U.S. sues to halt merger of Northwest, Continental Plan would unfairly limit competition, Justice Dept. claims

October 24, 1998|By BLOOMBERG NEWS

WASHINGTON -- Northwest Airlines Corp.'s bid to buy a controlling stake in Continental Airlines Inc. would unlawfully limit competition in the U.S. airline industry, the U.S. government said in a lawsuit filed yesterday to halt the plan.

The lawsuit, filed in a federal court in Detroit, comes after talks between airline lawyers and the Justice Department's antitrust division failed to break an impasse over a plan that would effectively merge the nation's No. 4 and No. 5 airlines.

The lawsuit could signal an end to the two-decade-long consolidation of major U.S. airlines. Analysts and antitrust experts say the Justice Department might be sending a message that it won't allow combinations among the five largest U.S. carriers -- UAL Corp.'s United Airlines, AMR Corp.'s American Airlines, Delta Air Lines Inc., Northwest and Continental.

"With Northwest and Continental, regulators are drawing the line on domestic airline consolidation," said William Kovacic, an antitrust professor at George Washington University. "The agencies are not thrilled about the emergence of three global networks and would like to see more possibilities than that preserved."

Northwest and Continental vowed to fight the Justice Department in court, although they didn't specifically say whether they would try to close the transaction before the court fight concludes.

"As we have maintained from our very first announcement, Continental will remain a separate and independent airline -- and a strong competitor in its own right," Northwest General Counsel Douglas M. Steeland said.

In addition to challenging Northwest's stock acquisition plan, the Justice Department said it has "competitive concerns" about the companies' proposal to sell seats on each other's flights and link their frequent-flier programs. Antitrust enforcers said they are continuing their investigation of that aspect of the Northwest-Continental agreement.

Northwest first announced plans in January to acquire the 51 percent stake in Continental and complete what some described as a "virtual merger."

The Justice Department said that would eliminate competition on seven routes between cities where the two airlines have their hubs -- Detroit, Memphis, Tenn., and Minneapolis for Northwest and Cleveland, Houston and Newark, N.J., for Continental. Millions of passengers spend more than $350 million a year traveling among those cities, the government said.

"This acquisition would lead to higher ticket prices and worse service for the over 4 million passengers traveling on the routes dominated by the two airlines," said Joel Klein, head of the Justice Department's antitrust division.

Deregulation in 1978 touched off a wave of acquisitions as the largest airlines expanded their networks and built market domination at hub airports from Dallas-Fort Worth, to Atlanta to Minneapolis. Northwest acquired Republic Airlines; United bought Pan American's Pacific routes; American bought Air California. Northwest would pay about $405 million in cash and ++ stock for the Continental stake.

Pub Date: 10/24/98

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