaction on Capitol Hill, where lawmakers already were upset over UAL’s pending $11.6 billion acquisition of US Airways. “When the United/US Airways merger was announced, we expressed our concern that the deal would spur further consolidation in the airline industry,” said Sens. Mike DeWine, R-Ohio, and Herb Kohl, D-Wis., respectively the chairman and ranking members of the Senate Judiciary antitrust subcommittee. “The rumored American/TWA deal is an unfortunate confirmation that consolidation is underway…. It is hard to imagine how this could be good for competition or for consumers.” The senators vowed to hold hearings on these deals. Rep. James L. Oberstar, the ranking member of the House Transportation Committee, said the American-TWA deal moves the country closer to having only three major airlines. “The rest of the industry would see both American and United increasing their advantages,” the Minnesota Democrat said. “There would be great pressure for more defensive mergers.” Antitrust experts said Monday that U.S. Department of Justice lawyers are unlikely to enthusiastically back any of the deals. However, these experts said the total package may be barely palatable to regulators. “To the extent antitrust issues have been raised, this looks like an effort to address them,” said William Baer, a partner in the Washington office of Arnold & Porter and a former director of the bureau of competition at the Federal Trade Commission. “That is probably very helpful to the resolution of the United-US Airways deal.” A Justice Department spokeswoman declined to comment on the substance of talks between the parties and the government. “We are conducting a thorough investigation and any speculation about a decision made by this department is premature,” she said. “No decision has been made.” The spokeswoman declined to discuss the American-TWA deal, noting that the companies have yet to formally notify the government of an agreement. Antitrust experts said regulators are now considering essentially three separate deals. Presenting the fewest problems is American’s planned purchase of TWA, they said. TWA is running out of cash and has huge interest payments due shortly. It plans to file for bankruptcy protection in the next few days, with American providing the debtor in possession financing until it secures court approval to takeover the carrier. William Kovacic, a professor at George Washington University’s law school, said the American-TWA deal should qualify under the failing firm defense. This doctrine holds that competitors may merge if one company is on the verge of failure. The defense typically requires a company to shop itself to multiple buyers. It only may merge with the competitor if other potential buyers decline to bid. Kovacic said he doubts other airlines would want TWA, which funnels flights through St. Louis. “It is possible that the Justice Department would prefer a purchaser other than American,” he said. “But it is not clear, given the shambles of the TWA route structure, that any other airline would step forward.” Another antitrust expert said American and TWA have little overlap in their routes because TWA steers all flights to St. Louis. A bigger problem is American’s purchase of about 20 percent of US Airways, which would give it stakes in D.C. Air and the shuttle. Several sources predicted regulators will embrace AMR’s investment in D.C. Air, which is a new carrier at Washington National Airport being created by United to offset competition lost from the US Airways deal. Sources said regulators have expressed support for having American Airlines provide pilots and lease aircraft to D.C. Air, rather than having those tasks fall to United. But Kovacic said regulators are likely to object to the shuttle deal. This is because each carrier will operate half of the shuttle flights, with consumers being allowed to use tickets issued by each on the other’s flights. The problem is this effectively eliminates price competition between the carriers because the tickets are interchangeable, he said. Robert Lande, a professor at the University of Baltimore law school and senior research fellow at the American Antitrust Institute, said the fact that American feels compelled to buy TWA could convince regulators that the United-US Airways deal will result in wave of dealmaking in the industry. This could convince them to stop all the deals, he said. “If you were right on the margins, this should be a tipping factor in terms of killing the United-US Airways deal,” he said. The review of the deals is likely to stretch on for months. Arnold & Porter’s Baer said the tremendous congressional opposition to the deal could embolden the Justice Department staff — despite the change in administrations — to continue their investigation. There was no shortage of congressional protests. A spokeswoman for Senate Commerce Committee Chairman John McCain said the Arizona Republican is “concerned” about the American-TWA merger and plans to take a “close look” at the deal. McCain has been a staunch opponent of the United-US Airways deal, pushing a resolution through his committee that declared the deal anticompetitive. Rep. Louise M. Slaughter, D-NY, said the American-TWA deal proves the contention of the critics that the United-US Airways merger will trigger a wave of consolidation that will result in only three major airlines serving the United States. “It would be a travesty for the new administration to let this go forward,” said Slaughter, who commissioned a recent General Accounting Office study highly critical of the UAL-US Airways deal. “I wonder how the flying public would feel if the disastrous holiday season they just endured was about to become the industry standard.” She urged the Department of Transportation to quickly release guidelines that would prevent anticompetitive mergers. The deal also was trashed by the American Society of Travel Agents, which said approval of either deal would be the “death blow” for competition in the airline industry. “The airlines should not be allowed to buy out potential competitors rather than compete,” ASTA president Richard M. Copland said. Yet the deal won support from the Air Travelers Association, which represents airline passengers. The group said TWA and US Airways are too weak to compete effectively as independent carriers. Linking up respectively with American and United will ensure the carriers continue to service their existing routes, said David S. Stempler, president of the group. The deals should not effect pricing, he said. “These big airlines don’t really compete with each other on price,” he said. “They always move in lockstep with each other on fares. They only really compete on price with the low fare carriers.” Copyright (c)2001 TDD, LLC. All rights reserved.

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