It’s late August, and that means it’s the time of year when news slows to a crawl in the airline world. During normal times, I wouldn’t feel compelled to even write a post on the progress of the Alaska/Hawaiian merger after recent events, but, well, here we are. So let’s talk about where things stand.
All eyes were on the US Department of Justice (DOJ) which per the Hart-Scott-Rodino Act has 90 days to decide whether to sue to block the closing of a large merger. That clock doesn’t start when the merger is announced but rather once all the necessary documentation has been submitted. Alaska and Hawaiian provided reams of data on multiple occasions. When the clock finally started, it was set to expire in early August.
Though I didn’t personally see a good reason to block the deal, I’ve felt that way before and I consistently have been proven wrong. What’s more, judges have agreed with the DOJ, so I decided to just assume DOJ would try to block this as well.
As the deadline approached, Alaska and Hawaiian announced short extensions to the 90-day period. This happened twice with the final extension going to August 20. My assumption was that either a) they were working on a final settlement, and it wasn’t done yet or b) the airlines were trying to desperately convince DOJ of the merits of the deal despite the expectation that it was going to sue to block the coupling.
In the end, the most boring thing possible happened. DOJ took no action and the review period expired. There was no deal. There was no lawsuit. DOJ just declined to take action.
This doesn’t mean DOJ can’t sue in the future if it thinks there are antitrust concerns, but the best opportunity to do that is before a merger closes. Once it does, it’s much harder to break something up. By declining to sue, DOJ is giving tacit approval to the combination.
This has been the biggest hurdle by far that recent deals have had to overcome, so the general assumption should be that it will now close. But there is still the matter of the US Department of Transportation (DOT) giving its approval.
DOT isn’t looking at this from the same perspective since DOJ is the one that takes the lead on antitrust enforcement. Specifically, this is how DOT describes its role in mergers.
The Department does exercise jurisdiction over the transfer of international operating authority in conjunction with airline acquisitions as well as ensuring that the acquiring entity meets the Department’s citizenship and continuing fitness requirements to be a U.S. certificated air carrier.
This is generally a more technical reading of the situation, and it can require a settlement to get over some hurdles if they exist. Remember, DOT signed a deal with American and JetBlue effectively approving the Northeast Alliance between the two airlines. DOJ came in later and decided to sue over it, but DOT had extracted notable concessions first.
So what is DOT really going to be doing here? Here’s a statement from Susan Kurland, Assistant Secretary for Aviation & International Affairs from back when the American/US Airways merger was under review.
As to international routes, the carriers must apply to DOT for approval to consolidate the international routes they individually hold under one certificate, which is part of the merger process. By statute (49 U.S.C. 41105), DOT may approve a transfer of such routes only if we find that it is consistent with the public interest. As part of that analysis we must examine the transfer’s impact on the viability of each airline party to the transaction, competition in the domestic airline industry, and the trade position of the United States in the international air transportation market.
We would only decide an international route transfer case after we had established a formal record and given all interested persons the opportunity to comment. If DOT determines that the transfer would be contrary to the public interest on competitive grounds or for another reason, DOT could disapprove the transfer in whole or in part.
DOT may also review any code-share arrangements concluded between the merging carriers. In DOT’s experience, code-share arrangements would likely be necessary during the early phases of integration after the transaction is closed.
Finally, at DOT, we take our responsibility for consumer protection seriously. For example, if carriers in pursuing or implementing a merger were to engage in unfair or deceptive practices, we have ample authority to protect affected consumers based on our unfair and deceptive practices statute (49 U.S.C. 41712).
Alaska and Hawaiian filed their request for international route transfers on July 15. And if you look in the docket, youʻll find nothing but letters of support from politicians and unions alike. Publicly, support has also been very strong from politicians in the states that would be most impacted, including Hawaiʻi Governor Josh Green who put out a public statement supporting the merger.
Itʻs hard to imagine DOT would be able to block this, though there could be some guarantees required to promote adequate service levels or something along those lines as the process rolls on. We don’t know what that might be, but now we just have to wait to see what DOT does.
And this is why I say during busier times I wouldn’t have even written about it. DOJ did nothing, and so now the big question is when DOT will give its decision. Once that’s done, then the merger can work toward completion. And that’s when the interesting posts can be written.
