Air Transport World

Is there any justice in Reagan's airline merger policy?

Is there any Justice in Reagan's airline merger policy?

Mergers are contagious. The contagion of mergers has swept through U.S. industry, including the airlines. And, as with industry generally, there are two significant factors propelling airline mergers: A lenient interpretation of the anti-trust laws by the Reagan administration and a cooperative stock market.

The U.S. has two premier anti-trust statutes. The Sherman Act, passed in 1890, was designed to protect against monopolies, and the Clayton Act, passed in 1914, established to govern anti-competitive mergers.

The Reagan administration in February sent to Congress five proposals to alter the anti-trust laws. Briefly, the five changes would (1) ease the rules against mergers; (2) permit private plaintiffs to collect treble damages from competitors only when they are the victims of price-fixing, not simply for claimed lost profits as under current law; (3) ease the rules for interlocking directorates; (4) give more specific directions to courts when anti-trust actions involve companies of foreign countries and (5) would let U.S. companies cooperate more if they prove they're being harmed by foreign competition. The changes generally would codify what has been operating practice during Reagan's Presidency.

In theory, the proposed changes to the Clayton Act should have little affect on the domestic airline industry. The Clayton Act covers companies under the jurisdiction of the Federal Trade Commission. The Department of Transportation regulates airline mergers until 1989, when airlines are supposed to be treated like other industries.

Clayton principles

In this case, however, theory and practice converge. Under Sec. 408 of the Federal Aviation Act airline regulators are supposed to apply Clayton principles to their own merger decisions.

Until now, the DOT may not have been applying Clayton Act principles but, many would say, neither has the Justice Department nor the Federal Trade Commission. Certainly DOT has applied administration philosophy with enthusiasm. In fact it had, until early April, declined to take any advice offered by the Justice Department, which sounded the alarm on three counts--certain markets in the United-Pan Am transfer, the expendited establishments of voting trusts in takeovers and the flat rejection of the Northwest-Republic merger. More opposition was expected from DOJ in the Texas Air Corp.-Eastern deal.

In proposing its Clayton Act changes, the administration stated what has been quite obvious in DOT's merger stance: "It is widely recognized that mergers, in general, have important procompetitive and efficiency-enhancing effects,' DOT wrote. DOT has never displayed concern about airline size, as long as open entry at U.S. airports is available.

It took the airlines a while to capitalize on the pro-merger climate in Washington, just as it has taken them several years to clarify their competitive strategies. …

Log in to your account to read this article – and millions more.