"Air industry softens to mergers"

Sunday, December 19, 2004

Air industry softens to mergers 
By James Pilcher
The Cincinnati (OH) Enquirer


The airline industry has been struggling since September 2001. Once carriers
weathered the immediate impact of the terror attacks, the Bush
administration and Congress chose a hands-off approach to the major
airlines' financial troubles.

Now, three of the nation's 10 biggest airlines are in bankruptcy (one for
the second time in three years), and a fourth (Delta Air Lines) still is
near the brink. Industry insiders and key members of Congress say not to
expect any major shifts or further financial aid.

"To sum it up pretty succinctly, there's not much that can be done," said
Rep. John Mica, R-Fla., chairman of the House aviation subcommittee.

"We do plan to take a look at the financial condition of the industry early
next year . . . and talk with airline-industry leaders to see what
suggestions they have. . . . But one problem is that not all the airlines
agree on what they want to do."

Congress and the administration would like to see the industry work out its
own problems, which could mean a lessening of restrictions on the mergers
and acquisitions that many think are necessary for the airlines to survive,
says Scott Yohe, Delta Air Lines senior vice president of government
relations.

Any possible merger or acquisition would be viewed on its own merits, "but
clearly there is a recognition that the industry is going through a
restructuring, and mergers and acquisitions could be a part of that
restructuring," Yohe said. "There is an inclination politically and
philosophically here in Washington right now to let the market play all of
this out."

The last major consolidation was in 2001 when American bought struggling
TWA. Delta and Continental also came close to merging in the late 1990s.

Still, industry consolidation has slowed considerably since the 1980s, when
deregulation led to many mergers and buyouts.

In fact, Department of Justice regulators quashed a possible merger between
United and US Airways in July 2001. Both United and US Airways are in
Chapter 11, with the latter under bankruptcy protection for the second time
in three years. The third airline, Indianapolis-based ATA Airlines, Inc.,
filed Chapter 11 in October, and last week Southwest Airlines outbid AirTran
Holdings Inc. to acquire ATA's gate leases at Chicago's Midway Airport.

Marc-David Seidel is an assistant marketing professor at the Sauder School
of Business at the University of British Columbia. He says that mergers may
not be the answer.

"When the airlines talk about this, they are telling financial stories about
economies of scale, when what they really need is a culture shift," said
Seidel, who has studied the evolution of the airline industry.

Mica says that it would be a good idea to let "the market settle itself
out."


 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dcfp/dcboard.php


*****************************************