Delta/Northwest merger seen likely to be approved

A proposal by Delta Air Lines to buy Northwest Airlines is likely to be approved by the U.S. government, an influential lawmaker on aviation affairs said on Wednesday.

Rep. John Mica, a Florida Republican and former chairman of the House of Representatives aviation subcommittee, told a hearing on the merger proposal the deal to create the world's biggest airline did not appear anti-competitive.

Democratic colleagues on the panel predicted the merger would probably lead to service reductions and job cuts and usher in other mergers to further narrow choices for consumers.

"In short, the pending merger places at risk the consumer benefits of airline deregulation," said James Oberstar, a Minnesota Democrat and chairman of the House Transportation Committee.

But Mica said the industry faces enormous challenges and it was more likely than not that "this merger will be granted" by officials at the Justice and Transportation departments who are reviewing the potential impact on competition and service.

Antitrust and industry experts have said previously the Delta/Northwest proposal stood a good chance of winning regulatory approval.

A senior official from the Justice Department's antitrust division, James O'Connell, told the hearing that he could not comment on the case.

But O'Connell said competition in the airline industry "is critical" and said the agency has a "strong record" of "enforcing antitrust laws" in the industry.

Delta proposed in April to acquire rival Northwest in an all-stock deal. Executives of the merged company say they plan to expand service, especially overseas.

So far, the proposal has met little or no resistance in Congress, which cannot block a deal. Lawmakers, however, can disrupt the timing of the regulatory review, influence policymakers and rally consumers and workers.

Aviation subcommittee Democrats gave the chief executives of both airlines -- Richard Anderson of Delta and Douglas Steenland of Northwest their toughest public review yet.

"Previous airline mergers have rarely produced the projected benefits and efficiencies promised," said Rep. Jerry Costello of Illinois, the current aviation subcommittee chairman. "This has frequently led to reduced competition and higher fares."

Delta estimates annual cost savings and revenue gains of at least $1 billion for the merged company. Of roughly $700 million in projected cost savings outlined by Anderson, at least $150 million would come from combining operations at airports. Another $150 million would come from paring corporate overhead.

Delta estimates roughly 1,000 job losses in management and administrative ranks from the deal.

While the deal is supported by the Delta pilots' union, pilots and flight attendants at Northwest agree with labor-friendly Democrats that the combination appears overly optimistic and could be bad for consumers and lead to labor friction.

"With the price of oil, the weak economy, the closed credit markets, and the huge costs of combining the two companies, there will be no margin for error," said Dave Stevens, chairman of the Northwest pilots union. "The net result may be a weak combined carrier in a terrible economic environment."

Stevens said Northwest should remain independent. But he noted there was a "small window" of time to negotiate a new contract with management and joint seniority agreement with Delta pilots, which has been elusive for months.

Delta management has agreed to wage and benefit terms with its pilots -- including an equity stake in the new company.