[Senate Hearing 106-1015]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1015
UNITED AIRLINES-US AIRWAYS MERGER
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
BUSINESS RIGHTS, AND COMPETITION
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 26, 2000
__________
PITTSBURGH, PA
__________
Serial No. J-106-92
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
------
Subcommittee on Antitrust, Business Rights, and Competition
MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
Pete Levitas, Chief Counsel and Staff Director
Jon Leibowitz, Minority Chief Counsel and Staff Director
C O N T E N T S
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STATEMENT OF COMMITTEE MEMBER
Page
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Canale, Randy, President and Directing General Chairman,
Machinists District 141........................................ 40
Delgadillo, Richard, President, Local 40, Association of Flight
Attendants..................................................... 41
Fisher, Hon. Mike, Attorney General, Commonwealth of Pennsylvania 2
Gillespie, Patrick, Business Manager, Philadelphia Building and
Construction Trade Council..................................... 35
Hudson, Paul, Executive Director, Aviation Consumer Action
Project........................................................ 17
Isdell, Charles, Acting Director of Aviation, Philadelphia
International Airport.......................................... 22
Longmuir, Shelley A., Senior Vice President, International
Regulatory and Corporate Affairs, United Airlines.............. 11
Mahoney, Joseph W., Jr., Vice President, Greater Philadelphia
Chamber of Commerce............................................ 23
Maisano, Vincent J., International Vice President, District 13,
Communications Workers of America.............................. 36
Mitchell, Kevin P., President, Business Travel Coalition......... 25
Nagin, Larry, Executive Vice President, Corporate Affairs and
General Counsel, US Airways.................................... 12
SUBMISSION FOR THE RECORD
Flight Attendants' Statement on United Airlines' Offer To Acquire
US Airways, letter and attachments............................. 45
UNITED AIRLINES-US AIRWAYS MERGER
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MONDAY, JUNE 26, 2000
U.S. Senate,
Subcommittee on Antitrust, Business Rights,
and Competition,
Committee on the Judiciary,
Philadelphia, PA.
The subcommittee met, pursuant to notice, at 9 a.m., in the
Ceremonial Courtroom, 1st floor, Federal Courthouse, 601 Market
Square, Philadelphia, PA, Hon. Arlen Specter presiding.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Senator Specter. Good morning. The hour of 9 o'clock having
arrived, we shall proceed with this hearing of the Antitrust
Subcommittee of the Judiciary Committee of the United States
Senate. We have moved the time to 9 o'clock because after this
hearing was scheduled, Senator Lott, the Majority Leader,
called for floor action on the appropriations bill on the
Labor, Health and Human Services, and Education Subcommittee
which I chair so that it is necessary for me to be in
Washington in the early afternoon, so we wanted to move the
hearing up and conclude it a little before 11 o'clock since I
had to catch the 11:11 a.m. Metroliner.
Now, this is the first in a series of three statewide
hearings on the proposed merger of United and US Airways. We
will have a hearing in Pittsburgh on July 10 and a hearing in
Lehigh Valley on July 24. There has already been one hearing of
the Antitrust Subcommittee before, and we are going to focus on
the broad array of issues involved in this proposed merger.
Senator Biden, who used to be chairman of the full
Judiciary Committee, will be joining us shortly. Senator
Santorum had wanted to be here but had other commitments.
We are going to focus on the issue of competition which is
the central national issue as to whether this merger would
lessen competition. United is the biggest of the carriers. US
Airways is number six, and the essential purpose of the
antitrust laws is to protect competition. We will also be
taking a close look from a Pennsylvania perspective as to what
the impact would be on our State since two major US Airways
hubs are located here employing some 17,000 individuals.
There is a major issue involving Pittsburgh on the
maintenance center, which has been a prospective addition by
United and by US Airways for some time, and we have yet to get
a definitive answer on that subject. It implicates the United
maintenance center in Indianapolis as to whether US Airways is
going to proceed to construct the maintenance center in
Pittsburgh.
There have been major commitments made on the undertakings
by both Pittsburgh airport and the Philadelphia airport in
terms of capital improvements for the hub. Obviously if the
merger is concluded, United will assume US Airways'
obligations, but there is more than just the contractual
obligations. That is a presetting of the stage.
I would like to call our first witness the distinguished
Attorney General of Pennsylvania, Mike Fisher.
The Honorable Michael Fisher comes to the Attorney
General's Office after an extraordinary career in public
service in the State Senate, and prosecuting attorney in
Pittsburgh, candidate for Lieutenant Governor, candidate for
Governor, very deeply involved in the law and the public
aspects of this proposed merger.
Mr. Attorney General, we welcome you here and look forward
to your testimony.
STATEMENT OF HON. MIKE FISHER, ATTORNEY GENERAL, COMMONWEALTH
OF PENNSYLVANIA
Mr. Fisher. Thank you very much. It is a pleasure for me to
be here, Senator.
I first of all would like to commend you and Senator Biden
and Senator Santorum for the interest that you have shown in
this issue. I know that you participated in the hearings of the
subcommittee in Washington week before last, and you have these
hearings scheduled across Pennsylvania and I commend you for
taking the extra effort to do that.
We have submitted a written statement, but I would like to
just summarize a couple of issues that I think are important
for you.
Senator Specter. Your full statement will be made a part of
the record. We have set the time clocks at 5 minutes since we
have so many witnesses. That will leave us some time for some
dialog and Q&A.
Mr. Fisher. Let me just start with a couple things which we
mention in our statement.
First of all, I think it is important for you and your
colleagues to know that the State attorneys general, not only
in this State but across the Nation, have a deep interest and
concern in this proposed merger and that we have in 10 years
been working together with the U.S. Department of Justice and
Federal Trade Commission and have firmly established our role
in working with them as partners in review of these mergers,
and this is no exception.
We have already entered into an agreement with the parties
involved here as well as with Justice as to how our review will
proceed together with Justice. I, together with Attorney
General Elliott Spitzer--our offices will be heading the State
review.
I have with me today Jim Donohue who is the chief of my
antitrust section. Mr. Donohue together with his partner from
New York will be the ones working with, at this point, 23 other
State attorneys general in looking at the State perspective.
There is no State in which this new merger will have a
bigger impact than Pennsylvania. That is why we have taken the
lead and that is why our participation is so important. Quite
frequently, in merger reviews like this, although we work in
partnership--and we will be looking at some of the impact,
looking at some of the local data to determine the local
impact--Justice will be looking at some of the international
impact.
We work together but we are not necessarily bound by the
same conclusions. So that even though the United States Justice
Department and the Federal Department of Transportation could
give their blessing to this merger,that does not preclude us
from State powers if we disagree with the conclusion from going to the
courts to try to get either additional concessions or to attempt to
stop a merger based on popular authority that I hold on behalf of
people of Pennsylvania.
There are, I think, a couple of questions that are
important here. Obviously the presence of two of the three
major US Air hubs being in Pennsylvania is very significant.
And you know hubs provide great benefits for air travelers;
there is no question about that. The ability to travel to a
wide variety of destinations nonstop from Pittsburgh and
Philadelphia across the Nation and now Philadelphia across the
world is very important to the people of Pennsylvania. But
larger carriers and hubs--and this is clearly what we will have
here, as the Nation's number one carrier now being firm, and we
hope firmly entrenched in hubs if this goes through in
Pennsylvania does create additional problems. And these
additional problems which we will be looking closely at are
some competition problems.
Our investigation is in the early stages so we cannot
exactly tell you all--obviously cannot appear here to tell you
the findings, but our concern of what we will be looking at in
a fashion that is somewhat different than what other
governmental leaders may be looking at. We recognize the
economic importance of this merger in Philadelphia, its
importance to Pittsburgh, and obviously many of the
governmental leaders who will be involved will look at those
aspects.
Clearly my job as Pennsylvania's Attorney General is to
look at the competition issue and to make sure that this merger
goes through, and, in fact, the merger does not create an
anticompetitive situation in Pennsylvania.
Senator Specter, at this stage, quite frankly, I have deep
concern as to what the impact will be in Pennsylvania. I looked
today and realized--I met with officials from both airlines and
told them, yes, a lot of people in Pennsylvania would like to
travel abroad and so, too, a lot of people in Pennsylvania
would like to be able to get to Boston; Philadelphians would
like to be able to get to Pittsburgh and vice versa for
affordable prices.
We have checked some of the prices that are currently
available; one of the cheapest fares out of Philadelphia is the
route to Atlanta; that is because Atlanta has competition.
There is not any Delta flying; there is AirTran and there is US
Air. You can fly to Atlanta literally on a walk-up fare for
less than $300. You yourself know that that fare between here
and Pittsburgh where there is no competition is sometimes close
to $500.
So these are the issues that we will be looking at, and I
believe that as you and your colleagues look at the impact of
what this merger may mean for the other existing companies,
that if you really have to look, in my opinion, as to whether
or not there needs to be a new international policy dealing
with the airline industry, I believe that only the Congress
working with the President may be able to establish what the
policy should be as to size and presence, and there are a lot
of issues we look forward to working with you on.
But we are in a position with antitrust power to do certain
things. As I see it, the Congress of the United States is also
in a position to suggest other things to the contrary.
I am not sure that we want to see an airline oligopoly in
this Nation, and I am concerned that this merger may be the
first step to an airline oligopoly as opposed to a monopoly and
that oligopolies or monopolies do not generally bode well
across this Nation.
And with that, Senator, I would be glad to answer any
questions that you may have.
Senator Specter. Well, thank you, Attorney General Fisher.
The mergers and conglomerates and enormous increase in size
have been a major matter of concern. The Philadelphia area has
been impacted in the last couple of years with major
acquisitions of Conrail by Norfolk Southern and by CSX; there
are many problems which have yet to be worked out there. I
personally was opposed to that acquisition. We had a long fight
to keep Conrail from Norfolk Southern back in the early to mid-
1980's. We had extensive hearings before the Judiciary
Committee, and I think Congress effectively stopped it with our
Senate hearings and hearings of the House with Congressman
Dingell.
We had recently the First Union acquisition which has not
worked out well and is characterized as the worst consumer
service in the country.
The pricing of airlines is a matter which is virtually
unintelligible as to how the fares are set. United has made a
commitment not to change fares within 2 years, but it is hard
to calculate what their fares are when there are so many
variables in the fares. The fares are really mysterious with a
flight from Harrisburg to Pittsburgh being more expensive than
a flight from Harrisburg to San Francisco with an intermediate
stop in Pittsburgh.
To what extent have you or will you look at the pricing?
And do you have any thoughts on that matter at the moment?
Mr. Fisher. We will be looking extensively at the fare
pricing. We will track that as one of the assignments which we
have agreed to undertake in this review process of other
domestic pricing issues. The impact we will be speaking to is
not only to travelers, but to travel agents and to local
officials and travelers all across this State and with our
colleagues across the country. But pricing is a very
significant aspect of this and how prices are set.
There is no question when you look at the hub arrangements
across the country that dominant hubs have higher prices. There
are a few exceptions to that. Part of the problem here in
Philadelphia--and this will impact on the ability of
Philadelphia to compete--is the absence of gates in this hub
for other interested entrants.
So there are a lot of issues that we will be looking at
that we have pledged to do with Justice, and hopefully we will
have them completed as quickly as possible.
Senator Specter. The deregulation of the airline industry
has raised perhaps more questions than answers. I personally am
not in favor of going back to regulation, but I frequently hear
among your constituents and mine in this State the question
about regulation. When there was regulation, TWA had a
competitive flight that went Pittsburgh. We have the issue of
the slots, the landing gates, the prospects of bringing a
Southwest or some other competitor into Pennsylvania as one
which has been talked about. Do you have any views as to how
competition might be stimulated?
Mr. Fisher. Well, I do have some thoughts on how
competition would be stimulated, but what is discouraging,even
prior to this merger I had conversations with Southwest Airlines, as
did the county executive of Allegheny County, Jim Rodman, about whether
or not they had any interest in trying to come to Pittsburgh to fly
some of the interstate and interregional flights. And quite frankly
even facing--you know, at the time, Southwest Airlines' attitude was
that with US Air's dominance in the State, they did not think it was a
good business venture for them to be coming to Pennsylvania at that
time.
I cannot see that that issue will be more favorable for
competitors like Southwest if, in fact, the airline that is
present will be an even bigger airline--United.
So I think those are the issues that need to be examined as
this merger is reviewed. And as I say, even if there were piers
today, we need to obviously check more details on this. But it
would be very difficult to bring additional airlines to
Philadelphia without gates existing in Philadelphia. You may be
able to do it in Pittsburgh, but the mere fact they take off
from Pittsburgh does not mean that they will be able to lay
over elsewhere.
You also need to look at--we think it is important to look
at what this means for the smaller communities across
Pennsylvania, the Johnstown hub, Scranton/Wilkes-Barre,
Allentown, Erie, and all of these issues are issues that we
will be reviewing very thoroughly as we go through the process.
Senator Specter. The Antitrust Division of Justice is now
pursuing a case involving American Airlines and a small would-
be competitor out of Wichita to Texas; the competitor opened
up, American dropped the rates, and the competitor had to go
out of business. Now there is litigation as to whether there
was a violation of the antitrust laws there.
Do you think that more concentration into the hands of
fewer airlines would increase the likelihood of competitive
practices such as that which American is charged with?
Mr. Fisher. Senator, I think that is obviously very likely
unless other laws were in place. If, in fact, the larger
airlines have the ability to dominate a market, even if a
smaller airline, whether it be JetBlue out of New York or a new
airline out of Minnesota, or whether it be TransAm or any of
the other airlines, if they come in and whether it be a major
airline, whether United or whether it be a survivor out of
Northwest or American or merely able to match and to be able to
do so in a way that drove their competitor out of the State,
then have the right to go back up to the original price. No one
is going to come in and invest the capital on flights where one
airline is so dominant.
So these are the issues that I believe are important for
our review and for yours.
Senator Specter. I had just about finished my questioning,
but I am going to ask one, two, or three more questions since
the television cameras arrived, Attorney General Fisher.
They have about gotten you in focus now.
With respect to the smaller markets, is it fair to ask
United for some commitments? Because US Air does serve Penn
State, Johnstown, and Altoona, and Bradford, et cetera, et
cetera. Do you think that is a fair request or is that too
aggressive on trying to tie down the free enterprise system?
Mr. Fisher. Well, I think it is fair to ask for those
commitments. I think it is important that we look at the
commitments that US Air has already made in the smaller
markets. US Air has made some significant commitments in the
smaller markets. Those commitments with operated planes need to
be examined.
Senator Specter. Are those commitments contractual or just
informal understandings?
Mr. Fisher. I believe they are informal understandings or
service commitments to a particular area. But I think it is
important that obviously when you look at one of the ways and
get some of the negative impacts of a merger can be overcome as
the benefits to a particular region and we would certainly look
at those benefits as we review this merger. You know, we may
yet in our bottom-line analysis find that the merger is
anticompetitive; but the courts have said that the
anticompetitive mergers can be offset by the substantial
benefits to communities. But it is in defining what those
substantial benefits are that will lead us to our final
conclusion.
We obviously need to look at some of the overall factors
that go into the plan, and you have to see how long those
commitments will be in place. A commitment to merely fly to,
say, Johnstown for a few years would not be something that
would be satisfactory.
Senator Specter. The issue has arisen as to the employment
status of some 17,000 Pennsylvanians, and United made a
commitment not to have any furloughs, which sounds good on the
surface but that is not a complete answer because there could
be considerable reduction in the job force by attrition. And I
asked the CEO of United that question in the hearings in
Washington, and this is a ticklish matter to the extent as to
whether it is appropriate to get commitments of maintaining the
employment level. If some leave, would those spots be open for
new jobs very important to our State? Do you think that is a
fair kind of a commitment to ask for a period of time, 2 years,
say, that the number of jobs should remain the same?
Mr. Fisher. I do, Senator, and I would hope that those are
the kind of issues that not only you will ask but other
government leaders who are part of this discussion will ask,
and those kinds of commitments are, once again, the kind of
commitments which we would be looking at in the overall picture
in trying to assess the impact of the merger on the people of
Pennsylvania.
Senator Specter. I also asked the CEO of United if his
company would be willing to promise to maintain rates at the
same level for 2 years in a binding agreement and a consent
agreement. There may have been some confusion as to what a
consent agreement was, so I rephrased it in terms of some
binding contractual commitment. But my view is that if they are
going to make a promise to be meaningful, it has to be binding,
either by a consent decree or some other form of contractual
commitments.
Do you have a comment about that?
Mr. Fisher. Well, one of the things which we always seek to
attain is the conclusion of any antitrust review--even if we
end up giving our blessing to the merger--is a consent decree
because we feel that by putting the agreements in a consent
decree, and filing that agreement with the appropriate court,
not only does the Justice Department but we have recourse back
to the courts if, in fact, the provisions of that consent
decree are not carried out in future years. So that is
something that we would be working for.
I would hope that we would have your support and that of
the other Members of the Senate, interested membership of the
Senate, in trying to arrive at a decree if that is where we end
up. That could truly be----
Senator Specter. Well, I think we should press for that so
that any undertakings are firm and enforceable.
Attorney General Fisher, I want to compliment you and the
other attorneys general for your action across the country.
When you unite the attorneys general from across the country,
you are a very formidable force and you demonstrated that in
the tobacco case. You got a $3 billion settlement and $11.3
million is coming to Pennsylvania through your efforts. And I
think working together you can be a very powerful force on the
issues of mergers where you have a national and international
aspect. It is not too easy for one State attorney general to
act by himself or herself, but together you can.
So we appreciate your diligence in this field, and we
appreciate your coming in. Our Judiciary Committee will be
working closely with you and the other attorneys general.
Mr. Fisher. Thank you, Senator. As we proceed through this
process, and particularly through the review and getting some
of the--you know, obviously some of the large facts, if there
is any information that you and your committee would like to
have so that we can have available to us, we certainly want to
work with you and try to make sure that everybody has the facts
before them when they make a determination as to whether----
Senator Specter. Attorney General, let me ask you just a
few more questions. Two more cameras have arrived, Mr. Attorney
General.
With respect to the--pardon me, three more cameras have
arrived. I am going to be here all morning, but you do not have
to be but a little while longer.
With respect to the maintenance facility in Pittsburgh that
has been dangling, so to speak, for a long time--and there have
been very substantial efforts made to get a handle on what US
Air is to do. Here again there is an issue of some delicacy as
to how hard government ought to press on matters related to job
expansion contrasted with issues which bear more directly on
competition. If it appears on competition, there is no doubt
that we have a full right and ought to be pressing very hard to
maintain competition to make sure that there is no violation of
the antitrust laws.
But the practical reality is that when a merger comes up,
there is considerable governmental leverage as to what will
happen in the future. It is a matter of balance as to how far
we go on a judgment call, as to how much we think it
appropriate to demand. I think the maintenance facility is a
pretty good illustration of that. That is a major, be it
enormous, addition to Pittsburgh, western Pennsylvania,
generating a tremendous number of jobs, and it is entirely
appropriate for a community, a State, to compete to try to
bring those jobs to the State.
I would be interested in your judgment as to how hard we
ought to push the Judiciary Committee, Senator Santorum and
myself, the Pennsylvania delegation, you, a State attorney
general, to land that maintenance facility in Pittsburgh.
Mr. Fisher. Well, obviously an agreement to move forward
with that maintenance facility is another indication of
commitment for the region, whether it be western Pennsylvania
or to the Philadelphia area. But it is a commitment to the
State, and obviously that kind of a commitment would show more
clearly what United's intention would be for the long term in
maintaining their continued presence in Pennsylvania.
I believe that it is realistic and appropriate for the
various players involved to put an issue like that on the
table. So I would encourage you and others to support that. It
is all positive for the Pittsburgh region to keep that issue on
the table, and hopefully United will firm up what has been at
least a tentative commitment by US Air.
Senator Specter. One other issue has arisen which falls
into roughly the same category, and I have not taken a position
on this, but there are some who have questioned whether Airbus
is an appropriate purchase for US Airways contrasted with those
in the Senate who represent, say, the State of Washington who
are interested in Boeing.
I would be interested in your thinking as to what extent
buy-American ought to figure in our recommendations or in our
efforts to achieve some U.S. and national interest?
Mr. Fisher. That is an issue that is obviously a little--it
is one that is probably a larger national issue than a State
issue, but obviously, once again, that kind of a commitment
shows a commitment by the airlines to get moving forward on a
buy-American policy. At the same time I think it is probably
one of the issues that when you are talking about the size of
the fleet, the type of the fleet that is involved, it is one of
those issues that gets closer to the--you know, one of those
business decisions that the government should stay a little
further away from. But certainly once again it is another
showing of good faith on the part of the airlines as to their
commitment to this country and its working men and women.
Senator Specter. Thank you very much, Attorney General
Fisher. I think in resetting the time from 9:30 to 9:00 the
media wasn't perhaps as fully informed or able to respond to
that. And I think, in a very serious vein, it is very important
for the people of Pennsylvania to know that the State Attorney
General is weighing in on the subject as well as Senator
Santorum and myself and Senator Biden. Delaware has a very big
interest since the Philadelphia International Airport is their
airport as well.
So thank you very much for coming in and we will continue
to work closely together.
Mr. Fisher. Thank you very much, Senator, once again, for
holding this hearing and the other hearings that are scheduled
later.
Senator Specter. Thank you.
[The prepared statement of Mr. Fisher follows:]
Prepared Statement of Mike Fisher
Senator Specter, Senator Biden: Thank you for the opportunity to
address you about the acquisition of US Airways by United Airlines.
This acquisition is of particular interest to us in Pennsylvania since
US Airways operates hubs in Philadelphia and Pittsburgh and for years
has had its major base of operations in Pittsburgh. In fact, US Airways
is the largest employer in the Greater Pittsburgh area with more than
15,000 employees. Its employment far exceeds that of the steel industry
for which Pittsburgh is most famous. US Airways is also a major
employer here in the Philadelphia area with approximately 5,000
employees. Our Office has authority under the federal antitrust laws to
bring actions to stop mergers as parens patriae to protect our
consumers and businesses. In addition, we have our own proprietary
interest to protect. Pennsylvania's government agencies are large
purchasers of airline travel. In fact, I flew here from Pittsburgh this
morning. I want to address the process our Office will use to review
this merger, the nature of the concerns I have with the merger and the
overall impact of quality, cost-effective air travel on our economy.
Pennsylvania was one of the first states to actively review and
ultimately challenge a large national merger. In 1987, the Commonwealth
joined Allegheny County and the City of Pittsburgh in City of
Pittsburgh vs. May Company in a suit to block the merger of the May
Company and Associated Drug Goods. This merger would have resulted in
the consolidation of Pittsburgh's only two major department stores. We
successfully settled that case and, to this date, competition between
department stores in Pittsburgh has been preserved. In 1990, the
Supreme Court upheld the ability of state attorneys general to
challenge mergers in the case of California versus American Stores.
Both the Pennsylvania and California cases were brought without
cooperation of the federal antitrust authorities. Since then, both the
United States Department of Justice and the Federal Trade Commission
have established procedures for joint review of mergers. These joint
reviews have benefits for all concerned. The states have gotten the
benefit of the federal authority's vast experience in merger
enforcement, and the federal government profits from the states'
insights and expertise in their local markets. Both sides are able to
share resources in reviewing what, at times, seems like a never ending
onslaught of mergers. Even for the merging parties, this cooperation
has been beneficial. Usually they face only one review process, and
simply provide a duplicate of the information provided to the federal
government. I am sure that no merger partners relish the thought of
being told by both federal and one or more state governments that they
will sue to block a merger. However, even in that situation, they are
better off than litigating the legality of the merger two or more
times.
That brings me to this merger. My office will be working closely
with the United States Department of Justice to review the merger. We,
along with Attorney General Spitzer of New York, will be coordinating
the states' review. We have reached agreements with the parties that
will allow for such a joint review.
As I and several of my colleagues in other states have said, the
merger of US Airways and United Airlines causes us concern. Part of
that concern arises from the sheer size of this transaction. United is
the country's largest airline. US Airways is the sixth largest.
Moreover, despite the popular generalization that US Airways is a
north-south airline and United is an east-west airline, United offers
connecting service to cities in Florida through its Dulles hub from the
cities it serves in Pennsylvania. US Airways has been proudly
advertising the fact that it hasincreased its flights to the West Coast
from both Philadelphia and Pittsburgh. Thus, at first blush, these two
airlines compete for business in Pennsylvania and nationally.
We are still in the early stages of our investigation, so we have
not come to any conclusions about its legality. Nonetheless, one fact
about the airline business is apparent--where there is competition,
consumers get lower fares. I can give an example of this based on my
experience this morning. A round trip airfare on short notice between
Philadelphia and Pittsburgh is $550. That route is served only by US
Airways non-stop. However, if I were to go from Philadelphia to
Atlanta, a route served by three airlines non-stop, the fare is less
than $300, even on a short notice basis. As a result, I firmly believe
that if this merger reduces competition in any market, that loss of
competition must be addressed. Another concern I have is how the merger
will impact the entry of new airlines into Pennsylvania markets. If new
airlines are deterred from entering Pennsylvania markets because a
combined United/Us Airways will have 50%, 60% or 70% of the market,
those barriers will need to be addressed as well. However, at this
stage, I am not prepared to discuss how these issues should be
addressed.
In Pennsylvania and throughout the Northeast, the cost of
intrastate and intra-region travel is often prohibitive, especially
when flights are booked on short notice. I've already described the
high cost of travel from Philadelphia to Pittsburgh. To fly from
Harrisburg to Boston tomorrow would cost more than $800. That route,
which is served by United and US Airways, previously had also been
served by Continental airlines, which canceled its flights after it
started its joint venture with Northwest. Although it was expensive
then, it was not as expensive as that route is now. To fly from
Philadelphia to Buffalo would cost $735. These are just two of many
examples of very high prices consumers face for short distance/short
notice travel in Pennsylvania, New York and the other Northeastern
States. The question we will be trying to answer over the coming weeks
is whether the loss of competition between these two airlines will
result in even higher fares or result in the loss of the potential for
United to expand its service in the Northeast. After we have completed
our review, we will determine whether the merger of the two airlines
will substantially lessen competition or tend to create a monopoly as
prohibited by the antitrust laws.
To date, much of the discussion on this merger has involved the
impact on Philadelphia and Pittsburgh, but United and US Airways also
serve Harrisburg, Lehigh Valley, Scranton and State College. The effect
of this merger on service and fares to these smaller Pennsylvania
airports is another area my Office will look at closely.
Finally, in Philadelphia, US Airways has made its hub operation a
major international gateway to Europe--a fact that benefits not only
passengers but also shippers who want to send cargo to or from Europe.
The airline business is important to communities like Pittsburgh and
Philadelphia, not only because of the employment it brings to the
community, but also because of the benefit access to quality/cost
effective airline service can bring. However, I have to admit that many
in Pennsylvania look with envy at BWI in neighboring Maryland. Since
Southwest entered that airport, the reduction of airfares from BWI has
been a boon to the airport, the surrounding hotels and restaurants.
More importantly, BWI's low fares and plentiful flights have made the
Baltimore/Washington corridor a very attractive place for businesses to
locate. There are many parts of Pennsylvania, Altoona/Johnstown,
Scranton, Erie, State College and Harrisburg, as well as Philadelphia
and Pittsburgh, that would become more attractive locations for
businesses to locate if they had better airline service and better
prices. One of our concerns in reviewing this merger will be to try
determine whether it will make such service a reality for those
communities.
Thank you for your time today. I will be happy to answer any
questions.
Senator Specter. I would like to call the second panel now:
Shelley Longmuir and Larry Nagin.
Ms. Shelley Longmuir is senior vice president of
International Regulatory and Government Affairs for United
Airlines, magna cum laude on a double bachelor's degree from
Brown University, a J.D. from New York University School of
Law. Prior to joining United she held senior positions in the
Bush Administration at the U.S. Department of Transportation.
Thank you very much for joining us, Ms. Longmuir, and we
look forward to your testimony.
PANEL CONSISTING OF SHELLEY A. LONGMUIR, SENIOR VICE PRESIDENT,
INTERNATIONAL REGULATORY AND CORPORATE AFFAIRS, UNITED
AIRLINES; AND LARRY NAGIN, EXECUTIVE VICE PRESIDENT, CORPORATE
AFFAIRS AND GENERAL COUNSEL, US AIRWAYS
STATEMENT OF SHELLEY A. LONGMUIR
Ms. Longmuir. Thank you very much, Senator.
Senator, on behalf of United Airlines' more than 100,000
employees worldwide, I appreciate the opportunity to be here
today to discuss our merger with US Airways. The transaction
will deliver exciting new travel opportunities to consumers
here in the Philadelphia area while guaranteeing job security
for employees of US Airways in Pennsylvania.
My name is Shelley Longmuir. I am senior vice president for
International, Regulatory and Governmental Affairs at United
Airlines.
Senator Specter, I want to thank you for the attention you
have paid to our merger with US Airways.
As you know, our chairman and CEO, Jim Goodwin, testified
before your subcommittee 2 weeks ago in Washington and has met
with you twice in recent weeks to discuss the transaction and
your concern as well. Members of your staff also spent time
last week with our senior financial team from Chicago to review
details about this merger.
United started flying from Philadelphia on June 20, 1940--
the same day that the Philadelphia Municipal Airport was opened
for business. Back then we flew three nonstops a day to
Cleveland, a trip that took two and a half hours on one of our
``spacious'' DC-3's. We could also fly you from Philadelphia to
Los Angeles in 1940, but the trip would take overnight and five
stops before ultimately reaching California.
Today, we fly to Los Angeles three times a day from
Philadelphia. United now has 32 daily departures from
Philadelphia. We also fly nonstop to Chicago, San Francisco,
Denver, and Washington with connections to destinations around
the world.
I would like to spend a few moments discussing the very
positive impact that the United-US Airways merger will have in
Philadelphia. Today, Philadelphia is a major domestic and
international hub for US Airways. When our merger is complete,
it will become an even more significant hub for United
Airlines.
What does the merger mean for Philadelphia? By connecting
this city to a larger national and international network, the
United-US Airways combination will mean an exciting expansion
of service to and from this region. Philadelphia will enjoy the
benefits of more nonstop flights to the Western United States,
Europe, and the Caribbean, along with improved access to Asia
and Latin America.
In all, United plans to offer nonstop or one-stop service
from Philadelphia to 273 domestic and international
destinations. That is 102 more than US Airways serves today
from Philadelphia and 114 more than United.
I would like to quickly run the numbers: United plans to
offer 10 additional nonstop flights from Philadelphia to five
U.S. cities and five international destinations. The planned
new nonstops include the only daily service to Portland,
Oregon, to Orange County, and to San Jose, California. We also
plan to add additional daily nonstops to Los Angeles and San
Francisco.
In addition, we plan to introduce the only nonstop service
from Philadelphia to Vancouver, British Columbia, Amsterdam,
Brussels, and Barbados. And we will also add a daily nonstop
flight a day to Frankfurt.
The expansion of service in Philadelphia will help grow
this region's economy by expanding tourism, increasing global
trade opportunities, and attracting new investment.
In short, Philadelphia will be a big winner.
Senator Specter, this merger will create an airline for the
21st century that will offer consumers significantly improved
choices for more convenient, single-carrier service on
thousands of routes. It will bring together two complementary
route systems--combining US Airways' north-south routes on the
East Coast with United Airlines' east-west and international
routes. This combination will not simply add one set of routes
to another; it will add many more travel options while
increasing competition. Among other things, United will bring
new competition to the Southeast and along Southern cross-
country routes, taking on the stronghold that Delta and
American airlines have in that region.
United also plans to provide nonstop service where no
nonstop service currently exists. Nationwide, the service
includes 93 new nonstops; half of these 93 flights will be on
routes where no airline provides nonstop service today. United
also plans to add new competition on 560 city-to-city routes.
These are routes on which neither United nor US Airways
competes today.
This combination will create the first truly nationwide
airline network.
Senator, thank you for inviting me to be here today and for
allowing me to discuss our transaction and the travel
opportunities it offers consumers in Pennsylvania and around
the country.
Senator Specter. Thank you very much, Ms. Longmuir.
We turn now to Mr. Larry Nagin, executive vice president,
Corporate Affairs, and general counsel of US Airways; he has a
bachelor's in International Relations from the University of
Southern California, and a law degree from the University of
California, Hastings School of Law.
Welcome, Mr. Nagin. We thank you for joining us and look
forward to your testimony.
STATEMENT OF LARRY NAGIN
Mr. Nagin. Senator Specter, thank you. I am happy to be
here and appreciate the opportunity to discuss these important
issues with you.
Much concern has been expressed about hypothetical outcomes
of this proposed union. I am here to address those concerns,
respond to your questioning, Senators, and, more importantly,
to answer the central question before us today: How will the
merger of US Airways and United Airlines benefit the city of
Philadelphia and the surrounding regions in Pennsylvania,
Delaware, and New Jersey?
Today a close partnership exists between US Airways and the
tri-state area.
Along with the Philadelphia International Airport, our
total investments in recent airport enhancements exceed $1
billion; highlighted by the new commuter runway and the new
international and commuter terminals now under construction.
As part of our continuous effort to connect Philadelphia
travelers to more locations throughout the world, US Airways
has added 28 destinations since 1966, including five each to
Europe and the Caribbean. We have increased the number of our
international flights from Philadelphia by 70 percent during
this period.
Overall, US Airways' capacity here has doubled in just 5
years. And in the past 4 years, the number of US Airways
employees based here in Philadelphia has increased by more than
65 percent, with the addition of more than 2,300 jobs. Today,
more than 5,700 US Airways employees call this area their home.
The great majority are members of unions and all of them--all
of them--are protected under a job guarantee under the merger
agreement.
Just 4 years ago, after suffering through a long period of
underperforming service and unsatisfactory financial results,
US Airways adopted a five-point strategic plan to restore
financial stability to our company. With our dedicated
employees, we have made enormous strides in attaining our
goals. We have established new labor agreements, begun fleet
modernization and expanded our international service, largely
right here in Philadelphia.
And yet, Senator, we are the only midsized, mature-cost
player left in an industry characterized by extremely vigorous
competition. With deregulation and the subsequent emergence of
small, low-cost regional airlines--as well as the growth of
global alliances--it has become increasingly challenging for us
to maintain our competitive edge.
We at US Airways have learned an invaluable lesson: The
road to failure is littered with other mid-sized, mature-cost
carriers that were in existence at the time of deregulation.
Braniff, Eastern, and Pan Am tried to forge ahead alone and,
Senator, they failed.
TWA and Continental have been through the Federal
bankruptcy court not once but twice each to shed their debt and
materially reduce their costs.
This leaves US Airways as the only mid-sized, mature-cost
carrier still flying in the United States.
In forming this union, US Airways has the opportunity to
build a truly global carrier--not over many years, but in a
single stroke. Without it, we would face tremendous hurdles in
striving to offer the kind of convenience and worldwide service
that travelers in Pennsylvania and nationwide both deserve and
expect in this intensely competitive era.
In short, we have cost parity with the big four air
carriers without their broad network over which to spread our
costs.
The lesson is this, Senator: If we are to expand into the
global market and realize our full potential, we must join with
a partner that has more expansive reach with a route network
that primarily complements ours. United Airlines is that ideal
partner. All told, the enhanced United will offer nonstop or
one-stop service to 102 more domestic and international
destinations than US Airways now serves from Philadelphia and
even 114 more than United serves today.
The benefits of this merger are pervasive. In the
Midatlantic, for example, United's Philadelphia hub will be
able to go head-to-head with Continental's hub in Newark. In
the Southeast, United's hub in Charlotte will be able to take
on Delta's hub in Atlanta.
In sum, the fear of price hikes and reduced competition
surrounding the US Airways/United merger are misplaced. The
long-term picture in Philadelphia is one of healthy
competition. Battles on the regional level will create new
service options and thus put downward pressure on fares,
continuing a trend that started with the industry's
deregulation over 20 years ago. Airlines such as AirTran,
Midway, ATA, National, and America West attest to the fact that
competition is alive and flourishing in Philadelphia.
Senator Specter, this transaction should be evaluated on
its own merits. It is fair freeze, it is job guarantee, it is
creation of a new entrant carrier, DC Air at Washington
National Airports, and it has pervasive, pro-competitive, and
dramatic economic development benefits.
Thank you.
Senator Specter. A major concern on my mind is what the
effect is going to be on the industry. Attorney General Fisher
characterized it as the risk of an oligopoly, and the
expectation is that other airlines would respond and merge as
well, leading to a potential situation where there could be as
few as three airlines serving the United States. Ms. Longmuir,
how do you assess that risk?
Ms. Longmuir. Well, certainly, Senator, we can't predict
what will happen in the future. It is our belief that this is a
highly competitive industry. We have looked for quite a while
for a partner, as our chairman testified before you 2 weeks ago
in Washington, and it took us quite a while to find a pairing
that we thought offered as many benefits that will overlap and
potential for growth as this one does. So I believe that we
really can't determine when or what other merger might be
proffered in the industry, but we are comfortable with this
one.
Senator Specter. Mr. Nagin, I asked your CEO, Mr. Stephen
Wolf, as well as United's CEO, Mr. James Goodwin, the question
of on-time arrivals, which is a very important point for
consumers; that question was posed on June 14 and hasn't yet
been answered. I am advised that the Department of
Transportation's June 2000 air travel consumer report places US
Airways 8th out of 10 for on-time arrivals and United 7th for
on-time arrivals.
On that very critical point for consumers, one expectation
is that there would be better performance if these two airlines
were put together and made it more complicated to manage and to
operate.
Mr. Nagin. Sir, I don't know if it is more complicated. As
Ms. Longmuir said, they are complementary route structures. It
is certainly a larger network.
With respect to managing it, I think you could have the
best management in the world and that management is going to
have no say-so on thunderstorms, infrastructure problems, and
the like.
Senator Specter. Other airlines may have thunderstorms as
well.
Mr. Nagin. Indeed, they do not discriminate. But in terms
of US Airways, we operate short hauls in the predominantly
Eastern corridor and because of that constriction of our
network, we do not have the ability to spread out as United
does, or we will after the merger to address this issue.
We have been hit particularly hard and not very happily by
the weather in the last months, and air traffic delays have
just crippled the industry, and there has been, in fact, a
greater hit on US Airways than most carriers.
Senator Specter. Well, the problem with that explanation or
excuse, Mr. Nagin, is that other airlines have the same
problems. They have the same infrastructure problems, they have
the same weather problems.
When we take up the issue of size--and I'm not an advocated
of ``big is bad,'' but we have had a lot of historical
commentary since Jefferson's day and Brandeis, up to the
present time. The bigger it gets, the more difficult it is to
manage, invariably.
When you talk about job guarantees, Mr. Nagin, those are
your words; and, Ms. Longmuir, you talk about job security, so
that is an issue which is fair comment even though it is a
parochial issue.
I have asked about the prospect for assurances, if not
guarantees, as to what would happen with the 17,000 jobs. It is
not a sufficient answer to say that there are not going to be
any furloughs because that leaves a lot of job potential on
attrition spots which would not be filled. What job guarantees
are you in a position to talk about, Mr. Nagin? That is your
word, ``guarantee.'' Anything beyond simply no furloughs?
Mr. Nagin. Well, I think with the job guarantee there are
two things. I was part of the negotiating team that negotiated
the agreement and that is a 2-year guarantee. However, Mr.
Goodwin, their chairman and CEO, on the date of the
announcement went beyond that and said that everyone who was
employed on the date of the merger is promised a job, over and
out, he said categorically. And that is quite unusual. Most
mergers occur, they look to get rid of people, shut plants, do
the like.
United Airlines has said very, very categorically, through
Mr. Goodwin, we are not reducing service, we are not taking
service out of any communities, and everyone will have a job.
And that makes a lot of sense, especially for our employees
here in Pennsylvania who call this home; they work here. There
is a huge investment, as I pointed out in my testimony, from US
Airways, not only in Pittsburgh, but in Philadelphia, and I was
very pleased to hear General Fisher's comments about our
commitment to the smaller communities as well. And these are
folks who are going to have jobs that are promised to them by
the chairman and CEO of United Airlines.
Senator Specter. Would you now come to my question about
the job spots, somebody please, attrition, will those job
opportunities remain open so that the total number will be the
same or about the same?
Mr. Nagin. I heard Mr. Goodwin's response to you, Senator,
in your hearing where he said, no, he could not make that
promise because of improvements that may be made in systems----
Senator Specter. Well, I heard that, too. Now I want a
little more.
Mr. Nagin. I am sure. And it makes abundant sense. But I
think if you step back, Senator, and look at the investment US
Airways has here in this Commonwealth, the vast hub that is
being built and the improvements that are being done in
Philadelphia, the terrific facilities that we have in
Pittsburgh, if you look at all of that, logic dictates that
there are going to be jobs that are going to go with those
facilities and those route expansions that Ms. Longmuir just
outlined that United will bring as a result of this merger. You
need people to operate. And my sense is that those people are
going to be the employees we have here, and United is not known
for slacking on staffing and I think they will have those jobs
here.
But to make it part of a covenant or a consent decree in
terms of filling vacancies, I think holding United to that
probably goes a little bit across the line, Senator. I
understand it.
Senator Specter. Well, Ms. Longmuir, with respect to
covenant, commitment, consent decree, whatever form it takes--
and I think Mr. Goodwin said he doesn't understand what a
consent decree was, then I explained it to him, and I still
think he didn't understand it. You are going to have to explain
it to him. Whatever commitments United undertakes, will United
put it in writing?
Ms. Longmuir. I think, Senator, if I might double backfirst
just to add a footnote to the exchange you had with Mr. Nagin----
Senator Specter. Well, that is fine to do that, but answer
my question first.
Ms. Longmuir. I think that any agreement or any assurances
that the Department of Justice wishes to obtain from United
Airlines in the course of analyzing and approving this merger
United will take very seriously and look forward to entering
into--provided, of course, it is harmonious with commercial
best interests of the company. But as Mr. Goodwin said to you,
we had hoped, clearly--but I understand there was confusion. We
are committed to trying to get this merger approved. If that
kind of an assurance from the Department of Justice when they
perform this analysis is required, I think we will look at it
very welcomely.
Senator Specter. I take that to be a no?
Ms. Longmuir. I am not clear how you get that.
Senator Specter. Well, I take that to be a no because you
are going to look at it seriously if it is harmonious with your
commercial interests.
Ms. Longmuir. I think it is very hard, Senator, in the
abstract to agree to a hypothetical provision that the
Department of Justice may or may not wish to obtain from United
Airlines upon the completion of its merger analysis.
Senator Specter. Well, you are on two points now, Ms.
Longmuir. You are on what the Department of Justice wants and
what the United States Senate Antitrust Subcommittee may want.
We have standing as well. And the purpose of these hearings is
to find out what you are prepared to do. And when you tell us
what you are prepared to do, my question to you is: Are you
prepared to make that as a commitment? I am not prepared to
rely upon what the Department of Justice may ask you to do in
assessing my own position or the subcommittee's position. So
that is one point.
The second point is: If you make statements as to what you
are going to do, the price rates are not going up for 2 years;
everybody who has a job now will be guaranteed that job; I
don't expect an answer ``we will give it careful
consideration'' or that ``it will depend upon the harmonious
economic interests of the company.'' If you can't say yes, then
I take it to be no.
Are you prepared to make a commitment in writing, binding,
as to all the representations you are making? Number one,
nobody is going to lose a job. Number two, the rates are going
to stay the same. Number three, you are going to have all of
these new routes. Are you prepared to back up that talk with a
binding obligation?
Ms. Longmuir. Senator, the whole purpose of this merger was
to grow our company. It envisions growth. The manner in which
United can make a commitment for no furloughs, for a fare cap
is because we believe that the dynamics of these two merged
networks will mean greater opportunities, a lager network, a
larger revenue base so that we will easily meet and exceed
those commitments. We believe it is a commitment. You want it
in a contractual, written form, and I am afraid I am not
empowered to make a representation on behalf of United Airlines
other than what Mr. Goodwin has already said before your
subcommittee.
Senator Specter. OK; that is fine. If you are not
authorized to make the commitment, I can understand that. But I
hope you will understand that we do not weigh your commitments
very heavily--what you say you will do--unless you are prepared
to back it up and make them enforceable.
OK; thank you very much.
Senator Specter. We will turn now to our third panel: Mr.
Paul Hudson, Mr. Charles Isdell, Mr. Joe Mahoney, and Mr. Kevin
Mitchell.
The first witness here is Mr. Paul Hudson who serves as
executive director of the Aviation Consumer Action Project
Group, president of the Families of PanAm 103 Lockerbie,
general counsel to the New York State Crime Victims Board,
graduate of the University of Michigan and Cleveland Marshall
College of Law. Thank you for joining us, Mr. Hudson. We look
forward to your testimony.
PANEL CONSISTING OF PAUL HUDSON, EXECUTIVE DIRECTOR, AVIATION
CONSUMER ACTION PROJECT; CHARLES ISDELL, ACTING DIRECTOR OF
AVIATION, PHILADELPHIA INTERNATIONAL AIRPORT; JOSEPH W.
MAHONEY, JR., VICE PRESIDENT, GREATER PHILADELPHIA CHAMBER OF
COMMERCE; AND KEVIN P. MITCHELL, PRESIDENT, BUSINESS TRAVEL
COALITION
STATEMENT OF PAUL HUDSON
Mr. Hudson. Thank you for inviting me, Senator.
The Aviation Consumer Action Project was founded by Ralph
Nader in 1971 to act as a voice and ear for air travelers on
national aviation issues. We have thousands of members
nationwide who are very concerned about consolidation in the
airline industry and, of course, the merger that is the subject
of this hearing today.
There have been several hearings in Congress on the
proposed merger of United Airlines and US Airways. So as not to
be repetitive and to move the process forward, I would like to
address really two issues. One is the effect this will have on
consumers, particularly in the northeast and, of course, in
Pennsylvania as well as nationally; and secondly, what, if
anything, Congress can do about the likelihood of three or four
major carriers nationally and even internationally if the
merger is approved as is proposed.
First, let us be clear that this is not just anothermerger.
This merger could well mark the end of the era of airline competition
and the beginning of an oligopoly or cartel industry. The approval of
this merger will quickly lead, we believe, to merger proposals by
American and Delta, the number 2 and 3 airlines. Already there are
published reports that these airlines are talking to Northwest and
Continental about mergers. Moreover, TWA and AirTran have announced
merger talks. Internationally, BA--British Airways--is proposing
acquisition of KLM, Air France and Alitalia have said they are looking
to merger partners. Finally, Northwest and Continental have previously
proposed a de facto merger that has temporarily been blocked by the
Justice Department in court.
In 1998 I testified before the House Judiciary Committee on
domestic airline alliances. At that time it was just a
Northwest/Continental proposal, but it was quickly followed by
two others. It was predicted at that hearing by a
representative of United Airlines, as well as myself, that if
these alliances went ahead as proposed--and, by the way, United
opposed them at the time, and American opposed them--within a
year there would be a stampede of other airlines to join up and
that there would shortly be, this representative of United
felt, only four major carriers in the world. These alliances
did not materialize as planned because the Justice Department
blocked one, and the union opposition and management changes
derailed, at least temporarily, the other two.
In the interest of time, I don't have time to go through a
historical perspective, but at the time that that Congress--and
I have it in my written testimony which I would ask be made
part of the record.
Senator Specter. Your written statement in full will be
made a part of the record.
Mr. Hudson. The Congress was told that there would be, at a
minimum, eight to ten vigorous competitors in this industry.
Alfred Kahn, who most people recognize as the father of airline
deregulation, has recently calculated that fares are now over
30 percent higher than before deregulation, after adjusting for
inflation. The average air travel time has increased in the
1990s for the first time in history. And last year, consumer
complaints increased more than 50 percent while flight delays
reached all-time highs. Approximately one in four flights are
delayed and one in 33 are canceled.
At 25 percent to 28 percent of all airline seats in the
USA, the merged United would have a dominant position in many
markets and a near monopoly in about two dozen routes.
Presently these two airlines compete on about 1,700
destinations.
What does the future hold? Well, if you like Greyhound
buses or Amtrak train service, you will love the United-
American-Delta seamless airline of the future. We would expect
higher fares, poorer service, and few to no consumer choices,
and probably very few frequent flyer rewards.
In our view, this merger should not be approved unless it
is clearly shown to be pro-consumer and pro-competitive. This
is a tall order, but it can be done by robust divestiture of
overlapping routes, one or two hubs and some international
routes, and a spin-off of Metrojet, as well as the Washington
National flights; and, second, by Congress passing robust
procompetitive and consumer protection legislation.
There are also issues of safety and operational problems.
Senator Specter. Mr. Hudson, the red light is on, so if you
could summarize, I would appreciate it.
Mr. Hudson. OK; the proposals that we have on pro-
competition for Congress are in my written testimony, and I
would allow them to be addressed at the question period if you
wish.
In conclusion, we don't oppose this merger, per se, but we
feel that unless it is done with a combination of very robust
divestiture and Congress essentially engaging in some major
changes in the industry to make it procompetitive and consumer
friendly again, we will see the cartel semimonopoly that is
clearly coming down the pike.
Thank you.
[The prepared statement of Mr. Hudson follows:]
Prepared Statement of Paul Hudson
Good morning Chairman Spector and members of the Antitrust
Subcommittee of the Senate Judiciary Committee.
The Aviation Consumer Action Project was founded by Ralph Nader in
1971 to act as a voice and ear for air travelers on national aviation
issues. We have thousands of members nationwide who are very concerned
about consolidation in the airline industry that has caused the
industry to become more concentrated today than before airline
deregulation in 1978.
There have been numerous hearings by the Congress on the proposed
merger between United Airlines and US Airways. So as not to be
repetitive of what others have said and to move the process and debate
forward, I will concentrate first on the likely consumer effects of the
merger, particularly in Pennsylvania, the Northeast and nationally.
Secondly, what if anything can and should the Congress do about the
likelihood of 3 or 4 major carriers nationally and even
internationally, if this merger is approved as proposed.
UNITED-US AIRWAYS = AMERICAN PLUS DELTA MINUS NORTHWEST AND
CONTINENTAL--TOWARD ONE TO FOUR WORLD AIRLINES
First, let us be clear that this is not just another merger. This
merger could well mark the end of the era of airline competition and
beginning of an oligopoly or cartel industry. The approval of this
merger will very quickly lead to similar merger proposals by American
and Delta, the number 2 and 3 US airlines after United. Already there
are published reports that these airlines are talking to Northwest and
Continental about mergers. Moreover, TWA and Airtran have announced
merger talks, and internationally BA is proposing acquistion of KLM,
Air France and Alitalia have said they are looking to merger or
alliance partners. Finally, Northwest and Continental have previously
proposed a defacto merger that has temporarily been blocked by the
Justice Dept. in court.
In 1998 I testified before the House Judiciary Committee on
domestic airline alliances (then proposed between United-Delta,
American-US Airways, and Northwest-Continental). It was predicted at
that hearing by a representative of United as well as myself that if
these alliances went ahead as proposed, within a year there would be a
stampede of other airlines joining up so that there would shortly be
defacto only four major carriers in the world (which would control 80
to 90% of all airline seats). These alliances did not materialize as
planned because the Justice Department blocked one, and the employee
union opposition and management changes derailed the other two.
Prior to deregulation in 1978, Congress was told that there would
be a minimum of 8 to 10 vigorous competitors. In the early to late
1980's there was a major increase in the number of airlines and air
fares on average went down. But then airlines were hit hard by a
recession, and many went bankrupt or were absorbed. By about 1995 major
surviving airlines had learned how to survive by not vigorously
competing, and how to drive new entrants out of business. With the
economy booming air travel increased and so did fares, while service
took a beating. According to Alfred Kahn, the father of airline
deregulation average air fares are now over 30% higher, after inflation
than before deregulation. The average travel time for air travel has
increased in the 1990s for the first time in aviation history. And last
year, consumer complaints increased more than 50% while flight delays
reached all time highs (one of four flights delayed, one in 33
canceled.)
At 25% to 28% of all airline seats in the USA, United would have a
dominant position in many markets and a near monopoly position on over
two dozen routes. Many antitrust experts say that 25% is a threshold
that leads to substantially reduced competition when crossed. United
stated goal of having a comprehensive system in the US and abroad,
would force other airlines to do that same or be at a severe
competitive disadvantage.
What does the future hold? Well if you like Greyhound buses or
Amtrak train service, you will love the United American Delta seamless
airline of the future! Higher fares, poorer service, few to no consumer
choices, and probably no frequent flyer rewards.
But what about low fare airlines like Southwest? The answer is that
this merger will eliminate low fare competition in the Northeast by
United eliminating, rather than spinning off Metrojet which has been
engaging in low fares wars with Southwest. In western Pennsylvania this
means that consumers who have been driving to Cleveland to get access
to fares as low as $34 to BWI and similar low fares to Florida and
other destinations are likely to see these fares triple, likewise in
Philadelphia low fares are likely to become more scarce. Presently
Metrojet competes with Southwest out of two to five airports in the
Northeast.
In our view the United-US Airways merger should not be approved
unless it is clearly shown to be pro-consumer and pro-competitive. This
is a tall order, but it can be done by robust divestiture (of
overlapping routes, one or two hubs and some international routes, and
a spin off of Metrojet, and Washington National flights) and by
Congress passing robust pro-competitive and consumer protection
legislation.
POST MERGER POTENTIAL SAFETY, FINANCIAL, OPERATIONAL PROBLEMS
Also of concern are safety and operational problems likely to be a
by-product of a United-US Airways merger. Major airlines are not
decentralized corporate empires, but tightly controlled, complex, labor
intensive and potentially very dangerous machines designed to deliver
millions of people and pieces of cargo safely at over 500 miles per
hour over long distances. Air travelers lives are literally in the
hands of the airlines. And a merged United will have about 175 million
passengers per year or about 500,000 per day on domestic flights.
Today airlines operate for competitive reasons very leanly with
daily reserve capacity of 1% or less. Last month United pilots
temporarily refused overtime causing the airline to cancel up to 15% of
its schedule without warning inconveniencing tens of thousands of
passengers. United pilots who were not consulted on the merger,
although they and other unions own most of the United stock are
reportedly unhappy with proposed merger, which could force some of them
out or limit their advancement based on the higher seniority of the
average US Airways pilot.
Past history shows that large airline mergers are so difficult to
accomplish smoothly. Accordingly, a large financial and operational
reserve should be set aside to prevent regional and even national
disruption in the air transportation system. It should be recalled that
the Allegheny Piedmont merger that created US Air nearly caused the
airline to go bankrupt, and Peoples Express was done in by a too large
acquisition. United has no experience in merging or acquiring another
carrier that would nearly triple overnight its number of flights. As
the merged airline would control about 25% of all airlines seats, far
more in the Northwest and Pennsylvania, the impact of the inevitable
post merger disruptions can be expected to be greater here.
PRO-CONSUMER AND PRO-COMPETITION MEASURES CONGRESS CAN TAKE TO MAINTAIN
AND IMPROVE A COMPETITIVE AIRLINE INDUSTRY
The main antidote for reduced competition caused by mergers and
industry concentration is to permit and encourage new entrants. The
domestic airline industry is one of the only US industries that because
of some Cold War era laws operates in a market sheltered from foreign
competition. Current laws provide that no foreign person or corporation
can control or own more than 25% of domestic carrier, and cannot
operate a US subsidiary for intra US air travel. As a result, air fares
in the US, especially for unrestricted week day travel are far higher
than international air fares, which are open to free market competition
with several dozen major carriers. Domestic airline passengers,
especially business travelers in the Northeast and Midwest are being
gouged by airlines such as US Airways and the other five major high
cost carriers with fares of 50 cents to 2 dollars per passenger mile
while international air fares are usually under 10 cents per mile, and
virtually never exceed 30 cents per passenger mile. (1)
Accordingly, Congress should repeal these Cold War era laws and the
US should invite foreign airlines with superior safety and service
records to compete on domestic routes or set up US subsidiaries.
Airlines based in countries such as the UK, Canada, Australia, and some
western European countries now have comparable or better safety and
service standards than American carriers. This would also kick start
the Open Skies initiative, which is stymied by large US and foreign
carriers who block any significant progress on bilateral treaty
negotiations to protect their own interests. Negotiation of bilateral
is a somewhat archaic process in a age of economic globalization and
over 150 nations. As things stand, US airlines operate in a manner
similar to Japanese TV makers in the 1970s selling $500 color TV sets
to Japanese consumers for high profits and $250 sets to American
consumers to gain market share. Today however Japanese auto makers have
built many plants in the USA, and the competition has so improved US
car makers that US car makers now export easily. Accordingly, a
Daimler-Chrysler merger caused hardly a ripple of protest.
Another pro-competition, pro-consumer step Congress can take is to
phase out fortress hubs which even the airlines admit are responsible
for higher air fares for passengers traveling to and from those hubs
(rather than through them). This can be done by (a) mandating shared
use agreements at airports with limited gate facilities (as was
previously done at railroad stations when rail was the primary means of
long distance travel), (b) by banning as a unfair trade practice and
against public policy the majority in interest clause in airport leases
and bond indentures commonly is used by the dominant airline(s) to
obtain veto power over airport expansions and freeze out competing
carriers, (c) requiring that slots not used by an airline be made
freely available to other carriers that would use them to provide
service to the public, and (d) placing a five year limit on all gate
leases and prevent profiteering in gate leases at restricted access
airports.
As to new entrants the US government must become much more pro-
active to prevent major carriers from using anti-competitive methods to
squash them and prevent real competition. Practices such as temporarily
reducing fares and flooding a route with many new flights to drive out
a new entrant and then immediately raising prices and reducing service
when the new entrant is driven out need to be banned or at least
severely penalized, while still protecting the consumer interest in low
fares and convenient service.
Union contracts that prohibit or limit the use of regional jets
(which carry 30 to 60 passengers distances of up to 1500 miles) are
also anti-competitive and anti-consumer. The Congress should ban such
labor contract provisions that are responsible for higher fares and
poorer air transportation service to small and medium size cities, who
must now rely on slower and noisier prop planes to bring them to major
hub airports and then change planes one or two time and fly on 100-250
passenger jets.
Another side benefit of de-emphasizing hubs would be a reduction in
flight delays which have soared due to highly concentrated air traffic
at hub airports at certain times of the day. In 1998, the top 15% of
airports controlled 94% of all air traffic and the top 20 airports
controlled 55%, while the skies over the other 85% of airports were
still mostly empty with only 6% of commercial air traffic. There are
450 airports in the USA.
On the consumer protection side, Congress needs to enact strong
Passengers Rights legislation, key provisions of which would be a
domestic anti-price gouging or fare cap (there is a reasonableness fair
cap on international fares but not on domestic routes, as a result
there is robust fare competition on international routes and enormous
incentives to price gouge on domestic routes especially in the
Northeast and for short haul flights and for smaller cities), repeal of
the airlines exemption from state and local consumer protection laws,
repeal of the airline exemption from OSHA and sanitary health codes,
restrictions on price discrimination, availability of benefit
disclosure requirements for frequent flyer programs, full compensation
for lost luggage and compensation for passenger out of pocket expenses
from delays leaving passengers stranded, updated compensation for
bumping caused by airline over-booking, giving passengers the right to
depart from any airliner delayed for more than two hours on the runway,
and treble penalties payable to passengers for issuing false or
deceptive announcements by airlines regarding flight delays or
cancellations, setting minimum standards for size and distance between
seats and air quality consistent with standards for other confined
public spaces. Finally, Congress should charter and provide initial
funding for an airline passenger association to level to playing field
in Washington, DC where airline industry lobbyists and campaign
contributions make the voice and interests of the traveling public
nearly impossible to be heard. Thanks for giving me the opportunity to
testify. I would be glad to take any questions you may have.
1. The only major exception in the USA is Southwest whose fares
average about 68% of the Big Six carriers (United, American, Delta,
Northwest, Continental and US Airways) and can be as little as 15%.
However, this lone exception is based on a business philosophy of a 72
year old founder and CEO, that could well change in the not too distant
future. In the past several years, Southwest has moved into the
Northeast and now flies out of BWI (between Baltimore and Washington,
DC), Long Island, Hartford, CN, Providence, RI, Albany, NY, Manchester,
NH, Cleveland, OH putting great pressure on US Airways high fare
routes, and potentially threatening the future of US Airways.
Senator Specter. Thank you very much, Mr. Hudson.
We are proceeding in alphabetical order on this panel. Mr.
Charles Isdell has been serving as Acting Director of Aviation
at the Philadelphia International Airport since March 13th of
this year. He previously held the position of acting deputy
director. Bachelor's of liberal arts from Temple, master's
degree in education, also from Temple. Thank you for joining
us, Mr. Isdell, and we look forward to your testimony.
STATEMENT OF CHARLES ISDELL
Mr. Isdell. Good morning, Senator Specter, and thank you
for inviting me to discuss the implications of the proposed
United Airlines and US Airways merger.
I am joined today by Dan Canto Hertzler, the City of
Philadelphia's chief deputy city solicitor for regulatory
affairs. And I would like to mention Dan is behind me. He is
the person working on cooperating with Attorney General
Fisher's collection of data relative to this matter, and also
by Ed Anastasi, our deputy director of aviation for business
and finance.
Naturally, this merger is of great interest to Philadelphia
International Airport, where US Airways is currently the
dominant carrier, accounting for 13.6 million, or 58 percent,
of our passengers last year. The regional economy benefits from
the almost 400 daily US Airways departures at Philadelphia,
from the 5,800 US Airways employees currently stationed at
Philadelphia, and from three US Airways-supported major
construction projects valued at over $400 million that are
presently in full swing on our premises.
In addition, United Airlines accounted for another 1.2
million, or 5.5 percent, of our passengers in 1999.
Approximately 700 United employees currently support a total of
30 daily departures.
Key issues for Philadelphia include the continued growth of
our airport as a domestic and international hub, reasonable
airfares for our citizens, continued employment for current US
Airways and United Airlines staff, and continued investment in
our airfield, terminal, and landside infrastructures, which are
currently at or near capacity.
We were encouraged by the strong positive statements
regarding Philadelphia's role in the merged airline's network
that were included in the public announcement on May 24th and
by subsequent comments made by senior management officials from
both airlines.
However, as a prudent airport operator, we are evaluating
the potential impact of the proposed merger on all aspects of
airport operations, including financial considerations,
customer service concerns, and meaningful competition. We
believe it is too soon to determine with any real certainty the
ultimate results of the merger at this time.
With the assistance of the City Solicitor's Office, we are
reviewing our existing leases with both airlines, which run
through the year 2006. We have been monitoring, of course, the
speculation in the media regarding this and other possible
airline mergers as well as the ongoing congressional debate and
positions taken by numerous State attorneys general. It is our
intention to meet with senior officials of United and US
Airways at an appropriate time in the near future in an attempt
to clarify the local impact and our response to it. At that
time, we will seek formal assurances that Philadelphia will be
treated as its very valuable passenger market deserves. We will
take appropriate steps to protect the traveling public who use
Philadelphia International Airport.
As you know, Senator, the recent FAA reauthorization Act
requires Philadelphia, along with 40 other major U.S. airports,
to prepare and submit a competition plan by October 1st in
order to maintain airport improvement program and passenger
facility charge funding eligibility.
The airport can document numerous ongoing and future
efforts and initiatives conceived in the interest of fostering
competition at our facility. However, the proposed merger
presents us with an additional challenge in the accomplishment
of this task. Given the assurances we will expect from United
and US Airways, we are confident that PHL will meet this
challenge for the continued benefit of the citizens that we
serve.
Thank you again for the opportunity, and I will be happy to
answer any questions.
Senator Specter. Thank you very much for your testimony,
Mr. Isdell.
We turn now to Mr. Joe Mahoney, vice president of the
Greater Philadelphia Chamber of Commerce. He has held that
position for almost a decade. He was the administrative
assistant to Congressman Croflin from 1982 to 1990 and has been
a very strong force for economic development in the area. We
welcome you, Mr. Mahoney, and look forward to your testimony.
STATEMENT OF JOSEPH W. MAHONEY, JR.
Mr. Mahoney. Thank you, Senator Specter. I appreciate the
opportunity to testify this morning on the proposed merger
between United Airlines and US Airways.
We at the Chamber support the combination of United and US
Airways. It is our belief that this combination will bring
enhanced service to Philadelphia and open routes not currently
served in a direct flight mode. Increased service east/west as
well as additional destinations in Europe will better position
our airport as well as our businesses for the global economy.
We have seen Philadelphia International Airport grow over
the years and truly become an economic engine for our region.
We believe that there was a correlation between this growth and
the fact that we had become a major hub for US Airways
international service. US Airways annual expenditures in
Philadelphia total $528 Million. Since 1996, they alone have
added 28 destinations. In fact, many companies have told us the
importance of obtaining more flights out of Philadelphia. These
companies have said that one of the reasons for locating their
facilities here was the ease of air transportation,
particularly internationally, as well as the favorable cost of
living compared to other cities along the Northeast corridor.
The routes currently served by each airline seem to us to
be a good fit. By combining United's east/west service with the
north/south and Europe connections presently served by US
Airways, Pennsylvanians will have more options and be better
positioned for growth. New destinations will be added, and more
direct flights will be possible with the advantages of same-
carrier ticketing and baggage handling. United plans to offer
nonstop or one-stop service to 273 domestic and international
destinations from Philadelphia. That is 102 more destinations
than US Airways currently services today.
Our Chamber has worked hard to promote our region as a
major technology center. In fact, two of the largest IPO's of
1999 were companies headquartered in southeastern Pennsylvania:
Internet Capital Group and Vertical net. We believe that the
added flights to the west coast and the scheduled flight to San
Jose will make for added commerce and enhance our efforts to
promote our companies to this technology hub.
We are pleased that there have been assurances that current
US Airways employees will not be displaced and that the
construction currently underway at Philadelphia International
Airport will be completed. We recognize that US Airways has had
financial challenges over the years and believe that this
combination will provide employees with greater financial
stability. We likewise believe that this strength will be
advantageous to the long-term success of the Philadelphia
International Airport. While the US Airways presence in
Philadelphia has proven to be a plus for our region, concerns
have existed over the long-term financial viability of the
carrier.
At a recent House Transportation Committee hearing,
Chairman Shuster was quoted as saying, and I quote, ``The sad
fact is US Airways has been hemorrhaging with losses. It is my
judgment we will see US Airways in bankruptcy, if not out of
business, in the coming years.'' If the chairman is correct,
this would not bode well for Philadelphia. The combination
proposed by this merger provides more comfort about the
financial viability of the airline.
We recognize the concerns surrounding competition and
possible price increases for the traveling public. Those issues
are certainly of concern to us as well. We recognize that fares
depend on a number of factors. With a little planning,
competitive fares can be obtained and certainly alternate
routing is available.
Most people can compare fares through the use of both
travel agents and the Internet. With these options available,
price-conscious consumers can identify flights best suited to
their individual situations. We must assure, though, that small
businesses do not get priced out of the market. These business
travelers may not have the flexibility of leisure travelers in
meeting the advanced bookings often required for cheaper fares.
It is important that Philadelphia encourage the entrance of
competitors into the carrier mix at the airport. This marketing
effort can assure that prices remain pro-consumer and
competitive.
In conclusion, the Greater Philadelphia Chamber of Commerce
believes that the proposed merger is good for Philadelphia.
While protecting current jobs at the airport, we believe that
the increased service will prove to be an economic development
engine that will add more jobs to the regional economy.
I appreciate your invitation to testify today.
Senator Specter. Thank you very much, Mr. Mahoney.
We turn now to Mr. Kevin Mitchell, chairman of the Business
Travel Coalition. Previously he served for 12 years as vice
president for human resources and services at Signet
Corporation. He was recognized by the Business Travel News as
one of the 25 most influential travel industry executives for
1994, 1996, 1997--what happened to 1995, Mr. Mitchell?--and was
designated Man of the Year in 1998 by the Commercial Travelers
Association.
Thank you for joining us and you can disregard my question
about 1995.
STATEMENT OF KEVIN P. MITCHELL
Mr. Mitchell. Thank you, Senator. Thank you for inviting me
here this morning.
BTC is opposed to the combination of United Airlines and US
Airways. Since the proposed transaction was announced on May
24, BTC has been surveying large buyers of air transportation
services to secure their views.
In a recent BTC survey of 172 veteran corporate buyers of
air transport services, only 17 percent supported the buyout.
Some 61 percent were opposed, and 22 percent said they needed
additional information prior to taking a position.
There are numerous potential short-term negative
consequences associated with this buyout. But as serious as
they are, customers who oppose this combination are most
concerned with its potential long-term negative outcomes.
It is assumed by most experienced corporate purchasers that
as a consequence of fewer competitors, business airfares will
climb above current record levels. It is likewise believed by
most industry observers that should the United Airlines-US
Airways transaction be approved, the industry's top ten
airlines will collapse to three superpower carriers, and
Southwest Airlines.
BTC disputes the last portion of this assumption. Believing
that Southwest is golden, that Southwest will continue to
compete as an independent firm, and as the champion of
deregulation, is a dangerous assumption that needs to be
reconsidered in light of the potential collapse of the industry
to a few superpower airlines.
It is true that heretofore major airlines have responded to
Southwest Airlines' entry into a market in a rational manner
with respect to pricing and capacity. Losing millions of
dollars attempting to run Southwest Airlines from a market is
an irrational strategy--as almost guaranteed failure prevents
the investment in such a strategy from being recouped.
Of deep concern, though, is that a combined United US
Airways, and the other resulting mega airlines, will possess
massive new resources of all manner--political, financial,
airport facilities, network scale and scope, code sharing and,
importantly, the strategically targeted frequent flyer,
commission override and exclusive corporate discount programs.
These resources will be available to attack Southwest on all
fronts at once.
No longer might strategies to run Southwest from markets be
considered irrational. Such strategies of predation could
succeed and greatly slow Southwest's expansion--even weakening
the low-fare pioneer to a point where it is acquired, either
voluntarily or involuntarily. What would happen to the legacy
of deregulation in an industry controlled by three
superpowers--without Southwest Airlines' overarching
disciplining presence?
Significantly, if three superpower network carriers could
inflict this type of harm on Southwest, the survival of current
and prospective low-fare new entrants must be seriously,
seriously questioned. Just at a time in the history of U.S.
deregulation when new entry is needed more than ever, it will
become exceedingly more difficult for start-ups to secure
financial backing and to compete.
Mr. Chairman, the risks of an industry consolidation on
this scale to competition, consumers, communities, and
corporations are indeed great. However, a few industry
participants justify the risks by questioning whether US
Airways is financially viable as a stand-alone firm given its
high costs. But there are other relevant questions to be asked.
If the transaction is not approved, and if US Airways were
to go out of business, how long would it likely take for
existing competitors to replace it in the marketplace? What is
the probability of a US Airways business failure? What would be
the likely economic impact of a US Airways failure?
Indeed, the Philadelphia Inquirer recently reported a
Southwest Airlines' spokesman as saying, ``It is fair to
suggest that Mr. Mitchell's scenario is not only plausible, but
altogether likely.''
Of great, great concern is if three colossal network
carriers could inflict this type of harm on Southwest, the
survival of current and prospective low-fare new entrants must
be seriously questioned. Just at a time in the history of
deregulation when new entry is needed more than ever, it will
become exceedingly more difficult for start-ups to secure
financial backing and to compete.
Senator, the United-US Airways development confirms the
intention of some airlines to radically consolidate the
industry. This should represent a clarion call--were one
needed--that new entry must become the number one public policy
priority with respect to competition in air transport. To this
end, Senator, BTC urges you to support or to seek transmission
from the Department of Transportation of its finalized
Competition Guidelines, and to request that the Department
immediately implement the guidelines, perhaps with
congressionally authorized increases to DOT's authority.
Thank you for your interest in the views of the customer
today.
[The prepared statement of Mr. Mitchell follows:]
Prepared Statement of Kevin P. Mitchell
My name is Kevin Mitchell. I am chairman of the Business Travel
Coalition (BTC), which represents the business travel interests of
major corporate buyers of air transport services, as well as 21,000
independent business travelers who are members of the Commercial
Travelers Association.
BTC is opposed to the combination of United Airlines and US
Airways. Since the proposed transaction was announced on May 24, BTC
has been surveying large buyers of airline services to secure their
views regarding the potentially profound impact of this development of
the long-term cost structure of business travel activities. Attached is
a supplemental BTC document that outlines forty-eight issues and
questions raised by this monumental industry development.
Some corporate buyers perceive potential benefits associated with
this transaction. For example, buyers in the Boston market would have
access to United's large domestic network. Likewise, smaller companies
in the Northeast with travel volumes to the West Coast that are
presently insufficient to qualify for a discount with United may now
enjoy a discount with the combined airline. Clearly, the expanded
frequent flyer program will also be attractive to the individual
traveler.
However, in a BTC survey last week of 172 veteran corporate buyers
of air transportation services, only 17 percent supported the buyout.
Some 61 percent were opposed, and 22 percent said they needed
additional information prior to taking a position.
Members of the Committee, there are numerous potential short-term
negative consequences associated with this buyout. The huge costs of
integrating these firms will likely be indirectly financed by business
travelers in cities like Rochester, Pittsburgh, Charlotte and other
captive markets where the new mega airline will be able to extract
supra premium airfares.
Moreover, customer service problems will likely be serious if
experienced from previous mergers such as Northwest and Republic, or US
Air and Piedmont have taught us anything. Finally, the resulting
network will be over hubbed, and consequently, many mid-size
communities will undoubtedly lose non-stop service, or find service
degraded to important business centers.
As serious as the short-term implications are, customers who oppose
this combination are most concerned with its potential long-term
negative outcomes. It is assumed by most experienced corporate
purchasers, that as a consequence of fewer competitors, business
airfares will climb above current record levels. It is likewise
believed by most industry observers that should the United Airlines-US
Airways transaction be approved, that the industry's top ten airlines
will collapse to three superpower carriers, and Southwest Airlines.
BTC disputes the last portion of this assumption. Believing that
Southwest is golden, that Southwest will continue to compete as an
independent firm, and as the champion of deregulation, is a dangerous
assumption that needs to be reconsidered in light of the potential
collapse of the industry to a few superpower airlines.
It is true that heretofore major airlines have responded to
Southwest's entry into a market in a rational manner with respect to
pricing and capacity. Losing millions of dollars attempting to run
Southwest from a market is an irrational strategy--as almost guaranteed
failure prevents the investment in such a strategy from being recouped.
Alternatively, major airlines have responded to Southwest with
Shuttle By United, Delta Express and MetroJet further extending the
reach and positive impact of Southwest Airlines in a deregulated
industry. These innovations, and attendant consumer benefits, are at
risk of being scaled back in the short term and abandoned altogether in
the long term, e.g. MetroJet at Baltimore Washington International
Airport (BWI).
However, if major airlines were forced to respect Southwest in
terms of pricing and capacity policies, they developed other fronts
from which to mount attacks on Southwest. For example, knowledgeable
observers state that US Airways and other major airlines hold onto
unused gates at BWI and other airports to prevent Southwest's optimal
expansion. Similarly it has been charged that gates are often leased
without an intended use to keep them out of the hands of Southwest. Can
there be positive outcomes with a much larger single airline
controlling even greater assets at these airports?
Of deep concern is that a combined United-US Airways, along with
the other resulting airline behemoths, will possess massive new
resources of all manner--political, financial, airport facilities,
network scale and scope, code sharing and strategically targeted
frequent flyer, commission override and exclusive corporate discount
programs--to attack Southwest on multiple fronts all at once.
No longer might strategies to run Southwest from markets be
considered irrational. Such strategies of predation could succeed and
greatly slow Southwest's expansion--even weakening the low-fare pioneer
to a point where it is acquired, voluntarily or involuntarily. What
would happen to the legacy of deregulation in an industry controlled by
three superpower airlines--without Southwest Airlines' overarching
disciplining presence?
Significantly, if three superpower network carriers could inflict
this type of harm on Southwest, the survival of current and prospective
low-fare new entrants must beseriously, seriously questioned. Just at a
time in the history of U.S. deregulation when new entry is needed more
than ever, it will become exceedingly more difficult for startups to
secure financial backing and to compete.
Mr. Chairman the risks of an industry consolidation on this scale
to competition, consumers, communities and corporations are indeed
great. However, a few industry participants justify the risks by
questioning whether US Airways is financially viable as a standalone
firm given its high costs. But there are other relevant questions to be
asked.
If the transaction is not approved, and if US Airways were to go
out of business, how long would it likely take for existing competitors
to replace it in the marketplace? What is the probability of a US
Airways business failure? What would be the likely economic impact of a
US Airways failure?
Indeed, Alfred Kahn, and other proponents of deregulation, argued
that inefficient carriers would simply go out of business and their
assets would be acquired by efficient carriers who could offer a
better, less costly product to consumers.
At issue with this proposed transaction is that one inefficient
airline (United) is acquiring another ultra-inefficient airline (US
Airways) to create a mega airline that will have high labor costs, huge
overhead and multiple congested hubs, but that will also have
overwhelming market and pricing power that can crush smaller more
efficient competition.
BTC believes that consumers would be better off if US Airways would
be required by the marketplace to either fix its cost problem or leave
the field of play through liquidation or bankruptcy. In other words,
the ``failing carrier doctrine'' that leads to the approval of a merger
on the basis that it would save a failing airline should be abandoned.
To save US Airways in the short run, only to lose Southwest in the long
run, would represent the ultimate expression of unintended consequences
in air transport public policy.
Likewise, this airline combination is justified by some with the
argument that the airline industry is largely a network-based one,
where in order to make the network viable, more and more revenue must
be flowed through it. Thus, it is posited that there is a ``natural''
tendency toward consolidation of traffic feeds and networks. Well, by
logical extension, it could then be argued that perhaps instead of
three mega carriers the right number is two, or even one. Indeed, the
very discussion of an airline industry controlled by just a few firms
seems so surreal that it suggests other United Airlines' motives.
In January 1998 Northwest and Continental airlines announced an
alliance, which DOJ is currently suing to undo. That announcement
quickly led to alliance proposals by United and Delta, and American and
US Airways. The atmosphere in Washington then regarding concerns over
competition levels in U.S. commercial air transport effectively
restricted ties among these latter airline partners to joint frequent
flyer and airport club programs.
The prospect of virtually the entire U.S. airline market ultimately
falling under the control of just three firms could make the alliance
proposals of 1998 appear like an attractive compromise which could be
advanced by United's allies as a ``breakthrough'' solution. For United
such a result would represent a triumph, and one that it may indeed be
attempting to engineer as evidenced by the very low breakup fee of some
$50 million.\1\
---------------------------------------------------------------------------
\1\ If an approved alliance is the outcome, then United might have
cleverly: (a) locked up US Airways' assets by having offered $60.00 per
share in calculation that American Airlines would not attempt to top
the offer; (b) preemptively secured East Coast feed traffic into the
Star Alliance that it may have lost to another global alliance
competitor this year; (c) avoided paying a 130% stock premium to US
Airways' shareholders; (d) satisfied its pilots union's concerns
regarding seniority losses in a fully merged company; (e) kept DCA
assets out of competitors' hands who would use them against United for
the benefit of consumers; and (f) secured the alliance outcome it
wanted in 1998, but without onerous government remedies.
---------------------------------------------------------------------------
Industry conditions and carrier behaviors that in 1998 made
unacceptable a scenario in which three superpower network alliances
would dominate the U.S. airline marketplace, have not changed. In fact,
that DOT has not transmitted its proposed Competition Guidelines to
Congress has only deepened concerns over competition. The collapse of
the airline industry to three mega networks--either by out right
acquisitions or by deeply integrated alliances--would be an outcome of
ominous consequence.
Major airlines often point to the aircraft manufacturing industry
where just two firms dominate--Airbus and Boeing--to dispel concerns
over competition levels resulting from fewer competitors. However,
either Airbus or Boeing can meet nearly all the needs of a customer
seeking to purchase airplanes. Consequently, there is robust price
competition and price variation in the marketplace, and innovative
contract terms and conditions in that industry.
In contrast, no one airline can meet all the needs of its corporate
customers, so, negotiating leverage is greatly diminished via-a-vis
customers of the aircraft manufacturing industry. Indeed, in many cases
there is only one real competitive airline choice for business
travelers. Thus, what is relevant is choice in individual city-pair
markets. Further industry consolidation will likely lead to many more
monopolized city-pair markets. In an industry already marching in near
competitive lockstep with regard to pricing decisions, this would not
represent a pro competitive result.
Mr. Chairman, and Members of the Committee, the United-US Airways
development unequivocally confirms the intention of some airlines to
radically consolidate the industry. This should represent a clarion
call--were one required--that new entry must become the number one
public policy priority with respect to competition in air transport. To
this end, BTC urges this Committee to: (1) seek transmission from DOT
of its finalized Competition Guidelines; and (2) request that DOT
immediately implement the Guidelines, perhaps with Congressionally
authorized increases to DOT's authority.
Thank you for your interest in the views of the customer of the air
transportation industry.
______
United Airlines-US Airways Proposal Raises Questions
Philadelphia, PA. June 26, 2000.--The proposed United Airlines
(UA)-US Airways (US) transaction represents a watershed event in
commercial aviation history with significant long-term implications for
consumers, communities and businesses. As such, according to this
Business Travel Coalition (BTC), the transaction deserves vigorous
debate.
This document contains issues and questions that should be examined
thoroughly by government, customer and media representatives. Three
broad categories--Customers--Costs--Competition--will serve as
organizational themes in this document.
CUSTOMERS
1. Is UA's proposed airfare freeze truly a freeze, or can the
number of low fares in various ``buckets'' be manipulated to drive
yields up, and effectively, the prices leisure and business travelers
will pay? Will anyone monitor this?
2. Is the proposed airfare freeze indicative of UA's concern
regarding scrutiny of the pricing power this new airline will possess?
3. Which mid-size communities will likely see service to important
hub markets eliminated as UA rationalizes an over hubbed network? To
what extent will each of these communities be impacted by reduced
frequencies, the use of smaller aircraft and the transferring of flying
to regional affiliates?
4. What would be the economic impact on communities and businesses
were the proposed new mega airline to experience a 15-day or longer
pilots strike?
5. In terms of providing the highest level of service (frequency)
at the best possible prices to the greatest number of passengers and
communities, what is the highest and best use of DCA slots and other
assets proposed to be acquired by ``DC Airlines''?
6. What are the likely economic benefits to businesses and
communities that are expected to see an expansion of air services, such
as in the Boston market area?
7. What is the economic significance for smaller businesses in the
Northeast (US customers) that currently have insufficient East Coast to
West Coast traffic to qualify for a discount on UA, that might now have
such an opportunity?
8. What are pro competitive negotiating opportunities might
Northeast-based businesses have with a carrier (UA-US) that could
provide combined offerings that are superior to AA, DL, CO?
9. Are the 47 new routes that UA has committed to adding non-stops?
Are they valuable routes to the business travel customer? What size and
type of equipment would be used; what frequencies would be implemented?
What real guarantees are there that UA will fulfill this commitment?
10. What new cities will receive new service to DCA?
11. What are the results of UA's public commitment to improve
customer services levels vis-a-vis pressure from Congress in 1999?
12. What expectations should customers have with respect to a
successful integration of customer service operations given UA's
relatively poor baggage handling and on time performance results as a
stand-alone company? What is the economic price customers will pay
should such an operations integration be a worst case failure?
13. Were the industry to collapse to just three major airlines,
with attendant customer service integration problems, what would be the
likely associated financial and non-financial impacts on customers.
COSTS
1. Given the exceedingly high costs associated with airline
mergers, how many years will it take for UA to realize any efficiency
benefits premised within this transaction?
2. What is the likelihood that business travelers in monopoly
markets will in effect finance the integration costs associated with
this transaction through higher airfares?
3. If the transaction is not approved, and if US were to go out of
business, how long would it likely take for existing competitors to
replace US? What is the probability of a US business failure? What
would be the likely economic impact of a US failure?
4. Given the proposed benefits of a US-UA merger, and given the
collapse of the domestic U.S. airline industry to three mega airlines,
what is likely to be the sum net benefit or cost to consumers,
communities and businesses?
5. Given a domestic industry where three airlines would control 85%
of the market, with attendant pricing power, at what point do airfare
increases cancel out incremental frequent flyer program benefits for
travelers who have new found access to more award program choices?
COMPETITION
1. Will UA oppose other mergers and acquisitions by its major
competitors?
2. The loss of US as independent firm removes one more competitor
who can break ranks with industry-wide fare hikes. Would not the
collapse of the industry to three mega airlines allow across-the-board
fare increases to stick much more easily?
3. What is the annual passenger count in overlapping UA-US markets?
Are these currently high or low-yield markets?
4. What percentage of city-pairs in the combined network will UA be
considered to have monopoly positions in?
5. Will UA surrender slots at ORD, DCA, LGA to permit service by
new entrants? Likewise at BWI, DCA and IAD from which both carriers
serve New York?
6. Will UA maintain code share arrangements with all US regionals
and commuters?
7. Will US's MetroJet product be discontinued by UA?
8. Why does US have a yield significantly higher than that of UA?
Is there a danger that the combined organization will use its monopoly
positions in markets such as Charlotte, Pittsburgh and Denver to force
higher fares?
9. What is the percent of total operations, revenue and traffic for
the combined airline in these major markets: New York, Los Angeles,
Chicago, Boston, Philadelphia, San Francisco, Washington, Seattle,
Portland, San Diego, Pittsburgh, Charlotte, Dayton, Indianapolis,
Kansas City?
10. How does the merged airline's international route structure
compare with that of other airlines? What adjustments are needed to
reduce monopolies on international routes?
12. Were this transaction approved, and were this over hubbed
airline to rationalize its assets, is there a role for government in
ensuring shed assets such as slots, gates and equipment are distributed
to viable competitors--especially new entrants?
13. What will be the effect of the merger on airline industry
suppliers and on travel agencies?
14. How many slots will UA keep at DCA, and how many will it give
to DC Air?
15. Do UA and US exhibit an appropriate level of concern for
shareholder value and revenue maximization via their preemptive sale of
DCA slots to a US Board member? Does the sale of these assets represent
the going rate for such assets, let alone the potential stand-alone
value of a hub-and-spoke operation?
16. As proposed, DC Air is to be a ``low fare'' airline. Is this
not counter to all logic in that DCA is a high yield airport? This
ostensibly is the price users are willing to incur for the airport's
convenience. Low fare service to the region has always taken place at
either BWI or IAD, but rarely at DCA. Why would the management of an
airline willingly charge fares substantially lower than the market will
reasonably bear?
17. Is there concern that DC Air is simply an attempt by UA to keep
powerful assets out of the hands of those competitors who would turn
them against UA to the benefit of consumers?
18. As restricted as access is to DCA, and in light of the high
fares generally charged there, would not many other airlines be
expected to bid for these assets?
19. How competitive is DC Air likely to be given UA's ongoing
involvement in the airline? Would a DC Air seek increased earnings from
aggressive network expansion and price competition, or would it likely
seek to take advantage of the high yield markets it will have presence
in to extract higher airfares from business travelers?
20. Were this transaction approved, and as a consequence were 85%
of the domestic U.S. airline industry controlled by three mega
airlines, what forms of market power abuse would be likely given the
history of the industry? Will Southwest Airlines survive as an
independent firm?
21. If three colossal airlines resulted from the approval of the
US-UA transaction, what incentives would these airlines have to use low
fares as a tool to win the loyalty of business travelers? Would they
seek to expand into each other's hub markets? Will UA really give DL a
run for its money?
22. The proposed US-UA transaction underscores more than ever the
need for consumers to rely upon new entrant competitors to discipline
major airlines' pricing policies. In addition to the proposed U.S. DOT
competition guidelines--which are essential, what other tools,
legislatively or otherwise, would DOT require to guarantee a steady
stream of new entrant applications into the Department?
23. How does the prospect of three airlines controlling 85% of the
U.S. domestic commercial air transport market square with the
intentions of Congress and other advocates of deregulation some 20
years ago?
24. As a counter-balance to a potential ``Fortress America'',
should Members of Congress immediately consider proposals to modify
restrictions on foreign ownership of U.S. airlines to boost
competition? Should approval of the US-UA transaction be contingent
upon the competition of an agreement with the EU to establish a
transatlantic free trade zone which would lower airlines' costs and
increase new entry competition?
25. Are there recommendations that the TRB issued in July 1999 that
should be given high priority consideration by Congress and DOT given
what we now know regarding the intentions of some airlines to further
consolidate the industry?
26. As per Congressman Oberstar's 5/31 letter to DOT Secretary
Slater, should Congress immediately consider legislation that would
specifically provide DOT with regulatory authority to disallow airline
transactions with significant negative ``downstream'' effects on the
competitive structure of the industry?
27. Are there competitive concerns associated with airlines' code
name ``T2'' Internet portal initiative that become exacerbated given
the potential control of the distribution system by three mega airlines
in any of the areas that follow?
--Relevant measures of market power
--Leveraged use of current airline market power
--Exclusive website-airline arrangements
--Exclusionary powers of airline-owned mega sites (T-2, ``T-
2'')
--Competitive impact of third party internet sites
--Competitive impact of GDSs
--Control and use of competitive data
--Application of existing consumer protection regs
--Relevance of current CRS rules
--Consumer access to Internet fares
--Consumer privacy protection
--Competitive role of travel agents
28. Will three controlling airlines, especially with the additional
potential leverage available through a T2 portal, likely force travel
agencies into exclusive dealership-type arrangements through commission
override programs that will effectively foreclose on competition from
new entrant airlines who will not have easy access to the travel agency
distribution system--and perhaps not to T2?
29. Will three controlling airlines, especially with the additional
potential leverage available through a T2 portal, likely accelerate the
use of exclusive corporate discount programs to lock customers into
expansive networks in return for deeper discounts, but at the cost of
frustrated new entry and higher fares over the long-term?
30. Will three controlling airlines, especially with the additional
potential leverage available through a T2 portal, likely use vastly
more powerful frequent flyer programs to frustrate new entry.
31. Is the illegal use of combined and strategically targeted
commission override, exclusive corporate discount and frequent flier
programs to block new entry for the purpose of maintaining monopoly
market positions more likely if the industry collapses to three super
network carriers?
Senator Specter. Thank you for your testimony, Mr.
Mitchell.
Starting with you, Mr. Isdell, on the impact on the
Philadelphia International Airport, when you talk about the
competition plan which you are required to submit in order to
be the beneficiary of additional Federal funding, I think that
is a very, very important item. Senator Santorum and I battle
every year, as do Congressman Weldon and Congressman Greenwood
and others, both Democrats and Republicans, for the very
substantial funds which we bring to Philadelphia from the
Department of Transportation. I am the senior Republican on
that subcommittee, and it is an ongoing battle.
What can the airport do to try to open slots engaged to try
to bring, say, Southwest in? We have heard testimony about the
difficulties that a respected competing airline would face in
trying to come in against US Airways. Well, if it is tough
against US Airways, it is going to be a lot tougher if it is
United and US Airways in a merged company. So what can the
airport do? Can you make slots available, gates available? And
what inducements can you give to competitors?
Mr. Isdell. Well, currently, with our existing 30-year
lease agreements that run through 2006 in our existing domestic
terminals, it is very difficult, Senator. And what we have
really only been able to do in recent years is approve as the
landlord subtenancies by airlines such as Midway that operates
in Terminal A right now.
Senator Specter. Well, who is going to be the sublessor?
Who is going to give them a slot; US Airways?
Mr. Isdell. That is a good question.
Senator Specter. Good question?
Mr. Isdell. Yes.
Senator Specter. Let's have a good answer.
Mr. Isdell. At the present time there are no subtenants of
US Airways. United does have a subtenant in AirTran at the
present time. Delta----
Senator Specter. That is just as United's--can it compete
with United?
Mr. Isdell. I would say not, no. So, again, to really give
you a more direct answer, I just wanted to give you the
background that brings us up to the present.
Senator Specter. Well, would it be fair to ask the new
merged company, if they are to approved, to provide some
subtenants?
Mr. Isdell. I think that is one approach. Also, the
possibility of regaining some of the gates that would be the
combined total gates between the two airlines. But I do want to
mention that our present construction----
Senator Specter. If they merged, they have to give some
gates up; is that your suggestion?
Mr. Isdell. I would suggest that we approach the gate
utilization the way we will be doing gate utilization in the
two new terminals that are under construction right now, which
is a preferential rather than a non-exclusive type of lease. It
gives the airport the ability to utilize gates that are leased
to a given airline such as US Airways or Untied if those gates
are not utilized fully during the course of any given day.
And that is currently one of our problems. We have four
domestic terminals and our one common-use international
terminal right now with 63 gates, all of the four domestic
terminal gates are exclusively leased, and at different points
during the day and evening some of those gates are really
underutilized. So not only are we losing--we the city and the
airport are losing the opportunity to make revenues on those
gates, but in addition, we lose the opportunity to bring in
competition.
Senator Specter. Mr. Mahoney, when Mr. Isdell talks about
assurances--and I am going to ask the question to you instead
of him since I have already questioned him. You have some very
expansive ideas going to San Jose, going to Portland, no
furloughs, job security, pricing, but when United comes in and
says we want to acquire US Airways and things are going to be
better and you take away US Airways as a competitor, which
gives some assurance financially to the economic forces, isn't
it sensible to ask for binding commitments on these matters?
If it turns out the way they want to do it anyway, the
assurances are really, really meaningless if it is in their
economic interest. But shouldn't we have something which gives
some binding force to what Philadelphia consumers are going to
have the opportunity to enjoy?
Mr. Mahoney. Senator, we think that it is--while we
certainly would hate to limit the company's ability to transact
business, we do think that those are legitimate questions that
you are asking, and we would not have a problem if they were to
go in that direction.
Senator Specter. Mr. Mitchell, your survey is kind of
stark: 61 percent immediately said it is a bad deal, only 17
percent said it was a good deal, and 24 percent withheld
judgment. How do you account for that kind of sharp, negative
response?
Mr. Mitchell. Well, first of all, Senator, the National
Business Travel Association recently conducted a survey as
well, 80-some--81 or 82 percent of their members opposed the
merger.
How I account for it is that these are seasoned purchasers
that were around during the 1980s when we had the last wave of
major consolidation mergers in the industry. And those
purchasers are experienced enough to know that what took place
there and the resulting fortress hubs that we now have in this
country and the high airfares, business airfares that resulted
are. We have the same conditions right now with this next wave
of consolidation down to three carriers, three major carriers.
So it is based on experience, their concerns.
Senator Specter. Mr. Hudson, would you be satisfied to let
this merger go through if we took the long list of
representations--don't call them commitments--but
representations, no fare increase for 2 years, no furloughs for
2 years, all of these lines? We are going to pursue the
question as to why the lines make sense after the merger and
why not before the merger? Why not go to San Jose now? But if
you take all of the representations which were made by United
and US Airways, and you had contractual commitments, maybe you
want to think it over, but I would be interested in your view
as to whether binding commitments would turn the tables for you
and being for this kind of a merger.
Mr. Hudson. The short answer is no, Senator, because the--
--
Senator Specter. That is a short answer.
Mr. Hudson. The commitments, even if they were enforceable,
which of course, they are not in the present context, and even
if they were put in writing, they wouldalways be subject to
market forces.
The situation----
Senator Specter. So your basic point is that the market is
going to govern whatever anybody says even if it is in writing?
Mr. Hudson. It really doesn't matter. I mean, I wouldn't
think it is a path that is worth treading.
Senator Specter. Adam Smith would agree with you. We don't
have any written testimony, but he would agree with you.
Mr. Hudson. If I could just address briefly a question you
asked regarding the airport authority here, Pennsylvania
presently has two fortress hubs, one in Pittsburgh and one in
Philadelphia. This will reinforce this merger. The kinds of
things that we would suggest be done would be to phase out
fortress hubs. And we have listed in our testimony some
things--things like ``require shared use agreements'' which
were used in railroad stations when that was the main form of
long-distance transportation; banning the ``majority and
interest'' clause which is used in leases and bond indentures
to----
Senator Specter. What is that again?
Mr. Hudson. It is called the ``majority and interest''
clause. Basically what it says is that one or a few airlines
have veto power over any expansion of the airport.
Then there is also the issue of slots being tied up for as
long as 30 years. That is an excessively long period. It should
be no more than five, in our view.
These are things that could be looked at by the antitrust
Subcommittee and the Congress as anticompetitive practices.
Senator Specter. Those are very good suggestions.
Well, thank you very much. We really appreciate you coming
in today.
Senator Specter. Now turning to panel four, Mr. Patrick
Gillespie, Mr. Richard Delgadillo, Mr. Vincent Maisano, Mr.
Randy Canale.
Mr. Gillespie, we will start with you.
Mr. Gillespie. Can I sit down first?
Senator Specter. You can start your testimony on the way
up, Pat.
Patrick Gillespie has served as business manager of the
Philadelphia Building and Construction Trades Council since
1982. He represents 70,000 employees, 2,000 of whom work on
construction projects at the Philadelphia International
Airport. Very active and incisive labor leader. Good morning,
Mr. Gillespie.
Mr. Gillespie. Good morning, Senator.
Senator Specter. We look forward to your testimony.
PANEL CONSISTING OF PATRICK B. GILLESPIE, BUSINESS MANAGER,
PHILADELPHIA BUILDING AND CONSTRUCTION TRADES COUNCIL; VINCENT
J. MAISANO, INTERNATIONAL VICE PRESIDENT, DISTRICT 13,
COMMUNICATIONS WORKERS OF AMERICA; RANDY CANALE, PRESIDENT AND
DIRECTING GENERAL CHAIRMAN, MACHINISTS DISTRICT 141; AND
RICHARD DELGADILLO, PRESIDENT, LOCAL 40, ASSOCIATION OF FLIGHT
ATTENDANTS
Mr. Gillespie. Senator, I have prepared text.
Senator Specter. All of it will be included in the record.
Mr. Gillespie. Wonderful, because what it does is just
parrots those who have been supporting the merger. I would just
like to say the Building Trades Council met with US Airways. We
had an agreement with US Airways, a project labor agreement
down on that construction project that is ongoing now, and my
concern was, would that continue and would we finish. And I
have been sufficiently satisfied that will, in fact, happen and
also that the look of it with this major United Airline now or
is it US Airways? Is that what they are going to call
themselves? US Airways?
Senator Specter. US Airways.
Mr. Gillespie. So they are just dropping the ``state'' and
it was US Airways and now it is United. So they will have fun
with that, that changing their name around.
But our concern is that the relationship that United has in
Philadelphia, it could very well lead to further expansion of
the airport and the other infrastructure projects that are
relative to that. So, of course, we are in favor of that
expansion. That is where the Building Trades Council comes
down. I will give this to your guy, the written text.
By the way, thank you for having me here. It is very nice,
and I'm sorry Senator Biden couldn't find Philadelphia, but he
knows where it is.
Senator Specter. Well, he may arrive yet. I talked to him
last Thursday and he expected to be here, and if he is not
here, there is some very good reason, and he may yet be here.
[The prepared statement of Mr. Gillespie follows:]
Prepared Statement of Patrick Gillespie
Good morning Senators. My name is Patrick Gillespie of the
Philadelphia Building & Construction Trades Council. The members of the
Philadelphia Building & Construction Trades Council represent more than
60,000 hard working men and women in the Philadelphia area. Our members
literally built this great city.
Our members have been, and continue to be, deeply involved in
building four major capital improvements at the Philadelphia Airport:
--The new international terminal and the new commuter
terminal currently under construction will cost more than $500
million.
--$220 million has been invested in a new commuter runway,
which opened last December.
--We have recently completed work on $150 million in
improvements to the baggage claim, ticketing and US Airways'
club facilities.
--We are currently building a new $35 million hangar to
accommodate US Airways wide-body aircraft to be used on its
expanded Philadelphia-trans-Atlantic service.
In addition to this substantial development--over $1 billion--we
understand that further significant investment will be needed in the
future so that the airport can continue to grow. It is from the
perspective of the hard-working men and women who build our
infrastructure that I come before you today to address the implications
of the proposed merger between United and US Airways.
Historically, although mergers and acquisitions are often good for
the short-term gain of shareholders, they have not always been good
news for employees. In the rush of many major corporations to take
advantage of the so-called synergies and efficiencies that a merger can
bring, often it is to the detriment of working men and women, who may
face lay-offs or furloughs.
Unlike many mergers, however, the authors of the United and US
Airways merger should be commended for their approach to labor. Every
corporation offers its employees rhetoric about their future after a
merger, but the management of United and US Airways have backed that
rhetoric with tangible commitments. We understand that the proposed
merger will offer:
-Job guarantees and no furloughs
--Complete fulfillment of US Airways' commitments, including
its commitments to the Philadelphia Airport
--Immediate announcements of expanded service from
Philadelphia by United
On jobs, as part of the merger, it is my understanding that United
guaranteed that all employees (except senior management) will be
offered a job and that no employee will be furloughed for at least two
years as a result of this merger. Even beyond that commitment, we hear
that the Chairman of United, Mr. Goodwin, has announced publicly, even
before your very Committee, Mr. Specter, that he was extending the ``no
furlough'' promise indefinitely. We believe that demonstrates the
enormous value of the contributions from the employees of both
airlines, and is a welcome recognition.
Further, we have been told that United will honor all of US
Airways' commitments to the ongoing capital improvements, including
those now underway at the Philadelphia International Airport. This
includes US Airways' obligations toward the new international
terminal--to accommodate additional wide-body aircraft--and also US
Airways' obligations toward the new commuter terminal--to accommodate
additional regional jets. These two projects alone promise
approximately 5000 construction jobs per year on average, from 1999 to
2002, until they are completed. [the information on construction jobs
is from the approved PAID financing application and the Executive
Summary for City Council]
United's pledge to expand air service out of Philadelphia is a
promise from which all Philadelphians will benefit immediately. New
non-stop flights will now link Philadelphia to the high tech business
centers in Portland, Oregon and Orange County and San Jose, California.
Finally, all of us who live and work in this area benefit from
economic growth and development in the greater Philadelphia region. A
key component to the economic growth of any area is access to efficient
and well connected air service--something that US Airways has
dramatically improved in recent years. This merger will only add to the
pattern of growth that US Airways has built in Philadelphia. It will
bring more commerce, more jobs and more economic development to
Philadelphia and benefit workers throughout the Philadelphia area. As
Philadelphia grows, the entire region benefits.
Senator Specter. Mr. Vincent Maisano currently serves as
International Vice President of Communications Workers of
America, District 13 in Philadelphia. Elected to the
Pennsylvania AFL-CIO Executive Committee in 1994; sits on the
Philadelphia Council of AFL-CIO as vice president, represents
2,000 airline employees who work in customer service and
reservations.
Thanks for joining us, Vince, and we look forward to your
testimony.
STATEMENT OF VINCENT J. MAISANO
Mr. Maisano. Good morning, Senator, and thank you for the
invitation to testify here today. CWA represents nationwide
10,600 passenger service employees at US Airways, the largest
employee group at the airline. Our members work at the ticket
counters, the boarding gates, special assistance services, city
ticket offices, reservations and baggage call centers, US
Airways Clubs, and the Dividend Miles service center.
CWA has not, as yet, taken a position on the merger. But we
have several concerns and issues that we would like addressed.
In addition, we are currently polling our members at US Airways
to tally their full range of concerns.
Approximately 2,000 of our members at US Airways work in
Pennsylvania. They work at the reservations call center in
Pittsburgh and the two hub operations at both Philadelphia and
Pittsburgh airports. They also work at the smaller city
airports in Allentown, Erie, Harrisburg and Wilkes-Barre/
Scranton. Many US Airways Express employees at the small
regional airports, while not being part of the US Airways
mainline operation, will be affected by the proposed merger,
such as Johnstown, Williamsport, Altoona, Bradford, Jamestown,
Reading, and State College, to name a few.
We are very concerned about these jobs in Pennsylvania.
These jobs are critical to the local economy and will be
extremely difficult to replace. Many of these jobs are
industry-specific, and displaced employees will have a
difficult time finding employment with pay commensurate with
their skills and experience. I am proud to say that CWA-
represented passenger service employees at US Airways are the
best paid in the industry. The top rate is $22.23 per hour--
almost $2.50 more per hour than passenger service employees at
United. Displaced or furloughed employees will likely have to
take jobs within the region that pay between $7 and $10 per
hour without benefits and union protection. US Airways and
United have said this merger is about growth. We understand
that this may help to grow the profits of United. But we also
understand very well that consolidation of overlapping and
redundant operations is a by-product of most mergers. We
believe that passenger service employees, particularly those
who work at the reservations call centers, and other support
operations, such as the baggage call center, administrative
personnel, crew schedulers and training personnel, are the most
vulnerable to consolidation and loss of jobs.
United has promised not to lay off any employees for a
period of 2 years as a result of the merger. We don't believe
this promise is good enough. Mergers can result in forced
relocations, where employees are given the choice to move or
lose their jobs. For example, in the 1986 Delta/Western merger,
2,000 of Western's 11,000 employees were told they had to move
from Los Angeles to Atlanta or lose their jobs.
Senator, I applaud your questioning this morning and your
getting to the point and getting underneath the veneer of the
job protection.
Will US Airways employees be asked to relocate? And if they
refuse, will they be allowed to continue employment at their
current location? My experience in the labor business, if you
will, is that a furlough is when someone is actually laid off.
But if someone doesn't take a transfer, then it is job
abandonment, therefore not a layoff. Is this going to be the
situation?
I like very much, Senator, when you want a yes or a no
answer. Is it going to be a written commitment and a positive
answer?
I am particularly concerned about the reservation center,
approximately 900 jobs just outside of Pittsburgh, and will
these be guaranteed. United now has 17 reservation centers
across the country. Will they keep the reservation center in
Pittsburgh? We have to understand the impact on a community
since most of these employees are located in those particular
communities surrounding that center, what effect will it have
on those towns?
My testimony will be part of the written record.
Senator Specter. It will.
Mr. Maisano. I see the caution light going on. I also ask,
Senator, about the competition and what effect it will have on
consumers. Two of US Airways' three hubs are in our State. The
other is in Charlotte, North Carolina. United has five hubs.
They are in San Francisco, Los Angeles, Denver, Chicago, and
Washington. After the merger, consumers wanting to fly between
the hubs of the respective communities will have far less
choice. And I have statistics of market share within my
testimony, Senator, which I would like you to take notice of.
Once again, thank you very much, Senator, for these
hearings and your concern for these jobs and the fact that you
want to get underneath just the guarantee of no layoffs and a
guarantee of the jobs that they stay here, are not transferred
away, and they are not lost to attrition.
Thank you once again.
Senator Specter. Thank you very much, Mr. Maisano.
[The prepared statement of Mr. Maisano follows:]
Prepared Statement of Vincent J. Maisano
Good morning Senator Specter and fellow Pennsylvanians. My name is
Vincent J. Maisano. I am a Vice-President of the Communications Workers
of America, the CWA. I have the privilege of representing all CWA
members in Pennsylvania and Delaware. Thank you very much Senator
Specter for the opportunity to speak on issues of great concern to us
about the proposed merger between US Airways and United.
CWA represents 10,600 passenger service employees at US Airways--
the largest employee group at the airline. Our members work at the
ticket counters, the boarding gates, special assistance services, city
ticket offices, reservations and baggage call centers, US Airways
Clubs, and the Dividend Miles service center.
CWA has not, as yet, taken a position on the merger. But we have
several concerns and issues that we would like addressed. In addition,
we are currently polling our members at US Airways to tally their full
range of concerns.
Approximately 2,000 of our members at US Airways work in
Pennsylvania. They work at the reservations call center in Pittsburgh
and the two hub operations at both Philadelphia and Pittsburgh
airports. They also work at the smaller city airports in Allentown,
Erie, Harrisburg and Wilkes-Barre Scranton. Many US Airways Express
employees at the small regional airports, while not being part of the
US Airways mainline operation, will be affected by the proposed merger
such as: Johnstown, Williamsport, Altoona, Bradford, Jamestown,
Reading, and State College to name a few.
We are very concerned about these jobs in Pennsylvania. These jobs
are critical to the local economy and will be extremely difficult to
replace. Many of these jobs are industry specific and displaced
employees will have a difficult time finding employment with pay
commensurate with their skills and experience. I am proud to say that
CWA represented passenger service employees at US Airways are the best
paid in the industry. The top rate is $22.23 per hour--almost $2.50
more per hour than passenger service employees at United. Displaced or
furloughed employees will likely have to take jobs within the region
that pay between $7 and $10 per hour without benefits and union
protection.
US Airways and United have said the merger is about growth. We
understand that this may help to grow the profits of United. But we
also understand very well, that consolidation of overlapping and
redundant operations is a by-product of most mergers. We believe that
passenger service employees, particularly those who work at the
reservations call centers, and other support operations, such as the
baggage call center, administrative personnel, crew schedulers and
training, are the most vulnerable to consolidation and loss of jobs.
United has promised not to lay-off any employees for a period of
two years as a result of the merger. We don't believe this promise is
good enough. Mergers can result in forced relocations, where employees
are given the choice to move or lose their jobs. For example, in the
1986 Delta/Western merger, 2,000 of Western's 11,000 employees were
told they had to move from Los Angeles to Atlanta or lose their jobs.
Will US Airways employees be asked to relocate? And if they refuse,
will they be allowed to have continued employment at their current
location? If they are willing to relocate, will they have similar
seniority, compensation and benefits? The airlines say they will reduce
the workforce through ``normal attrition.'' Does this mean that jobs
left vacant through ``attrition'' will not be replaced, thereby
reducing the number of well paying jobs in the local economy? When good
paying jobs are lost, families of the affected spend less and local
businesses get hurt as a result.
A two-year job guarantee isn't very long. US Airway's own history
of mergers and layoffs demonstrates that the effects of airline mergers
are sometimes not felt until years after the merger. When US Airways
merged PSA's operations into its own in 1988, about half of PSA's
headquarter staff lost their jobs. In the years following that merger
US Airways merged with Piedmont. US Airways announced a total of more
than 10,000 layoffs, including layoffs of more than 3,600 passenger
service employees, as it struggled to integrate operations of all three
carriers. The merger with United dwarfs those mergers in terms of sheer
size and potential job impacts.
This merger is likely to have an adverse impact to consumers in
Pennsylvania, as well as the workers--and more so than in any other
state. Two of US Airways' three hubs are in our state. The other is in
Charlotte, North Carolina. United has five hubs. They are in San
Francisco, Los Angeles, Denver, Chicago and Washington. After the
merger, consumers wanting to fly between the hubs of the respective
companies will have far less choice. The flying public throughout
Pennsylvania who rely on the Philadelphia and/or Pittsburgh hubs to
reach their ultimate destinations will have significantly less choice.
Let me give some numbers to illustrate this point. United and US
Airways are the two main competitors in several westward routes from
Philadelphia. From Philadelphia to San Francisco, United and US Airways
each have a market share of 40%. After the merger the combined company
will dominate the marketwith 80% market share. From Philadelphia to
Denver, United's market share is 50% and US Airways' is 28%--a combined
78% market share. From Philadelphia to Los Angeles, United's market
share is 29% and US Airways' is 41%--a combined 70%. To Chicago O'Hare
the combined market share will be 71%. The merger will also have
serious anti-competitive impacts on certain non-hub to hub routes as
well. For example, from Philadelphia to Seattle, United's market share
is 16% and US Airways' is 51%--a combined 67% market share. From
Philadelphia to San Diego, United's market share is 13% and US Airways'
is 42%--a combined 55% market share.
Competition for non-stop service on certain routes from
Philadelphia will completely disappear and consumers will be left with
no choice whatsoever. United and US Airways are the only two carriers
to offer non-stop service from Philadelphia to the United hubs of
Denver, San Francisco and Los Angeles. US Airways is already the only
airline to offer non-stop service from Pittsburgh to the same United
hubs. So, there will be a significant reduction in choice for residents
in the Philadelphia area traveling to United hub cities--and no
improvement for residents in the Pittsburgh area.
As I stated previously, CWA hasn't taken a position on the US
Airways-United merger. However, we believe that Congress and the
Department of Justice should evalute the broad consequences of
approving this merger which is likly to lead to the consolidation of
the entire airline inustry, going from six carriers today to three. We
also do not believe that any remedies to the anti-trust issues should
lead to a divestiture that would break-up our group of represented
passenger service employees. These hard working employees have been
through a lot at US Airways in the past five years: wage freezes,
benefit reductions, and three union representation elections. They won
their first union contract only six months ago after years of struggle
and determination. They deserve your consideration and protection.
Thank you.
Senator Specter. We turn now to Mr. Randy Canale, who
served as president and directing general chairman of
Machinists District 141. He has assumed the role as lead
negotiator for the International Association of Machinists
Committee located with United Airlines on behalf of nearly
30,000 IAM members.
The Machinists Union represents more than 7,000 US Airways
members in Pennsylvania, some 4,000 in Pittsburgh, 2,000 in
Philadelphia and the remainder throughout the State.
Thank you for joining us, Mr. Canale, and we look forward
to your testimony.
STATEMENT OF RANDY CANALE
Mr. Canale. Thank you for the invitation to be present
today for your committee, Senator.
Also, I have served as a local president in the area in
Delaware County, as president of the Delaware County Central
Labor Council for the previous 20 years as well, and have been
a resident in the Philadelphia area for over 50 years.
I am also an employee of United Airlines on a leave of
absence. I have 37 years of airline experience going back to
May 10, 1963, at the Philadelphia International Airport.
Senator Specter. Mr. Canale, would you pull that microphone
just a little closer? Thank you.
Mr. Canale. The International Association of Machinists and
Aerospace Workers is the largest union in the airline industry
and is the largest union at both United Airlines and US
Airways, representing over 67,000 employees at these two
carriers. The IAM represents more than 7,000 US Airways members
in Pennsylvania, with 4,000 members in Pittsburgh, 2,000
members in Philadelphia, and approximately 1,000 members in
smaller cities throughout the State.
The IAM has represented employees at United and US Airways
and its predecessor companies for over 50 years. During that
period of time the IAM has had to confront on behalf of its
members numerous complex and difficult challenges to members'
job security, wages, and workingconditions. Despite these
challenges the IAM successfully negotiated numerous collective
bargaining agreements with both carriers which have provided the
highest level of job security and the best wages and working conditions
in the airline industry.
Among the most significant of those achievements has been
the negotiation of the employee stock ownership plan, ESOP, at
United which resulted in the largest employee-owned company in
the world.
Although the airline industry, like most industries, has
been the subject of substantial change, this has particularly
been the case in the airline industry since the Airline
Deregulation Act was passed in 1978. It is, therefore, not
surprising that we are once again faced with changes in the
industry which raise significant challenges, job security, and
working conditions of the members we represent. But the issue
is not whether change will take place, but whether the change
will work to the benefit or detriment of the employees of these
two carriers.
We are determined to work aggressively to ensure that the
acquisition of US Airways by United will only take place if it
will work to the benefit of the employees of both carriers.
We do not believe that any acquisition can be successful
without our endorsement and cooperation. Our belief in this
regard stems from the fact that we represent over 60,000
employees at both of these carriers, that we are currently
involved in contract negotiations at United, that we have
significant involvement in the corporate government of United
because of the ESOP. And our belief in this regard is based on
our corporate governance of United because of the ESOP, and in
this regard our success or the success in meeting equally
significant challenges of these carriers and other carriers
over the past half a century will hinge on that being
negotiations at the bargaining table.
If this acquisition results in stable employment, greater
job security, a more competitive carrier, and enhanced wages
and working conditions for our members, we will support this
acquisition. We have communicated that view to management of
both carriers. We have also communicated our view to those
carriers. We are confident that management has heard us and
that they will do what is necessary in this regard. If they do,
the merger will be a good thing for the carrier, for the
employees, and for the State of Pennsylvania.
Thank you, Senator, for the opportunity to testify before
your committee today.
Senator Specter. Thank you very much, Mr. Canale.
We turn now to Mr. Richard Delgadillo. He currently serves
as President of the Association of Flight Attendants Local in
Pittsburgh. He represents 34,000 flight attendants, 2,000 of
whom live in Pennsylvania. Thank you for joining us and we look
forward to your testimony.
STATEMENT OF RICHARD DELGADILLO
Mr. Delgadillo. Good morning, and thank you for this
opportunity to sit before this committee at your invitation to
discuss the implications as a result of the proposed buyout of
US Airways. I represent US Airways flight attendants domiciled
at the Pittsburgh International Airport. I bring warm wishes
from Lynn Lenosky, our US Airways Master Executive Council
President.
Today I am speaking on behalf of the Pennsylvania US
Airways flight attendants, which include our Philadelphia Local
70. There are approximately 6,000 cabin safety professionals.
Philadelphia Local 70 president, Luther Riggs-Zeign,
unfortunately could not be here with us today. Lucky for him,
he is on vacation.
I have provided a brief fact sheet on my union for your
review.
Senator, my union is no stranger to airline consolidations
and their implications on our members. It is a result of the
union's merger protection policy in our constitution that
creates some sort of stability for our members in the midst of
turmoil in terms of the integration of the work groups.
However, this applies only to those air carriers who are
represented by the AFA.
I was stunned by the news of the proposed buyout on the
morning of May 24th. My initial reaction was, ``Well, here we
go again,'' since this will be my third airline merger as a
labor leader. I can assure you, AFA is well poised to oversee
the integration of our work groups if and when we reach that
point.
My local's perspective on the implications of the proposed
buyout is broad based. Indeed, I am concerned with the
livelihood of our members currently and post-merger. A
transaction of this sort will affect job security, location of
jobs, working conditions, and how we deal with the potential
disappearance of our airline. All these issues are being
addressed the best way we can given the limited information
from the US Airways and United management. In fact, the details
have not been divulged to my union as of today. And, therefore,
in the words of my international president, Patricia Friend,
``We cannot make an endorsement of this proposed transaction
until many details are fully explained. United and US Airways
must be much more forthcoming with its unions than it has in
the past. United must work with us to make the proposed
transaction a successful one. If they are willing to do that,
so are we.'' Further, she states, ``In order to merge the
operations of the two airlines, a new flight attendant contract
must be negotiated. We are dedicated and will be singularly
focused on creating the premier flight attendant contract in
the industry, with the absolute best in terms of
wages,benefits, work rules and scheduling.''
Senator, we have heard from both Chairman Wolf and Goodwin
that they intend to expand flights in and out Pittsburgh. They
intend to use Philadelphia as a major international gateway.
Imagine, me, content to fly from Pittsburgh to Buffalo or Erie,
I will be able to fly one-stop service to Taipei and other
worldwide destinations. These changes will be dramatic and will
continue to contribute to the regional economies.
Flight attendant staffing needs are based on the number of
flights and service especially at domiciled hub cities such as
Philadelphia and Pittsburgh. With increasing flights in
Pittsburgh and Philadelphia, as stated by the chairman, it is
music to my ears. However, we have received no commitments in
writing. In fact, we are void in terms of anything in writing.
To put our members at ease, especially our brothers and sisters
at the IAM with regard to the maintenance facility in
Pittsburgh, commitments in writing must be forthcoming. The
livelihoods of thousands of workers are at stake.
Where the leaders of both corporations have stated the jobs
for the next 2 years will remain intact--the question is where?
Yes, jobs may be available, but will this mean members would
have to uproot their families and move?
Indeed, I am deeply concerned with these events. But, it
seems to me the airline industry is in constant flux one way or
another. And workers take the brunt of any change in our
industry. Nevertheless, I remain hopeful and cautiously
optimistic that this event will take into consideration working
families who have made the airline what it is today.
And, finally, the real heart and soul of any integration of
work groups is a process by which the groups will obtain a new
contract--that is, through the bargaining process. Yes, in the
midst of our fight to gain OSHA protection for all flight
attendants and to organize our brothers and sisters of Delta, I
can assure you that our locals will make every effort to secure
and protect jobs and ensure that the biggest airline has the
best contract. It goes with the territory. Later this week, the
leadership of both airlines, the AFA leadership at United and
US Air will be meeting to begin the process of integration.
I thank you for this opportunity to share my concerns with
regard to the Pennsylvania State working flight attendants, and
I am open to any questions.
Senator Specter. Thank you very much, Mr. Delgadillo.
Mr. Canale, you referred to the ESOP which is an equity
interest which United Airline employees have. How much of the
company is owned by the employees?
Mr. Canale. Fifty-five percent.
Senator Specter. Fifty-five percent?
Mr. Canale. Yes.
Senator Specter. So if the employees decide this is a bad
merger, can you stop it?
Mr. Canale. I think we could probably look at history to
determine what course of action we could take in the future.
Currently we are at the bargaining table. We impact the most
significant area of job security. Our view quite simply is, if
we don't have job security for the employees above carriers, we
will not support any agreement.
In the past the ESOP was negotiated through both job rule
negotiations and investment by our members and other employees
of United--all employees of United including management entered
the contract to establish the ESOP in additional to sweat
equity.
Senator Specter. Well, if the ESOP were to decide for
whatever reason job security for whatever reason, does your
ESOP at 55 percent of the shares in the company have the power
to stop it?
Mr. Canale. In 1994 when the ESOP was consummated within 6
to 8 months after the agreement, before the ink was dry, so to
speak, United and US Airways were talking about a merger. At
that particular time we reviewed the details of that particular
effort at that time and we determined that it was not in the
best interest of our members on either carrier because of loss
of jobs.
Senator Specter. So were you able to stop it?
Mr. Canale. At that time we exercised what was veto
majority status under the agreement. It is one of either ALPA
is represented on the board of directors as well as the
Machinists Union.
Senator Specter. So if the ESOP decides that Mr. Canale
should be CEO instead of Mr. Goodwin, can you do that too?
Mr. Canale. Well, as a matter of fact, we interviewed Mr.
Goodwin for his current job today and he is the corporate----
Senator Specter. You interviewed him. Did he interview you
for your job?
Mr. Canale. It doesn't work that way. The membership
interviewed me.
I would just say that with this acquisition our current
board of director Mr. John Peter Paul, who was our former
general vice president of the international for over 35 years,
was instrumental in negotiations with numerous agreements in
the industry, did cast a vote this time around to proceed with
the process of acquisition.
Senator Specter. The process of acquisition? Could that be
reversed?
Mr. Canale. We do not have standing now to cast the vote to
block that, but we do have 67,000 members on both carriers, and
it is our belief that if there is no labor agreement or
cooperation that the all-important court of public opinion, we
could stop the acquisition without question.
Senator Specter. Court of public opinion, that is what this
court is, the Ceremonial Courtroom.
Mr. Gillespie, you say you are for this deal because they
assured you the construction would go forward.
Mr. Gillespie. That is correct.
Senator Specter. But what about the next construction deal
and the one after that? And the one after the one after that?
Mr. Gillespie. Well, fortunately for the Philadelphia
Building Trades members, Senator, we take those deals as they
come. We don't need the assurances of some future deal. What
this holds out for us, however, is having a viable owner down
there at the airport who promises more expansion. They have,
though one of the problems that US Airways had getting off the
ground down there in gettingstarted was finding capital to
expand.
So having an owner with some vitality that is owned 55
percent by the union members lends itself to give the manager
of the Philadelphia Building Trades Council a comfort in
knowing that we have a potential job producer down there that
is sensitive to organize labor and the sanctity of collective
bargaining.
Senator Specter. There are a good many more questions I
would like to ask, but I am on the railroad, I am not on the
airlines, so I have to make the 11:11.
Mr. Maisano, we will keep very much in mind what you have
said about the relocation. A job commitment is not very good if
you have to move someplace which is unrealistic.
And, Mr. Delgadillo, you talk about written commitments.
That is right in the front of my mind because if it is to be
meaningful, it has to be binding. And it is fine to listen to
expectations as long as you know they are expectations. But if
you are talking about a commitment, for example, to keep rates
the same for 2 years, I don't--it is not meaningful to talk
about a commitment unless it is binding. And we will keep that
in mind and stay tuned.
Mr. Maisano. If I could?
Senator Specter. Sure.
Mr. Maisano. In my testimony is an example of folks who
were offered in a previous merger jobs in Atlanta. Well, they
certainly couldn't go, so therefore, they lost their job. Also
at the Pittsburgh hearing we will be pinpointing what is
happening in those communities right there with that
reservation center.
Senator Specter. OK; very good point.
Thank you. Thank you all.
[Whereupon, at 10:48 a.m., the subcommittee was adjourned.]
Submission for the Record
----------
Flight Attendants' Statement on United Airlines' Offer To Acquire US
Airways
Washington, DC.--United Airlines announced yesterday that it has
offered to acquire US Airways. United said it intends to merge the
operations of the two airlines, creating the single largest airline in
the world.
Following is a statement from Association of Flight Attendants,
AFL-CIO International President Patricia Friend:
``We cannot make an endorsement of this proposed transaction until
many details are fully explained to us. In order to win the support of
the flight attendants in the proposed transaction, United Must be much
more forthcoming with its unions that it has been to this point. United
must work with us to make the proposed transaction a successful one. If
they are willing to do that, so are we.
``If United does work closely with us to resolve some significant
contractual problems that arise out of this offer to purchase US
Airways, there is tremendous potential for flight attendants and their
families.
``In order to merge the operations of the two airlines, a new
flight attendant contract must be negotiated. We are dedicated and will
be singularly focused on creating the premiere flight attendant
contract in the industry, with the absolute best in terms of wages,
benefits, work rules and scheduling.
``Any new deal must also protect and enhance the jobs of all flight
attendants involved, those at United and US Airways, and those at US
Airways' wholly-owned subsidiaries PSA, Piedmont and Allegheny.''
PITTSBURG FACT SHEET
Daily Departures: US Airways 1,940; US Airways Express 2,340; US
Airways Shuttle 66; MetroJet 212; Combined US Airways system 4,588.
Airports Served: US Airways 110; US Airways Express 171; US Airways
Shuttle 3; MetroJet 20; Combined US Airways System 206.
US Airways Daily Departures from the Pittsburgh International
Airport: 276 US Airways + 228 US Airways Express = 504 daily
departures.
Scope of US Airways Pittsburgh Hub Operation:
Pittsburgh is US Airways' largest Hub. US Airways operates from 41
jet gates in Concourses A, B, with international flights on Concourse
C. US Airways Express at Pittsburgh operates from 32 regional aircraft
parking positions.
US Airways and US Airways Express operate the most flights of any
carrier at Pittsburgh, offering customers more than 41,737 seats to 110
destinations nonstop each day.
US Airways and US Airways Express boarded 8,069,256 million
passengers in 1999 at Pittsburgh.
At Pittsburgh, US Airways' transatlantic service is comprised of
daily non-stop roundtrip flights to Frankfurt and Paris. US Airways has
an application pending to operate daily nonstop roundtrip service to
London.
US Airways operations in the Pittsburgh metropolitan area include,
reservations, flight operations, maintenance and in-flight services.
US Airways operates three US Airways Clubs at Pittsburgh
International Airport.
US Airways first began serving the Pittsburgh community in 1949.
Systemwide, US Airways flies nonstop to 202 destinations in 38
states in U.S., Canada, District of Columbia, Commonwealth of Puerto
Rico, Bermuda, and the U.S. Virgin Islands.
Economic Impact:
$941,412,050 in Annual Salaries in 1999.
$1,566,672,157 in Annual Expenditures in 1999.
The 5th Largest Employer in Pittsburgh with 11,647 employees as of
April 27, 2000.
ASSOCIATION OF FLIGHT ATTENDANTS, AFL-CIO FACT SHEET
SIZE
The Association of Flight Attendants (AFA) is the collective
bargaining agent for 46,000 flight attendants on 26 air carriers. AFA
is the largest flight attendant union in the world.
CARRIERS
AFA represents all flight attendants from the following air
carriers: AirTran Airways, Air Wisconsin, Alaska Airlines, Allegheny
Airlines, Aloha Airlines, America West, American Eagle, American Trans
Air, Atlantic Coast Airlines, Atlantic Southeast, Business Express,
CCAir, Hawaiian Airlines, Horizon Airlines, Mesa Airlines, Mesaba
Airlines, Midway Airlines, Midwest Express, PSA Airlines, Pan Am
Airways, Piedmont Airlines, Pro Air, Tower Air, US Airways, US Airways
Shuttle and United Airlines. AFA represents every type of carrier;
global, national, regional, and charter.
OFFICERS
AFA's international president, vice president and secretary-
treasure are elected flight attendants. These officers are elected
every four years by the AFA Board of Directors, the highest governing
body of the union.
FOUNDING
The union which became AFA was founded in 1945 and later became
part of the Air Line Pilots Association. In 1973, the flight attendant
leadership voted to make AFA autonomous from ALPA. In 1975, AFA was
first certified as a collective bargaining agent for flight attendants.
The union was chartered by the AFL-CIO in February 1984.
MEMBER SERVICES
As a labor union, AFA negotiates and enforces labor contracts. It
also fights for flight attendant interests in Congress and in federal
agencies. AFA maintains a collective bargaining staff of attorneys and
national bargaining representatives, as well as research government
affairs, organizing and communications departments. AFA is the only
flight attendant union staffed with a full-time air safety and health
department and employee assistance program.
LOCAL STRUCTURE
There are 66 Locals in total for the various airlines. Major
carriers form a Master Executive Council (MEC) which is the highest
governing body for that air carrier. Each air carrier has its own labor
contract. Smaller, regional air carriers form a ``regional'' MEC even
though they have their respective contracts.
US AIRWAYS STRUCTURE
There are 9 Locals and each Local president is a member of the MEC.
The MEC has 3 officers who are elected by the Local presidents. The MEC
president oversees the 9 Locals at US Airways.
MEC President: Lynn Lenosky, PA resident.
MEC Vice President: David Guerrierro, PA resident.
MEC Secretary: Bob Kenia, VA resident.
The MEC office is located: One Thorn Run Center, Suite 320, 1187
Thorn Run Road Ext., Moon Township, PA 15108, (412) 262-3110.
STATE OF PENNSYLVANIA
Pittsburgh Local 40: President: Richard Delgadillo, 1009 Beaver
Grade Road, #130, Moon Township, PA 15108, (412) 262-3375.
Members: 3,400. Approx. 2,000 live in Southwestern Pa. Member of
the Allegheny Labor Council (Jack Shea, President), Member of the PA
State AFL-CIO (William George, President).
All workers are covered by the PA State Worker's Compensation Laws.
Philadelphia Local 70: President: Luther Riggs-Zeign, 2124 South
Street, Philadelphia, PA 19146, 215-735-1834.
Members: 2,600. Approx. 1,500 live in the Phila. Area. Members of
the Philadelphia Labor Council.
All workers are covered by the PA State Worker's Compensation Laws.
WHOLLY OWNED US AIRWAYS SUBSIDIARIES
PSA, Piedmont and Allegheny Airlines flight attendants are all
represented by the Association of Flight Attendants.
The PSA carrier does have approximately 35 flight attendants
domiciled in the Pittsburgh area. (Piedmont and Allegheny do not have
any flight attendants domiciled in the southwestern portion of PA.)