Congress grills Delta, Northwest CEOs
Execs defend $3.1 billion merger from concerns that the deal will stifle competition in the airline industry.
NEW YORK (CNNMoney.com) -- The CEOs of Delta Air Lines and Northwest Airlines defended their proposed $3.1 billion merger before House and Senate committees Thursday, addressing lawmakers' concerns that the deal would stifle competition in the airline industry or result in massive job losses.
Richard Anderson, CEO of Delta (DAL, Fortune 500), and Douglas Steenland, CEO of Northwest (NWA, Fortune 500), testified that rising oil prices and increased competition from foreign airlines in the U.S. fuel the need for the merger.
"Oil is a game changer, and this merger makes us stronger," Anderson told the House Judiciary Committee, noting that fuel prices have doubled in the last 12 months. "[The merger] gives us the ability to compete and win against foreign flag carriers."
Steenland said the merged airline would be more "financially stable and resilient," better able to meet customer needs and better able to provide benefits to workers. He also said no hubs would be closed as a result.
Representatives, especially those from areas where the two airlines concentrate their service, are worried about the merger's impact on the nation's air travel system.
"We've gone from a highly competitive structure to an oligopoly," said Rep. John Conyers, D-Mich., chairman of the House panel, noting that passengers have suffered increased delays and prices from prior industry consolidation.
"We need to consider where this merger will take us," he said. "I'm concerned that if this merger is approved it will simply result in a cascade of other mergers."
Lamar Smith, R-Texas, a member of the Judiciary Committee, asked the CEOs how many workers would lose their jobs, and expressed skepticism over their claims that only executives would get the ax.
"I have to tell you, that seems a little hard to believe," said Smith. "Are you absolutely sure that nobody would lose their jobs except for corporate executives?"
Anderson of Delta insisted that job cuts would be focused on finance and accounting managers.
As for the projected number of layoffs, Steenland of Northwest said "we haven't really done that bit of granular analysis yet," but added that it would be "some number under a thousand."
Anderson of Delta added that 2,000 full-time jobs had to be eliminated. He said departing workers would receive one week of severance pay for each year of employment with the company and free airline passes for life, as well as medical benefits.
Veda Shook, international vice president of the Association of Flight Attendants-CWA, and R. Thomas Buffenbarger, international president of the International Association of Machinists and Aerospace Workers, said they were concerned about union workers losing their livelihoods, and their lack of representation in merger discussions.
"We haven't been given a seat at the table," said Shook.
"Too much is at stake to take these airlines at their word," said Buffenbarger, who doubted that the airlines could merge "without eliminating service and purging employees."
Buffenbarger said the merger would "do nothing to address the problems of a failing industry," and attacked the CEOs oft-quoted reason for the merger: rising fuel costs.
"The cost of an individual gallon of fuel for two individual airlines will be the same as for one airline," said Buffenbarger.
Following the House hearing, the airline CEOs appeared before the antitrust subcommittee of the Senate Judiciary Committee. The committee chairman, Sen. Herb Kohl, D-Wis., said the purpose of the hearing was to address fears that the Delta-Northwest merger could prompt additional mergers, allowing a shrinking number of carriers to maintain a "strangle hold" on the market.
Delta agreed to buy Northwest on April 14, dubbing the new airline giant Delta. The combined carrier will have $35 billion in combined sales, with more than 800 airplanes and 75,000 employees, according to Delta.
Delta will continue to be based in its Atlanta headquarters. The newly merged carrier said it will operate the nine hubs of both airlines in the United States, Europe and Asia, serving 390 destinations in 67 countries.