Let me get this straight.
When United Airlines last summer announced plans to merge with US Airways, lawmakers and consumer groups squawked about industry consolidation. Over time, the criticism grew so heated that the deal looked dead.
So now United has come up with a deal that splits half the nation’s air traffic between it and American Airlines. And this fixes the antitrust problem?
Looks that way, according to antitrust experts. Looks awful big, and maybe bad, according to most everyone else.
Travel experts have spent the last couple of days warning anyone who will listen that prices will go up, small cities will be forgotten, United’s proposed East Coast shuttle arrangement will be a sham. This may all be true, though all the carping seems unlikely to stop this deal now.
Credit United Chief Executive James Goodwin with this: Somehow, above all the screaming about lousy service last year, he heard that his US Airways deal would die unless he did something radical. So he did something radical.
To clear away antitrust concerns, Goodwin is swinging a deal with his biggest competitor. They’ll leave everyone else with crumbs that are smaller and less appetizing than an in-flight meal.
This is a stroke of deal genius, even if it will anger customers and cause further feckless consternation in Congress. It takes the biggest problem with United’s US Airways deal–consolidation–and turns it into a solution. Then it wraps the whole complicated mess into such an interconnected hairball that the Justice Department’s antitrust troops wouldn’t know where to start even if they did want to bust up the whole mess.
“The suggested arrangement has a better chance than that proposal on Day One,” George Washington University Law School antitrust expert William Kovacic told me. “This now has a fighting chance.”
The Day One proposal had United acquiring US Airways and splitting off some overlapping operations into a start-up carrier called DC Air. Black Entertainment Television founder Robert Johnson would learn the airline business as owner of the new carrier.
The Day After proposal gets rather involved. You might want to get a pencil to sketch it out.
United will acquire most of US Airways. They’ll still spin DC Air to Johnson, but American now will own 49 percent of DC Air. This will make DC Air’s claims to be a “minority-owned airline” rather pale, but American’s involvement could make DC Air more viable.
United and American will share ownership of US Airways’ lucrative Washington-New York-Boston shuttle.
They’ll use the same planes, split the schedule between themselves and accept each others’ tickets. But they have agreed to pretend they’re competing in case trust busters ask any questions.
To round out the equation, American wants to buy Trans World Airlines. There’s no particular connection, other than the fact that American Chief Executive Donald Carty cleverly saw he could camouflage his TWA deal as part of the larger package and get it past the Justice Department with fewer questions asked.
All this dealmaking makes eminent sense for lots of people. For Goodwin. For Carty. For US Airways executives Steve Wolf and Rakesh Gangwal. For TWA Chief Executive William Compton.
See, without even trying I’ve named five.
Then there are the 25,000 TWA employees whose jobs seemed threatened by an imminent bankruptcy filing, the carrier’s third. And there are alarmists who will claim US Airways was headed down the tubes if the United deal fell through.
You see, Jim Goodwin and his competitor/partners aren’t just good business people. They’re public servants.
They’re saving thousands of jobs. And they’re eliminating all the free-market confusion that existed back when there was real competition in the airline business.
———-
Contact Dgreising@tribune.com.
