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News > Economy
U.S. aims to nix airline deal
October 23, 1998: 7:04 p.m. ET

Justice Dept. says Northwest-Continental deal hurts competition
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NEW YORK (CNNfn) - The U.S. Justice Department's antitrust division filed suit Friday to stop Northwest Airlines Corp.'s effort to purchase a controlling stake in Continental Airlines Inc., the first of a series of alliances this year in the highly-competitive industry.
     The lawsuit, which the airlines vowed to fight, claims the alliance would undercut competition in several U.S. hubs where the two airlines are each other's main competitor.
     "This acquisition would lead to higher ticket prices and worse service for the over four million passengers traveling on the routes dominated by the two airlines," Joel Klein, Justice's antitrust chief, said. (478K WAV or 478K AIFF).
     Northwest and Continental are each other's primary competitors on routes between cities where they operate hubs: Detroit, Memphis, and Minneapolis for Northwest; Cleveland, Houston, and Newark, N.J., for Continental, the complaint said.
     In late January, Northwest said it would purchase a 14 percent stake in Continental from Air Partners LP, which won its stake in its effort to bail Continental out of bankruptcy. That 14 percent stake gives Air Partners a 51 percent voting control of Continental.
     A last-minute effort by lawyers for Air Partners, an investor group led by David Bonderman and James Coulter, this weekend failed to stave off the filing of the suit, press reports said.
     While the deal would not merge the two airlines, it would give Northwest voting control over Continental and a share of its profits.
     As a result, Klein said, the department opted to take the matter to court, rather than seek an injunction that would have nipped the alliance in the bud.
     For its part, Northwest said Friday the completion of the alliance is imminent, coming "within weeks if not days."
     The carriers originally touted the deal as offering passengers greater ease of ticketing, check-in and luggage handling; frequent-flier reciprocity and sharing of key global alliances.
     Continental said Friday it would "vigorously" defend the purchase and said Justice informed the airline it is continuing to investigate some aspects of the alliance.
     "While disappointed that the Justice Department has filed this lawsuit, we will vigorously defend ourselves against these claims that we believe lack legal, economic or factual foundation," Jeff Smisek, Continental's general counsel, said. "We are confident that we will prevail."
     The complaint, filed in U.S. District Court in Detroit, could signal trouble for two other high-profile deals in the airline industry that followed the Northwest-Continental announcement.
     American Airlines' parent company AMR Corp. (AMR) announced a similar deal with US Airways (U), and industry titan United Airlines (UAL) inked an accord with No. 3 Delta Airlines (DAL).
     Shares of Northwest (NWAC) rose 1-1/16 to 23-7/16; Continental (CAI.B) was off 1/4 at 36-15/16. Back to top

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Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.