With the Justice Department’s antitrust division expected to decide any day now whether the proposed Alaska Airlines-Virgin America merger meets its standards for competition, a fascinating new investigative article exposes how American Airlines and US Airways used raw lobbying power and political connections to override DOJ’s initial rejection of their 2013 merger.
Anyone who’s followed the airline industry for any length of time knows that it almost always gets what it wants on Capitol Hill, thanks to incredibly cozy relationships between lobbyists and legislators. (Last year, for instance, the Pittsburgh Post-Gazette reported that House Transportation Committee chairman Bill Shuster (R-Pa.) was dating the vp-government affairs from Airlines for America (A4A), the industry’s trade organization; that another A4A vice president was hired to work for Shuster’s committee; and that a senior vp at A4A was married to Shuster’s chief of staff.) But the Justice Department’s antitrust division is supposed to be immune to political influence.
Or maybe it’s not: ProPublica, an independent, non-profit investigative journalism organization, this week published a detailed examination of the American-US Airways merger, showing how the airlines enlisted former Obama Administration insiders to use their connections and influence in a successful bid to overturn DOJ’s initial rejection of that deal. The airlines also spent many millions of dollars on lawyers, lobbyists, consultants and economists to make their case.
You might recall that DOJ initially filed suit to block the AA-US Airways merger on the grounds that it would create too much industry concentration, and would hurt consumers by limiting competition. But a few months later, DOJ apparently changed its mind, and said it was willing to work out a settlement that would let the deal go through if the airlines met certain conditions like giving up gates and slots at key airports to low-cost competitors.
How did the two airlines pull off this sudden change of heart at DOJ? “They used their pull in the administration, including at the White House, and with a high-level friend at the Justice Department, going over the heads of staff prosecutors,” ProPublica said. “And just days after the suit was announced, the airlines turned to Chicago Mayor Rahm Emanuel, Obama’s first White House chief of staff, to help push back against the Justice Department.”
The AA-US Airways deal came along after Obama’s DOJ had already approved the Southwest-Airtran and United-Continental mergers, and the Bush Administration had given the nod to Delta-Northwest and US Airways-America West. So maybe AA and US Airways figured it just wasn’t fair that their merger should be the only one to be blocked – even though the government’s investigation concluded that they could both continue to compete successfully as independent companies.
But the two airlines pulled out all the stops in getting what they wanted from Washington – and they got it. The ProPublica article quotes one former state attorney general who joined the government’s suit against the merger as saying: “It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work.”
The article makes a fascinating read for anyone with a big stake in the regulation (or non-regulation) of airlines – like the passengers who end up paying the higher fares that result from industry concentration.
Readers: Take a look at the article and tell us what you think.
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