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Federal antitrust officials are urging the U.S. Department of Transportation to reject a bid by Delta Air Lines Inc. and Northwest Airlines Corp. to coordinate prices and scheduling with four foreign airlines. The Justice Department recommendation comes as major carriers struggle against high internal expenses and low-cost competitors. Blocked by regulators from outright mergers, major carriers are searching for alternatives that will help them cut costs. Both Delta and Northwest are treading dangerously close to bankruptcy. The Department of Justice on Friday urged DOT to deny a request by an airline consortium known as SkyTeam, which also includes Alitalia-Linee Aeree Italiane-SpA, KLM Royal Dutch Airlines and Air France, to be exempt from antitrust restrictions prohibiting competitors in an industry from collaborating on prices and product offerings. DOJ’s input probably derails plans for the joint venture, say airline industry and antitrust experts. In May 1996 UAL Corp.’s United Airlines and Lufthansa AG received antitrust immunity for their cooperation, a step that was a precursor to the now 16-member Star Alliance, which includes airlines as diverse as Air New Zealand, Spanair and LOT Polish Airlines. However, such deals remain suspect. In 1997, AMR Corp.’s American Airlines and British Airways plc sought to create an alliance. After much back and forth that deal was ultimately rejected in 2001. In that case, the sticking point with the DOJ was the restricted number of flights into and out of London’s Heathrow Airport. The current worry with SkyTeam’s venture is a fear that competition would be reduced on certain international routes as well as on domestic routes that help feed those international flights. “This situation increases the risk of harm and reduces the potential benefit to consumers,” wrote Justice Department lawyers led by Thomas O. Barnett, acting assistant attorney general for antitrust. Although DOT on its own may grant immunity from antitrust enforcement in some cases involving international air transportation, DOJ is routinely asked to weigh in and make recommendations on specific requests. Recommendations by Justice Department lawyers on antitrust issues are largely heeded by transportation officials. “I think this deal is dead,” said Mark Schechter, an antitrust partner at Howrey, who has worked for airline clients for many years and who reviewed the DOJ comments. “DOJ weighing in as heavily as they did on this matter is going to make DOT very responsive to DOJ concerns.” Nevertheless, the venture plans to pursue the request. “We do plan to proceed with DOT,” said Delta spokesman Benet Wilson. DOJ’s rejection — explained in a 37-page filing accompanied by 113 footnotes — was, he said, “just part of the process.” Most details of SkyTeam’s plans remain confidential, but in their analysis of the venture’s impact, Justice Department lawyers warned that the venture’s application applies to largely overlapping airline routes rather than end-to-end extensions of their networks. One particularly troublesome component is a plan to coordinate international flights between North and South America as well as between those continents and the Caribbean. “They do not describe how much they will integrate, what new routes that might serve or why their proposed combination will not substantially lessen competition on the routes where Delta and Northwest now offer competing … service.” Another strike against the deal: This also is the first time an alliance seeking antitrust immunity has included two major U.S. airlines — Delta is the nation’s third largest and Northwest its fourth largest. “These airlines are important competitors on numerous international and domestic routes,” the Justice Department officials said. Approving cooperation among competitors is anathema to antitrust regulators, Schechter noted, unless there are clear benefits for consumers. In this case, Justice officials say the venture would offer little to trans-Atlantic travelers beyond additional and more frequent routings. Say Justice Department lawyers: “These benefits appear here to be modest and of uncertain value.” Copyright �2005 TDD, LLC. All rights reserved.

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