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The Honolulu Advertiser
Posted on: Sunday, February 3, 2002

Airline merger must clear tough antitrust reviews

By Susan Hooper
Advertiser Staff Writer

Since the day it was announced in December, the planned merger of Aloha and Hawaiian airlines has been controversial.

The airlines' 6,000 employees have worried about losing jobs and other changes the merger will bring to their work. Hundreds of thousands of customers have worried about possible service cuts and fare increases, since the merged airline will have a virtual monopoly on interisland air travel.

The American Society of Travel Agents has opposed the merger, arguing it likely will lead to higher prices and poorer service. The Citizens for Competitive Air Travel, a group started by Hawaiian Airlines employees, says it has collected more than 10,000 signatures in opposition. Four lawsuits have been filed by disgruntled Hawaiian Airlines shareholders, charging the deal enriches insiders at the expense of the public stockholders. And several Democratic and Republican state senators have come out against the merger, arguing a near-monopoly airline would harm consumers and the state's economy.

In spite of heated opposition from many sides, however, analysts say the fate of the merger rests largely with the antitrust review being conducted by the state attorney general's office and the U.S. Department of Justice. Unless Aloha or Hawaiian decides to back out, the antitrust lawyers have the only real power to stop the deal, analysts say.

Antitrust experts said when the merger was announced that it has a good chance of winning approval at the federal level because of the relatively small size of the deal, which is valued at $150 million to $200 million; the relatively relaxed attitude the administration of President Bush has taken toward antitrust issues; and the fact that the entire airline industry is struggling to stay afloat.

Officials involved in the merger have said they are confident they can win regulatory approval at the state level, in part because the current economic climate has made it difficult for two airlines to survive in the interisland market.

And Greg Brenneman, the turnaround expert leading the merger, said last week the deal is "90 to 95 percent" likely to proceed, in spite of opposition from lawmakers, shareholders and employees.

Factors to consider

Among the areas the Justice Department scrutinizes are the amount of competition lost from the market by the merger and the concentration of service that would result, said Patrick Murphy, a former deputy assistant secretary for aviation and international affairs who is now an airline industry consultant in Washington, D.C.

The Justice Department also looks at the prospects for new competition coming into the market and scrutinizes the state's airport facilities to see if they can support a competitor, Murphy said. The anticipated health of each airline without the merger is also studied.

Lawyers in the state attorney general's office conduct a parallel review.

For his part, Murphy said he is doubtful that public opposition to the merger would sway the federal antitrust review.

"That typically is not important to the Justice Department," he said. "They look at precedents and standards used by the courts over the decades on how to review mergers. And the opinions of employees and even customers are not one of their major criteria. ... Their review is based on antitrust law, so they try to adhere strictly to that."

Michael Meaney, a deputy attorney general involved in the state's review of the merger, said public comment does play a role in their work — but that role is limited.

"Ultimately we are looking at those items governed by federal and state antitrust law, and the facts that support those positions," he said. "However, there's going to be other information floating around, and we need to sort through that to see if any of that assists us in getting those facts and law that we're ultimately trying to get to. It's very possible somebody could write a letter that's primarily their opinion, but it has an allegation of fact that we think is worth following up on."

Voicing opposition

In the end, the Justice Department likely will either approve the merger, say it is unacceptable or impose conditions that would make it acceptable, said Murphy, the Washington consultant. These conditions could include expanding offers the airline has already made to ease consumer concerns, such as a proposal to cap fares for a certain period.

Kirk McBride, a Hawaiian Airlines pilot and a spokesman for Citizens for Competitive Air Travel, said his group expects to take its signed petitions to the attorney general's office and Gov. Ben Cayetano. But, he said, members of the group were aware when they formed last month of their limited power to influence the merger.

"We still decided we had to be opposed, and hopefully be able to influence certain aspects of (the merger), and bring critical issues to light ... " he said. "I think what's important is that the public officials, who are going to have to pass some judgment on this, get a true sense of where the public is on it. ... We recognize that we had to go forward and try to stop the merger, and we also recognize that we may not be able to accomplish that goal."