Q&A: Federal Review of Airline Mergers
By Scott Shepard, The Atlanta Journal-Constitution
Nov. 16–WASHINGTON — Reports of a possible merger of Delta Air Lines and United Airlines have raised questions about a possible antitrust review should such a merger be attempted:
QUESITON: Which federal agencies are involved in deciding whether a proposed airline merger violates antitrust standards?
ANSWER: With certain exceptions, two federal agencies share responsibility for enforcing laws that promote competition in the marketplace: the Antitrust Division of the Department of Justice and the Bureau of Competition of the Federal Trade Commission.
But the Justice Department has sole antitrust jurisdiction involving the regulation of certain industries, including telecommunications, railroads and airlines.
Q: What role does Congress have?
A: Congress has oversight and funding responsibility for the FTC and the Justice Department. Congress can also amend existing antitrust laws.
Q: What’s the legal basis for reviewing mergers?
A: The Antitrust Division of the Justice Department is authorized to challenge acquisitions and mergers under the 1890 Sherman Antitrust Act and another federal statute, the Clayton Act, which was enacted in 1914 to address some of the deficiencies in the Sherman Act.
If the Antitrust Division determines that a merger may substantially lessen competition, it can “fix” the problem in several ways: seek a court injunction to stop a transaction, negotiate a settlement or accept a “fix-it-first” remedy that allows the merger to proceed with modi?fications that restore or preserve competition.
Q: What factors does the Justice Department take into consideration in reviewing mergers?
A: The Department tries to predict whether the merger will create or enhance market power or facilitate the exercise of market power. In reviewing any particular airline merger, the department first identifies the city “pairs” in which the merging carriers both currently provide service, or may in the future.
Using data that the carriers regularly provide the Department of Transportation, the department uses overlapping city pairs — in some cases, overlapping hubs — to calculate the market shares of the merging carriers and any competitors, comparing pre-merger and post-merger market shares and gauging the change in concentration.
Q: How long does this usually take?
A: About two years.
Q: What was the last major domestic airline merger the Department of Justice investigated?
A: In 2005, the Justice Department determined that the proposed merger of US Airways and America West would not reduce competition. It noted that there was little overlap between the networks of the two airlines, because America West operated primarily in the western United States and US Airways operated primarily in the East. The merger was completed.
Q: Can federal antitrust enforcement take into account the unique problems faced by today’s airline industry and possible bankruptcy of a carrier?
A: The Justice Department can allow an otherwise anti-competitive merger to go forward without challenge if certain conditions are met: a failing carrier will be unable to pay its bills in the near future, a failing firm could not successfully reorganize in bankruptcy, or the first has tried to sell itself to someone else and without the acquisition the firm will exit the market.
Q: What if the merger would produce efficiencies, especially with skyrocketing fuel prices?
A: The Department of Justice can take into account whether the merger would bring efficiencies that would enhance competition and would outweigh any anti-competitive effect.
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