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"U.S. Senate panel will hold airline merger hearing"



Tuesday, January 9, 2007

U.S. Senate panel will hold airline merger hearing
By John Crawley 


WASHINGTON (Reuters) - U.S. Senate lawmakers said on Tuesday they would more
closely examine potential airline mergers, including the hostile bid for
Delta Air Lines Inc. by US Airways Group Inc. 
 
The Commerce Committee said it would hold a hearing on airline consolidation
on January 24. The panel did not release a witness list and a spokeswoman
would not say if airline chief executives would be called to testify.

Lawmakers in both houses have expressed concern about the potential impact
of new consolidation on consumers, especially the potential for higher fares
and more erosion of service to small communities.

"I think we want to understand from the airlines what's happening here,"
Sen. Byron Dorgan (news, bio, voting record), a North Dakota Democrat and
member of the commerce panel, said in an interview.

"I'm concerned about any additional proposals by large carriers. I don't
think we need less competition. I think we need more. From the standpoint of
consumers I don't think it's beneficial to see some of the largest carriers
marry up," Dorgan said.

Dorgan said he wants to hear from the airlines themselves as well as Justice
and Transportation Department regulators who would review any formal
proposals.

Sources have said United Airlines, a unit of UAL Corp. and Continental
Airlines are in preliminary talks about a merger. In November, US Airways
made an unsolicited offer for larger Delta, which is bankrupt. Delta
management rejected the $8.7 billion bid.

Separately, Northwest Airlines Corp. wants to evaluate strategic
alternatives, including a merger. Continental is seen as a potential
partner.

The House of Representatives is also likely to hold hearings, according to
congressional aides.

Rep. James Oberstar (news, bio, voting record), a Minnesota Democrat and
chairman of the Transportation Committee, has "very strong concerns" about
possible negative impacts airline mergers, especially the potential for
higher fares, a spokesman said.

To ally concerns, the aide said Oberstar would have to be convinced that
airline consolidation would generate a general economic upside and not hurt
consumers.

Congressional concerns over service and competition, which led to hearings,
contributed to the failed merger between United and US Airways in 2001.

The new proposals for consolidation come as the industry is on a financial
upswing after slowly emerging from its worst economic downturn.

The leading trade group for big U.S. airlines projected on Tuesday that
passenger and cargo carriers will net an estimated $4 billion next year.

The group estimates the major carriers will report 2006 earnings of between
$2 billion and $3 billion. The last year the industry made money was 2000,
which was also the last year for consecutive annual profits.

Big airlines are running much leaner than they were five years ago as
industry restructuring, most of it in bankruptcy since 2002, has led to
major cost savings and capacity cuts. But the industry acknowledges it must
improve its weak credit ratings so it can weather normal economic turbulence
-- like fuel price spikes.

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