[Senate Hearing 106-1026]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1026
LOCAL IMPACT OF PROPOSED US AIRWAYS/UNITED AIRLINES MERGER
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
BUSINESS RIGHTS, AND COMPETITION
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JULY 10, 2000
__________
PITTSBURGH, PA
__________
Serial No. J-106-102
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
73-463 WASHINGTON : 2001
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone (202) 512�091800 Fax: (202) 512�092250
Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
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Subcommittee on Antitrust, Business Rights, and Competition
MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
Pete Levitas, Chief Counsel and Staff Director
Jon Leibowitz, Minority Chief Counsel and Staff Director
C O N T E N T S
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STATEMENT OF COMMITTEE MEMBER
Page
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Fisher, Hon. Mike, Attorney General, Pittsburgh, PA.............. 4
Fratto, Tony, Vice President, Government Affairs, Pittsburgh
Regional Alliance, Pittsburgh, PA.............................. 29
Fox, Christine, President, Communication Workers of America,
Local 13302, Pittsburgh, PA.................................... 38
Guerriero, David, Vice President, Master Executive Council, US
Airways for the Association of flight attendants, AFL-CIO...... 43
Longmuir, Shelley, Senior Vice President, International
Regulatory and Governmental Affairs, United Airlines........... 17
Mahone, Glenn, Chairman of the Allegheny County Airport
Authority, accompanied by Kent George, Executive Director,
Allegheny County Airport Authority............................. 25
Murphy, Hon. Tom, Mayor, Pittsburgh, PA.......................... 9
Nagin, Larry, Executive Vice President, Corporate Affairs and
General Counsel, US Airways.................................... 18
Roddey, James, Chief Executive of Allegheny County, Pennsylvania. 6
Santorum, Hon. Rick, a U.S. Senator from the State of
Pennsylvania................................................... 3
Schifano, Frank, President and Chairman of the International
Association of Machinists, Local Lodge 1976.................... 37
Taylor, Lowell, Professor of Economics, H. John Heinz III School
of Public Policy and Management, Carnegie-Mellon University.... 27
LOCAL IMPACT OF PROPOSED US AIRWAYS/UNITED AIRLINES MERGER
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MONDAY, JULY 10, 2000
U.S. Senate,
Subcommittee on Antitrust, Business Rights,
and Competition,
Committee on the Judiciary,
Pittsburgh, PA.
The subcommittee met, pursuant to notice, at 12:15 p.m., in
the Gold Room, Allegheny County Courthouse, Pittsburgh, PA,
Hon. Arlen Specter presiding.
Also present: Senator Rick Santorum.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Senator Specter. If we may proceed. It is 12:15. We have a
long list of witnesses. Good afternoon, ladies and gentlemen.
This hearing of the Antitrust Subcommittee of the Senate
Judiciary Committee will now proceed.
This is the third in a series of hearings on the proposed
merger for acquisition of US Airways by United. Senator
Santorum and I met with the chief executive officers of the two
airlines on May 25.
The Judiciary Subcommittee had a hearing in Washington on
June 14 and a hearing in Philadelphia on June 26. We shall have
another hearing by the subcommittee in the Lehigh Valley on
July 24.
This is a major issue confronting the United States,
really, beyond the United States, the world, on air travel, and
most specifically and emphatically on Pennsylvania.
United is the world's leading airliner, US Airways number 6
in the United States and number 10 worldwide, some 19,000 jobs
in Pennsylvania and some 11,700 of those jobs here in
Pittsburgh.
So it's a matter of enormous impact to Pennsylvania, and it
has very, very substantial impact implications to the country.
There is a concern that this merger may set off a wave of
mergers. There is talk of a possibility of American combining
with Northwest and Delta with Continental Airlines, and it is
widely believed that the United acquisition of the now defunct
Pan Am Airways in November 1985 spurred Northwest Airlines'
acquisition of Republic, which has led to certain market
dominations.
The issues facing the country are matters which Senator
Santorum and I are obviously concerned about as U.S. Senators,
and we have a particular parochial interest in Pennsylvania
because of the very heavy impact of USAir and United, also, in
Pennsylvania.
I am pleased to hear that there has been a commitment made
on the reservation center just on Friday. I am pleased to hear
there has been a commitment made on no more furloughs, no
furloughs, with an extension of the 2-year period. But there
remain many, many additional questions which are unanswered or
have been unanswered for now more than 45 days.
The issue of the furloughs, no furloughs, is good news, but
the question as to whether people will be compelled to move
away to make a nonfurlough policy ineffective--if you have to
move to some far distant city, that doesn't mean you keep your
job, doesn't mean you keep the same job, and it may result in
not being able to keep the job.
The issue of the maintenance center is one which Senator
Santorum and I raised initially and, in fact, wrote to both
airlines on May 24. Forty-five days have passed, and we haven't
gotten an answer.
We have looked to see what will happen in quite a number of
specifics. I asked about the issue of written commitments at
the hearing in Washington and have no assurance. I asked the
question in Philadelphia and have no assurance, and unless
these commitments are reduced to writing, such as the not
raising the fares, so we have a question there with the
category of fares enumerated being only 15 percent of the
alliance, unless we have assurances in writing, it really is
totally insufficient.
I noted in yesterday's Washington Post the disclosures that
there will be enormous benefits which will accrue to the
executives of US Airways. Chairman Wolf is due to have $11.6
million in benefits, and chief executive officer, Ralph
Gangwal, $12.8 million in benefits, additional benefits to
others.
And the question in my mind--there are two questions. Who
is going to pay for all of that? It has to come out of
somewhere. And the second question is one which bears on the
issue of reliability on and objectivity in making a
recommendation of the merger.
Someone has a $12 million outcome in the merger, I have
grave questions as to objectivity. It doesn't rule it out, but
in my mind it raises a material question.
I started out being skeptical about this merger, as I
announced at the first meeting with the CEO's, and, candidly,
I'm more skeptical today than I was before.
I am skeptical because 45 days have passed with a good many
questions which Senator Santorum and I have put on the table
which haven't been answered, and there are a lot of people with
anxieties in Pennsylvania, 17,000 people with anxieties around
the country. And the CEO's have had answers to their questions,
and I would like to have answers to the questions for the rank
and file as both a Pennsylvania and a U.S. Senator.
But speaking for myself, I'm going to continue to
scrutinize the matter very carefully. I'm going to keep an open
mind on it, but the longer the questions remainoutstanding, the
more candidly, again, my skepticism grows.
Senator Santorum and I have worked on this jointly. He has
been very, very diligent in this issue, as with the others, and
I'm glad to yield to him at this time for his opening
statement.
STATEMENT OF HON. RICK SANTORUM, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Santorum. Thank you, Mr. Chairman, and thank you
for holding these hearings across the Commonwealth and for the
work that you've done along with the Subcommittee Chairman,
Senator DeWine from Ohio, on holding the hearing in Washington,
DC.
I think it's very important that we continue to monitor
this situation. I think you're absolutely right. There are a
lot of questions that still need to be answered. I think I made
myself perfectly clear as to what the bottom line is for me.
I feel that their merger has a potential up side for
Pennsylvania. Certainly, as I travel in and out of the
airports, and I've been doing a lot of that recently, traveling
in and out of the airports around Pennsylvania, there is, I
think, some optimism on the part of USAir employees. In
Philadelphia, there is a lot of construction going on out
there. The potential of this owning up Philadelphia as a major
hub airport for international travel to Europe is a
tremendously positive thing for that airport.
So I see this as a clear winner for the people of
Philadelphia and for the economy of Southeastern Pennsylvania.
With respect to the rest of the state, again, the
commitments that we seem to have are solid in the sense that,
you know, I have not seen any, nor heard of any talk of losing
any service in any of the commuter areas throughout
Pennsylvania.
But it leaves us to why I think this hearing is the most
important one, frankly, is because the area that I have the
gravest concerns is here in Pittsburgh.
And I do so for several reasons. No. 1, the bulk of the
employee population of US Airways is right here. No. 2, one of
the major facilities where those employees reside is a
maintenance facility here, where there was a commitment from US
Airways to build a maintenance facility and to build it here in
Pittsburgh.
We do not have that commitment under this merger. And the
impact on jobs would be tremendous, but I think it goes beyond
that. We have a commitment that Pittsburgh will remain a hub,
and I understand that, and I appreciate that.
But I also realize that Pittsburgh has one of the lowest,
for a hub, one of the lowest number of originations of any hub
of its size in the country. And the fact that we have the best
airport in this country I think helps us in the long run.
But I would like to see some more anchoring of United here
in this community other than just a hub. And I think the best
way to do that is through a maintenance facility.
Because if you have a maintenance facility you're going to
have to have airplanes there, and the best place to have a
maintenance facility is the place where you have a lot of
airplanes, and that would be a hub.
So I think the maintenance facility goes beyond just
helping create and keep those jobs here in Pittsburgh, but I
think it also can have the beneficial effect of bolstering the
long-term survivability of Pittsburgh as a hub airport.
And if Pittsburgh stays as a hub, and I hope that it will,
I think that has tremendous benefits to Southwestern
Pennsylvania, with increased service, particularly west of
here, that United would bring, that US Airways has not, with
one-stop service to the Orient and to South America and Central
America.
Again, I think it would be positive things for our economy
here in Southwestern Pennsylvania. Arlen mentioned, you know,
we're U.S. Senators, but I'm a Senator from Pennsylvania, and
my first and foremost consideration is how it impacts
Pennsylvania.
And at this point I'm not sure that I can answer that
question. And until I have the questions answered as to how the
merger is going to impact the people here in Pittsburgh, both
from the maintenance facility and some of the other facilities
that are here and some of the other employees that are here,
I'm going to withhold my support or, in fact, my opposition.
But I would say, and I will say to the representatives from
the companies, that there are a lot of folks out there who are
not in the service area who are in Congress who are very, very
concerned about this merger and the potential domino impact.
And I would suggest that if you want some folks from the
other side, get us the answers that we need, so we can go to
bat for you. Because if you don't get us the answers, I'm
willing to sit in the dugout until the answers are given to me.
Senator Specter. Thank you very much, Senator Santorum. We
have a very distinguished first panel today.
The attorney general of Pennsylvania, Mike Fisher, elected
in 1996. Before that he was in the Pennsylvania General
Assembly for 22 years, 16 in the senate, 6 in the house, former
assistant District Attorney, candidate for Governor, candidate
for Lieutenant Governor, very successful and distinguished
public servant.
Attorney General Fisher, welcome, and we look forward to
your testimony. We're going to set the time at 5 minutes, and
we ask that that time be observed to the extent possible,
leaving the maximum time for dialog, questions and answers.
The floor is yours, General.
PANEL CONSISTING OF HON. MIKE FISHER, ATTORNEY GENERAL,
PITTSBURGH, PA; JAMES RODDEY, CHIEF EXECUTIVE OF ALLEGHENY
COUNTY; HON. TOM MURPHY, MAYOR, PITTSBURGH, PA
STATEMENT OF HON. MIKE FISHER
Mr. Fisher. Thank you very much, Senator Specter, Senator
Santorum. We certainly appreciate your interests in holding
these hearings and participating in them. I appreciate the
opportunity to have this chance here in Pittsburgh to address
some of my concerns about the merger.
Before I begin, let me update you a little bit on the
status of our investigation with an important caveat. We're
conducting a joint investigation with the U.S. Department of
Justice, 25 other states and the District of Columbia.
My staff and I are leading this investigation, at least
from the State's standpoint, with the State of New York.
Under the Department of Justice's Federal/State merger
protocol and the National Association of Attorneys General
merger compact, which govern multistate merger investigations,
we're required to keep all of the information received from the
parties confidential, unless we file suit to block the merger.
Even then the information can only be used in the context of a
law enforcement proceeding.
Therefore, I cannot comment or share the information that
we have been provided so far, but I do want to share with you
some of my thoughts.
I also want to mention that although our investigation is
joint, we are not bound to come to the same conclusion and
follow the same result as the Department of Justice.
I have great concern about the implications of this merger
on airline competitiveness in Pittsburgh, across the
Commonwealth, and across the Nation. We'll make a decision on
whether to challenge the merger after reviewing all of the
information provided by the parties, comparing that information
obtained in our investigation, and reviewing that information
with our economists.
Let me talk about several issues today.
First consumers, especially small business consumers, are
really steamed about the high cost of air travel in the
Northeast. The cost to fly from Harrisburg to Pittsburgh is an
outrageous $550 today.
My office and staff and I often take the 4-hour drive
rather than flying the quick 35-minute flight because of that
reason.
This problem exists not only for consumers in Pittsburgh,
but also for consumers throughout the Mid Atlantic and New
England states. I can give you numerous examples of other
unbelievably high fares.
The airlines say these high fares reflect the high costs of
serving a small number of consumers on short haul routes.
However, on some short haul routes where there is competition,
there are good prices.
For example, US Airways' 327-mile flight from Baltimore to
Providence is only $178. The trip from Pittsburgh to
Philadelphia, which is about the same distance, is three times
that amount. Why? One answer. Southwest Airlines.
We have to look carefully at whether this acquisition will
improve the situation or make it worse.
Second, the other thing that gets consumers steamed as much
as high cost is the abysmal and declining quality of service.
Ask anyone who travels today. It's not uncommon to hear of
flights delayed several hours, flights canceled, flight times
longer than usual and not a lot of basic information.
Third, everyone is concerned and interested in new service.
It's very important in the Northeast, because this market has
been dominated by US Airways for very long. The service does
not begin or stop in either--unless it comes into a hub. There
isn't the kind of service.
Giving an example, there was one not too long ago nonstop
service--Senator Specter probably remembers this--between Erie
and Harrisburg. Because it's no longer a hub, that service has
been discontinued. We need to be concerned about the
availability of new service as a result.
Finally, several airports have capacity restraints. In
Philadelphia it's gates. At LaGuardia it's take off and landing
slots. We have to look at whether the control over the majority
of that capacity at airports like these will further reduce
competition.
We've been asked about some divestitures. Quite frankly,
the United US Airways have proposed DC Air out of Reagan
National. We're not sure that that divestiture is sufficient.
With that, Senator Specter, Senator Santorum, I'll conclude
my remarks. But let me say that as with my colleagues in 25
other states, we're concerned not only about this merger, but
the impact that this merger will have upon future mergers in
the airline industry across this country.
I'm greatly concerned about the creation of what would
constitute an airline oligopoly in this country with perhaps
only three major airlines controlling most of the domestic
flights.
Those are the issues we'll be looking at. We'll be pleased
to share with you our findings as we proceed through this, but
once again I want to thank you for your commitment to holding
these hearings.
Senator Specter. Thank you very much, Attorney General
Fisher. We now turn to the distinguished chief executive of
Allegheny County, James Roddey, elected to that position last
November, graduate of Texas Christian University, captain of
the Marines, past president of Charter Communications
Corporation, and Rolands Communications.
So he brings a lot of energy and determination to his new
job and, welcome, Mr. Roddey, and we look forward to your
testimony.
STATEMENT OF JAMES RODDEY
Mr. Roddey. Thank you, Mr. Chairman, and thank you Senator
Santorum for conducting these hearings. We're particularly
pleased that you have taken the very high level of interest
that you have in this issue, which is vitally important for our
region.
I have submitted written testimony, and I will depart from
that in the interest of time and just hit a few of the
highlights that are number one on our agenda.
Senator Specter. Your full statement will be made a part of
the record, and we appreciate your approach.
Mr. Roddey. Thank you. No. 1, with the hardships endured by
our region in the 1970's and 1980's, the word merger makes us
all very nervous. One of our foremost concerns is for the
approximately 11,700 individuals currently employed by US
Airways at Pittsburgh International Airport.
We need a commitment that these jobs will remain in our
region. We have had the early commitment that no one would be
furloughed for 2 years, but we understand that that has now
been lifted by United Airlines, and they are guaranteeing every
person employed with US Airways a job permanently.
However, we do not know how many people would remain here
and how many might be transferred, although we have had, as you
mentioned earlier, the commitment as recently as Friday that
the reservation center, some 800 jobs would remain in this
region.
No. 2, the taxpayers of Allegheny County provided the
financial vehicle through bonds to fund the construction of the
$800 million midfield terminal complex at Pittsburgh
International Airport. US Airways is the principal guarantor of
those bonds.
US Airways presently uses 90 percent of the midfield
terminal and pays the majority of the outstanding debt, which
totals over 700 million today. We need written assurances that
United Airlines will assume existing lease and guaranteed
payments of all future obligations of US Airways.
We have had those commitments verbally, but as you, we
would like to see those reduced into writing.
With the significant Federal support and the expectation
that Pittsburgh would be a major hub, the international airport
opened in 1992. US Airways currently operates about 515 flights
a day to 110 nonstop destinations throughout the United States
and Europe.
United Airlines must commit to maintain at least the
existing level of service, and that commitment should be
included in the conditions of approval in the merger by the
Justice Department.
On a long-term basis, Pittsburgh must remain a significant
U.S. domestic hub. Once again, we have had assurances that, in
fact, the flights will increase, there will be more
destinations, more international flights available, but we
would like to see those commitments in writing.
By year's end US Airways and United Airways will have an
extensive fleet of Airbus aircraft with numerous new aircraft
on order. Both airlines have indicated the need for a new
maintenance facility to perform maintenance and safety checks
on these aircraft.
A skilled work force is available right now in Southwestern
Pennsylvania to perform these tasks, and the needed facilities
have already been designed for construction at Pittsburgh
International Airport, and we are very, very concerned that we
get this new maintenance facility as you mentioned in your
opening remarks.
We have been told by United Airlines that they will give us
an answer before the end of this month, and I am optimistic
that that answer will be positive. We don't have it yet, but we
are hoping that we do get that commitment.
And I must add, Senators, both US Airways and United
Airlines have been very cooperative in the meetings that I've
had with both the chairman and the other officials, and I am
optimistic again that we will get these commitments that we
need in writing.
Finally, just let me say that if this merger is not
approved, I think we should also be considering the
alternatives. US Airways is not a strong financial
organization. Should we have a down turn in the economy, it is
very possible they could be in trouble. And they are now in
play, and it is logical to assume that at some point they are
going to be sold.
We need to analyze, as we analyzed this merger, whether or
not United Airlines is a better fit than perhaps some other
airlines or some other alternatives, the airline perhaps being
broken up and sold to other airlines. That perhaps would have
more dire consequences for this region than the merger being
contemplated now.
Thank you, Mr. Chairman. That concludes my remarks. Thank
you, Senator Santorum.
[The prepared statement of Mr. Roddey follows:]
Prepared Statement of James C. Roddey
Good morning, Mr. Chairman and Committee Members. My name is Jim
Roddey and I am the Chief Executive of Allegheny County, Pennsylvania.
I would like to thank the Committee for this opportunity to present our
region's views on United Airlines' $11.6 billion acquisition of US
Airways.
In the early 1980s unemployment in Pittsburgh was at its height
following the closure of virtually all the major steel mills. The
region suffered the largest job loss per capita in our country's
history. By the early 1990's, the city was only reporting half the job
growth of the national average.
We have been working diligently to recover, and finally our region
is beginning to grow. 120,000 people are employed in the technology
field. That represents 12% of the workforce and 18% of the payroll. Our
colleges and universities are world-renowned and we stand among the top
ten centers in medical research.
Today, Pittsburgh is the corporate headquarters of many Fortune 500
companies. We have numerous business parks nurturing both U.S. and
foreign investment. Multinational companies like Sony and Bayer have
located in the region and many local corporations like H.J. Heinz,
Alcoa and PPG continue to succeed in the global marketplace.
Pittsburgh International Airport (PIT) is the world's gateway for
Pittsburgh, southwestern Pennsylvania, northern West Virginia, and
eastern Ohio. it is an integral part of the economic fabric of its
serving area, creating over 18,000 direct airport-related jobs and over
$3.5 billion a year in economic impact.
PIT has received worldwide recognition for its now famous Airmall
, featuring over 100 retail, specialty services and food and
beverage stores all at guaranteed street prices. Its distinctive 900-
acre X-shaped terminal is designed to give connecting passengers easy
access to all 75 gates without ever changing levels or terminals. And
just last year, because of it's traveler-friendly design, the readers
of Conde Nast Traveler magazine voted Pittsburgh International Airport
the best airport in North America and the third best airport in the
world.
Pittsburgh International is an expanding airport with a significant
list of development projects. This month, we opened a Hyatt-Regency
airport hotel and conference center. We also plan to more than double
the cargo ramp and building capacity, and we are creating a Business
Aviation Center and a 300,000 squre foot Airside Business Park.
PIT covers more than 12,000 acres, making it the third-largest
airport complex in the U.S., so large that you could fit Atlanta and
Chicago O'Hare airports within its boundaries. The huge amount of space
we have available gives us many advantages. The apron is large enough
for one aircraft to pull back from the gate while another is pulling
into the same space. The system of taxiways surrounding the entire
airside building allows aircraft to exit the runways at a greater
speed, taxi in either direction and avoid delays. And we have excess
airspace and airfield capacity to accommodate future growth.
Located roughly midway between New York and Chicago, Pittsburgh
lies within one hour's flying time of nearly 50 percent of the U.S. and
Canadian populations or 71.3 million people, and 63 percent of U.S.
manufacturing output.
And don't worry about the weather. Smooth operations regardless of
the weather make PIT North America's airport of choice for reliability.
Clearly, Pittsburgh International Airport is one of the
northwestern Pennsylvania region's most significant assets. Presently,
US Airways has a major hub agreement at Pittsburgh International
Airport generating 515 flights per day both domestically and
internationally. With United Airlines and US Airways announcement on
May 23, 2000, I am deeply concerned not only about the continued
presence of a major hub at Pittsburgh International Airport, but also
for the continued employment of the approximately 11,700 employees of
US Airways in southwestern Pennsylvania.
With the announced acquisition by United of US airways, it is
imperative that a number of matters that affect our region are
contained in any Conditions of Approval, which the Department of
Justice and Department of Transportation would make, if they should
decide to grant approval for this merger.
While the discussions I have had with James Goodwin of United
Airlines and Stephen Wolf of US Airways have been very positive,
contracts between parties often do not turn out as contemplated.
Therefore, I request that this Committee urge the Department of Justice
to ensure the following items are addressed in their Order:
1. With the hardship endured by our region in the 70's and 80's,
one of our foremost concerns is for the approximately 11,700
individuals currently employed by US Airways in southwestern
Pennsylvania, eastern Ohio and northern West Virginia. We need an
absolute commitment contained in the Conditions of Approval of this
merger that these jobs will be maintained in our region beyond United's
two-year pledge.
2. The taxpayers of Allegheny County provided the financial vehicle
through bonds to fund the construction of the $800-million Midfield
Terminal Complex at Pittsburgh International Airport. US Airways is the
principal guarantor on those bonds. US Airways presently uses nearly 90
percent of the midfield terminal and pays the majority of the
outstanding debt, which totals over $700 million. We need written
assurances that United Airlines will assume US Airways existing lease
and guarantee payment of all future obligations of US Airways.
3. With significant federal support and the expectation that it
would be a major hub, Pittsburgh International Airport opened in 1992.
US Airways currently operates approximately 515 flights a day to 110
non-stop destinations throughout the US and Europe from Pittsburgh
International Airport. The Airport is the economic engine of the region
and provides us access to the world and the world access to our region.
While United flies mostly east-west domestic flights and international
routes, the US Airways strength is in its north-south routes on the
East Coast, we must be certain that the existing level of service is
maintained and included in the Conditions of Approval of the merger. On
a long-term basis, Pittsburgh must remain a significant US domestic
hub.
4. By year's end, US Airways and United Airlines will have an
extensive fleet of Airbus aircraft with numerous new aircraft on order.
Both airlines have indicated a need for a new maintenance facility to
perform maintenance and safety checks on these aircraft. An excellent,
trained workforce is available right now in southwestern Pennsylvania
to perform these tasks and the needed facilities have already been
designed for construction at Pittsburgh International Airport. We ask
your help in urging United Airlines to follow through with US Airways
plans to construct this facility, and commit to do so within the next
two years.
Pittsburgh International Airport is strategically located in North
America to reach much of the population of the United States and Canada
within 1-hour flying time. National and international travelers give
Pittsburgh International Airport an A+ rating. Our workforce and work
ethic are second to none. We are capable of handling any aircraft used
today and our facilities are easily expandable.
Not only is Pittsburgh International Airport an economic generator
in terms of jobs, but it serves as a major connection hub, linking
Pittsburgh businesses, passengers and cargo with cities around the
world. It is extremely well located in every sense and its physical
structure is flexible, functional, attractive and expandable.
Mr. Chairman and Committee members, I ask your assistance to
strongly convey to the Departments of Justice and Transportation our
need for guarantees to preserve the economic future of a region rich in
resources. Pittsburgh is poised for takeoff. Thank you for the
opportunity to present this information to you today.
Senator Specter. Thank you very much, Mr. Roddey. We turn
now to Mayor Murphy, elected and starting serving in January
1994 and before that was for the better part of a decade and a
half in the General Assembly. Graduated from John Cornell
University, graduate degree with honors from Hunter College,
and a very effective traveler to Washington, DC, in terms of
funding from the Federal Government.
Right now Senator Santorum and I are laboring under that
heavy transportation light rail tunnel cost which we're
plugging at, but I see those stadiums are going up, and we're
in there pitching for you all of the way, Mayor.
STATEMENT OF MAYOR TOM MURPHY
Mayor Murphy. You're great partners with us. Thank you for
having this forum. I won't read this, but simply to say----
Senator Specter. Thank you. It will be made a part of the
record.
Mayor Murphy. Thank you. You've been part of a team that
has really begun to turn around this region. There is not a
region in the country that suffered greater population losses
than Pittsburgh through the 1970's and 1980's.
We now see the lowest unemployment in almost three decades
in Western Pennsylvania, a new spirit of momentum, a new spirit
of optimism. You've been part of that, as we see new
construction happening all over the region.
And clearly the airport is a central part of that, not only
for Allegheny County, but really for the tristate area. If you
look at the employment figures from the airport, you will see
that the major employer in Beaver County is the Allegheny
County International Airport. One of the largest employers in
Washington County, one of the largest employers in the
panhandle of West Virginia is the Allegheny County Airport, as
well as eastern Ohio.
And so that this is an important facility, and I won't
repeat what County Executive Jim Roddey said, just you need to
know that this is a bipartisan effort here. This is a county
facility. I will be working closely with the county executive,
Jim Roddey, to be sure that we are together in our support or
disapproval of this merger.
But the four main issues for us clearly are the jobs, the
responsibility for the continued payment of the bonds that
built the airport, the continuation of this area as a hub,
because it is so important to the growth of Pittsburgh and,
finally, the ability to get the maintenance facility that this
merger will require the airlines to have.
I think we'd like to look upon this as an opportunity,
rather than as a threat, but it clearly is both. We want to
know that we're going to be held harmless but would like to
look at an opportunity for future expansion.
We are an area that has had a checkered history of mergers.
We have watched well-respected companies disappear almost
overnight, such as Koppers and Gulf Oil, through mergers that
did not benefit this region at all.
On the other hand, we have watched two major banks, Mellon
and PNC, grow remarkably in Western Pennsylvania because of
mergers. We're watching Heinz prosper right now and grow
because of mergers.
So, once again, we see this as both a threat and an
opportunity, and with your help and all of us working together,
I believe this can be made into an opportunity for the region.
But we need to see some commitments to hold us harmless and see
the opportunity to grow into the future.
We'll look forward to continuing to work with you on the
dialog in this, and I believe that this region can benefit from
this, if we hold firm or clearly know what we want to see
happen and that the airlines respect our position and support
it and work with us to make this succeed. Thank you.
[The prepared statement of Mayor Murphy follows:]
Prepared Statement of Mayor Tom Murphy
Let me first begin by welcoming the distinguished members of the
United States Senate Judiciary Subcommittee to the City of Pittsburgh,
and for providing us this forum to express our region's views and
concerns regarding the possibility of United Airlines' $11.6 billion
acquisition of US Airways. As you will come to recognize, we come
before you today in a bipartisan, united approach to ensure that this
merger is approved with the best interests of our region in mind.
Many of you may be familiar with Pittsburgh's recent history. The
collapse of the steel indstry left a hole in our economy that we are
only now beginning to replace. In addition, over the course of the past
30 years, Pittsburgh has led the country in one major statistic--
population loss. In fact, Pittsburgh suffered the largest population
loss in America. For too long now, Pittsburgh has lagged behind while
the rest of the country has flourished during the longest economic boom
in our country's history.
Today, however, I am delighted to report to you that Pittsburgh is
re-emerging onto the global marketplace. We have retooled our economy,
and built a new region on the strength of our world-renowned
universities and our top-rated medical facilities. Pittsburgh has
successfully made the transition from steel to technology. You may be
aware that recently the Wall Street Journal rated Pittsburgh as one of
the hottest market for new technology, that Carnegie Mellon University
has been rated the ``most wired'' university in America and that we now
employ more people locally in the field of technology that in any other
industry. In addition, we are home to two of America's top ten
financial institutions in PNC Bank and Mellon Bank, and the
headquarters of such renowned companies as the H.J. Heinz Corporation
and Alcoa. We now have more than $4 billion worth of economic
development underway throughout our City, from the construction of new
world-class ballparks for our sports teams, to a tripled-in-size
convention center to new housing and trails all along our riverfronts,
and have managed to turn our old abandoned industrial sites into
centers of technology, new housing communities and recreational
opportunities for our citizens. Additionally, the courage and vision of
the late Allegheny County Commissioner Tom Foerster in building
Pittsburgh International Airport and acquiring thousands of surrounding
acres for development positioned as well as we head into the future.
I cannot emphasize strongly enough to this distinguished committee
the importance of Pittsburgh International Airport and the presence of
US Airways as a major hub to the rebirth and continued revitalization
of our local economy. Employing more than 11,000 persons from the tri-
state area, Pittsburgh International Airport has quickly become one of
our most strategic assets, as well as a strong economic engine for our
continuing recovery.
As Senators Spector and Santorum can verify, Pittsburgh
International Airport is one of our region's most important economic
generators, one that will help us shape Pittsburgh's future as we move
into the new millennium. Presently, US Airways has a major hub
agreement at Pittsburgh.International Airport generating 515 flights
per day both domestically and internationally, and it is imperative
that Pittsburgh International Airport maintain its status as a major
hub airport for United Airlines.
As you have already heard through the testimony of Allegheny County
Chief Executive Jim Roddey, it is important that a number of matters
that affect our region are contained in any approval of this deal. I
would like to take this opportunity to reiterate those conditions, and
to affirm that Chief Executive Roddey and I will work together to
ensure that these conditions are contained in any agreement approved by
the Departments of Justice and Transportation:
We are committed to revitalizing our economy and providing quality
job opportunities for our residents. We must have a solid commitment
from United Airlines that the merger with US Airways will maintain the
more than 11,000 jobs contained in United's initial proposal.
Significant local tax dollars were utilized to finance the
construction of the $800-million Midfield Terminal Complex at
Pittsburgh International/ Airport, US Airways is the principal
guarantor on those bonds and pays the majority of the outstanding debt,
which totals over $700 million. We must receive written assurances that
United Airlines will assume US Airways existing lease and guarantee
payment of all future obligations of US Airways.
Pittsburgh must remain a significant US domestic hub. As I have
said, the Airport is one of the most important economic engines in our
region and must continue to serve as a hub to ensure that continues
into the future. We must be certain that the existing level of service
is maintained under United Airlines stewardship and is included in the
approval of the merger.
For some time now, our region, has been working to locate a new US
Airways maintenance facility for their aircraft here in Pittsburgh. It
is clear that United will also have a need for such a facility given
the estimated size of its fleet following the merger. We contend that
Pittsburgh is the perfect location for this new facility. I urge you to
ensure that United Airlines follow through with US Airways plans to
construct this facility, and that they commit to doing so within the
next two years.
The importance of Pittsburgh International Airport and its
tremendous impact upon Southwestern Pennsylvania cannot be understated.
Pittsburgh International Airport serves as our gateway to the world, is
a major center of employment and one of the strongest engines driving
our economic recovery. We view the possible merger of United Airlines
and US Airways with cautious optimism, and look forward to working with
this committee to ensure that this merger serves not only the interests
of Southwestern Pennsylvania, but the entire country as well.
As you may have gathered, we are quite proud of our City and our
region. We are excited by the opportunities our future holds, and hope
that you too will share our enthusiasm. With your help and leadership,
Pittsburgh will continue to rebound.
Once again, I want to thank you for coming to the City of
Pittsburgh today to listen to our concerns about the potential
acquisition of US Airways by United Airlines. We have come before you
today in a bipartisan effort, and are united in our concerns and goals
for this important regional asset.
Senator Specter. Thank you very much, Mayor Murphy. Senator
Santorum and I will take 5-minute rounds, as well.
Mr. Roddey, you put your finger on a critical factor and
perhaps the critical factor, and that is what would the future
of US Airways be without a merger.
You talked about being in play. There is hardly any
corporation today that is not in play subject to being taken
over in one way or another.
Now, I've asked that question directly and haven't gotten
an answer, but let's be blunt about it. No reason to beat
around the bush. We're going to have to make some tough
judgments. And the five of us have some very heavy
responsibilities to a lot of people in this community, in this
State, and in this Nation.
When you have people who stand to profit by $12 million if
the merger is completed, does that raise a question in your
mind as to the objectivity of the answers on, say, a critical
question like can US Airways make it without being acquired?
Mr. Roddey. Well, Senator, I am not an expert on the
airline industry. However, I do know that US Airways is the
only remaining mature cost airline in the business. The other
airlines that are of similar size, particularly Continental and
TWA, have both been through bankruptcies, if not once, but two
times. Therefore, they have a different cost structure. And I
know that it's a very competitive business.
I also know, Senator, that competition in the airline
industry is likely to be international and global, as all
businesses are becoming global. US Airways has about 1.6
million international passengers today. That compares with
about 30 million with British Airways and plus 25 million of
either four or five of the major international carriers.
They need an opportunity to be international, and the
merger does give them that opportunity.
I would think, and it would be my judgment, from all of the
people that I have spoken to, that it would be likely that US
Airways, at some point over the next 4 or 5 years would be sold
or broken up.
Senator Specter. Attorney General Fisher, let me go to the
part of the question Mr. Roddey didn't answer. You're in the
business of evaluating demeanor all of the time. Does it
trouble you that the CEO's are going to get $12 million?
Two parts. Where is that going to come from? Is that going
to come from furloughs? Is it going to come from reduction in
service?
And the second part of the question, because the clock is
ticking, does that impact on the objectivity of their
responses?
Mr. Fisher. Well, I'm not going to prejudge the objectivity
of their responses until we know more of the facts. But it
raises a couple of issues.
First of all, that's why I think it's very important at a
bare minimum, whether or not this matter ends up in the Federal
courts or the State courts, and whether we bring it or the U.S.
Department of the Justice brings it, that in the final analysis
it will be a written document.
So that we don't have to rely just on the representations
of officers, whether they be here now with the USAir, whether
they be United, that all of the deal has to be resolved and be
put down into a consent decree, and that's what we would drive
towards.
Second, it also tells me that if there is enough money to
pay those kinds of bonuses, and I'm not here to be critical of
those bonuses, but it tells me that there is enough value in
this airline that the dire picture that some have painted for
the near future probably isn't there.
They wouldn't be committing to this. They wouldn't be
committing to twice the current market value of the stock if
USAir wasn't a very valuable airline which we think can stand
on its own two feet. And if we had our druthers, six would be
better than three.
Senator Specter. Stand on its own two feet even if it
didn't have anybody helping to hold it up like United?
Mr. Fisher. I think it's a very strong airlines today in
the current marketplace, and we think, based on what we know
and what the market shows today, that it can continue to
survive.
Senator Specter. Mayor Murphy, there is an interesting
chart here.
Mayor Murphy. Is this one of your famous charts, Senator? I
remember a healthcare argument a few years ago where you had
that magnificent chart, also.
Senator Specter. Thank you very much, but this may be a
more famous chart.
Mayor Murphy. OK.
Senator Specter. That chart just defeated the Clinton
healthcare program. This chart could save 17,000 jobs.
Mayor Murphy. That's right.
Senator Specter. This chart affects what is currently in
play by US Airways and what United has and what the total would
be. And as you can see, in Pittsburgh we'll end up with an 88-
percent domination by a combination, although it's very high
now. It's 86 percent.
In Scranton and Philadelphia and all over the State, the
total is just very, very high. And my question is--and this is
sort of a generalized question--but does that trouble you?
Mayor Murphy. It does. Let me just say I think weall in
Pittsburgh appreciate the convenience of living in a hub city and being
able to have so many nonstop flights to so many locations in
Pennsylvania and outside of the State.
On the other hand, on a regular basis, I hear, as I visit
corporations about encouraging them to continue to invest in
Pittsburgh and Western Pennsylvania, often I hear that one of
the single biggest complaints they have at this point is not
about State taxes but about the cost of flying out of
Pittsburgh.
In fact, one corporation, and I will try to get this for
you, documented the cost over a 6-month period of their
employees flying out of Pittsburgh versus their employees
driving to Cleveland and flying out of Cleveland and estimated
they would have saved $500,000 on the difference in flights,
and again, as the attorney general said, the difference was
Southwest Airlines.
So that is a dual-edged sword for us here, because we do
enjoy a large number of flights, but the costs are significant
for us that we pay and our business community pays as they try
to do business around the world.
For smaller cities in Pennsylvania such as the Eries and
the Lehighs and the Scrantons, the loss of flights, if that
would happen, would be devastating to those cities, as they
also try to come back from an economic turnaround that they're
undergoing.
And talking to the Mayor of Erie or the Mayor of Scranton,
more recently, representatives from the Mayor of Scranton,
those flights, though they're few, are critical to the success
of those cities. So that is an important issue, also, that I
think we need to address.
Senator Specter. One final comment before yielding this to
Senator Santorum. Attorney General Fisher talks about the cost
of flying from Harrisburg to Pittsburgh, and we've talked at an
earlier hearing about it's being cheaper to fly from Harrisburg
to San Francisco with an intervening stop in Pittsburgh.
And the only reason people don't take the less expensive
flight and end up in San Francisco is it is so much more
attractive here in Pittsburgh.
Senator Santorum.
Senator Santorum. Thank you, Mr. Chairman. I would just
like to ask the attorney general if you could just sort of
review for us what your jurisdiction is here, what, in fact,
can you do with respect to this merger? I mean, what role--
because everyone is sort of looking, at least we do on the
Washington level, look at the Federal Trade Commission, look at
the Justice Department.
And I'd just like some understanding as to what your duties
are and what your responsibility is and what actions you can
take.
Mr. Fisher. Well, first of all, the U.S. Supreme Court said
in 1990 that the State attorneys general do have jurisdiction
standing to challenge mergers. Under our commonwealth
attorneys' act, that responsibility is placed within our
office.
The Justice Department and the FDC have recognized the role
of the State AG's in this review. And it's actually very
interesting, and I commented on it Friday.
A lot of people say this is subject to the approval of the
U.S. Department of Justice. That is a misnomer of sorts. It is
not subject to the approval. The U.S. Department of Justice,
who will do this review, and the State attorneys general have
the right to object, as do other parties.
So it's sort of a negative check-off of sorts, but that's
why the review process is under way. Part of that review
process, once these cases are reviewed, whether it be by us,
whether it by Justice or the other, quite frequently end up in
consent degrees.
And the importance of consent decrees is that all of the
promises and all of the commitments that are made can be put
down in black and white. And it gives us as the State--and we
have the biggest role to play in this merger because
Pennsylvania will be impacted the most.
It gives us the ability, if promises are not kept and if
they're broken, to go to court to have them enforced.
Senator Santorum. Are you working with other attorneys
general to----
Mr. Fisher. We do. There are 25 other States, and the
District of Columbia, who are working with us. We have taken
the lead on the investigation with the attorney general of New
York. And we have broken up the division of responsibilities
with the U.S. Department of Justice. They are looking at some
of the international implications.
We have begun some of the investigation of some of the
domestic implications. We have begun interviewing various
smaller airlines as to their views, talking to local
businesses.
So the investigations are working in a parallel track. Once
we complete them, we'll share our results among the States and
with the Justice Department, and we will make our respective
decisions.
Senator Santorum. Let me ask you about some of those
economic domestic concerns. And the Senator has his chart up
here that shows the concentration of United after the merger
and in our cities around Pennsylvania.
Certainly, from our hub cities, the concentration is
already high, and in other cities, I guess particularly now the
Lehigh Airport is probably the one that would be themost
impacted competitively.
We're hearing stories already--I mean, Mayor Murphy has
talked about business already, is--we've got some of the
highest fares around. Is there any indication that this
additional concentration will lead to even higher fares, or are
we basically just saying we're going to be stuck with the same
fare structure we have now?
One of the concerns, you know, that's been brought to me is
fares, and I'm concerned about fares, but I don't see any
relief now.
My question is this going to make it any worse? And I'm not
too sure that additional concentration--I guess that's my
question. Is this additional amount of concentration going to
make it worse, or are we just basically stuck with the gal we
brought to the dance?
Mr. Fisher. It's a particularly interesting question from
Pennsylvania, because Pennsylvania fares, I think, are probably
the highest in the region. There is virtually no competition in
Pennsylvania today when you look at it.
But I think what we are--the purpose of our review will be
to look at what it does to the market share. And will the
market share as you have asked make it worse, or will it assure
that it always stays the way it is?
I think what a lot of people are hoping for is at least the
opportunity for the entrance of low fare airlines in some
places that touch Pennsylvania.
Senator Santorum. How do you accomplish that? Do you
accomplish that in the construct of this consent decree or
whatever you are----
Mr. Fisher. I think it's possible. I think that part of the
problem here in Pittsburgh--and, you know, Jim and I have
spoken--there are gates in Pittsburgh. But in many of the
cities where airlines might want to fly, there is no ability
for them to land.
It's very difficult today to get additional landing rights
in Philadelphia because of the absence of gates. It's difficult
to get additional landing rights at LaGuardia because of the
absence of gates.
So there are problems that go beyond Pittsburgh, that go
beyond the State that all factor into this. But these are many
of the issues which we hope to collectively take into
consideration if, in fact, we are able to reach an agreement as
to what is good to solve all of the various problems we find
here.
Senator Santorum. My time is up, so I'll turn it over to
you.
Senator Specter. Take some more time.
Senator Santorum. Do either of you have a response to that
question as far as how you see the economics playing out?
Obviously, for Pittsburgh, this additional concentration, is
that of concern to you, that we may not be able to attract,
since we have the gauge, we may not be able to attract another
airline to come in and service this community?
Mr. Roddey. Yes, it's always a concern, Senator. However, I
think now is the time to address that. And as we review the
documents and review this acquisition, if we're going to get
some relief from the situation, I think now is the time to ask.
It's clear that the premium price being paid by United for
US Airways is so they can get entry into the very lucrative
eastern market.
If you look at East Coast flights, north and south up and
down the East Coast, today United Airlines has one percent of
that flight. And it's the most lucrative of anywhere in the
country. US Airways has 37 percent.
So they're paying a premium to buy their way into that,
rather than try to go in and compete. It's very difficult to
start competing when you don't have slots, you don't have
gates. We did have the gates here, and I would hope that we
could structure something in this merger that would allow us to
have some competitive airlines in here.
But the question of fares, I don't think the fares--you
know, we've asked the question, and if--and I know both of you
are aware of the testimony in Washington. Every place there is
a super hub, we hear the same thing, about how high the fares
are.
And the airlines have made a commitment not to raise the
fare for 2 years, except for cost of living or fuel costs.
Well, I don't think that's much of a commitment at all. If you
recall, every time it's ever been raised, it's because of fuel
prices or cost of living. So I think that the fares right now
are going to remain high.
Senator Specter. Thank you very much, Senator Santorum, and
thank you Attorney General Fisher, Mayor Murphy, and Chief
Executive Roddey. Thank you.
Senator Specter. We'll now move to the next panel, Miss
Shelley Longmuir, Mr. Larry Nagin.
I want to welcome Ms. Shelley Longmuir, who is the senior
vice president of International Regulatory and Governmental
Affairs for United Airlines, a magna cum laude graduate with a
double bachelor's degree in English Shakespeare literature from
Brown, J.D. from New York University School of Law, and she
held senior positions in the Bush administration at the U.S.
Department of Transportation.
Thank you for joining us, Ms. Longmuir, and we look forward
to your testimony.
PANEL CONSISTING OF SHELLEY LONGMUIR, SENIOR VICE PRESIDENT OF
INTERNATIONAL REGULATORY AND GOVERNMENTAL AFFAIRS, UNITED
AIRLINES; AND LARRY NAGIN, EXECUTIVE VICE PRESIDENT, CORPORATE
AFFAIRS AND GENERAL COUNSEL, US AIRWAYS
STATEMENT OF SHELLEY LONGMUIR
Ms. Longmuir. Thank you, Senator Specter, Senator Santorum.
On behalf of United Airlines, more than 100,000 employees
worldwide, I appreciate the opportunity to be here today to
discuss our merger with US Airways.
The transaction will deliver new economic growth and travel
opportunities to consumers here in Pittsburgh and throughout
Pennsylvania.
Senators, I want to thank both of you for the attention
that you have paid to our merger with US Airways. As you know,
our chairman and CEO, Jim Goodwin, testified before your
subcommittee last month in Washington. He also met with both of
you in recent weeks to discuss the transaction.
Members of your staff, Senator Specter, have also spent
time with our senior financial team to review details of this
merger. Mr. Goodwin has also met with Governor Ridge and
Allegheny County Chief Executive Jim Roddey.
Our general counsel has also met, and we are in an ongoing
dialog with Attorney General Fisher.
Shortly after we announced the merger in May, those
discussions began and will continue throughout our review.
United started flying from Pittsburgh 44 years ago, on
January 22, 1956. Back then we flew four times a day to New
York and had four daily westbound flights to Chicago and then
on to Denver, Salt Lake City, Los Angeles, San Francisco, and
some other western cities.
Today United and United Express have a total of 14 daily
departures from Pittsburgh. We fly nonstop to Chicago and
Washington Dulles with connections to destinations around the
world.
United has 94 employees in Pittsburgh today, a number that
will dramatically increase after the completion of our merger
with US Airways.
When United began service from Pittsburgh in 1956, we ran
an ad introducing ourselves to the community. We said then,
``We recognize the privilege of serving the Greater Pittsburgh
Area, that it carries also with it a responsibility, not only
of providing good air service, but of being a good corporate
citizen to the community. We intend to demonstrate our
appreciation by fulfilling both of these responsibilities to
the best of our ability.''
Senators, what we said then is just as true today as it was
44 years ago. United will provide the service that Pittsburgh
customers deserve, and we will be good corporate citizens and a
valuable asset to Pittsburgh and the airport of which this
community is so justifiably proud.
The United-US Airways merger will have a very positive
impact on Pittsburgh. Pittsburgh is already a major hub for US
Airways. When our merger is complete, it will become an even
more significant hub for United Airlines.
In all, United plans to offer nonstop or one-stop service
from Pittsburgh to 254 domestic and international destinations.
That's 78 more than US Airways currently serves and 143 more
than are available today on United.
We plan to offer four additional daily nonstop flights from
Pittsburgh to three U.S. cities. That includes the only nonstop
service to San Jose, CA, one of the high tech centers of the
world; the only nonstop to Portland, OR; and two additional
daily nonstops to Denver, a total of five a day to the Colorado
capitol.
United also plans to offer new one-stop service to several
Asia, Pacific, and Latin American destinations. We'll also add
competition with our new planned service through Miami, to Rio,
Caracas, Buenes Aires, and two other cities in South America.
By connecting Pittsburgh to a larger national and
international network, the United-US Airways combination will
mean an exciting expansion of service to and from the region.
In short, Pittsburgh will be a winner. As you know, aspart
of the transaction, United has pledged there will be no furloughs of
any USAir employees for 2 years following the closing of the merger.
Beyond this promise, which is part of our merger agreement with US
Airways, we have made a firm commitment with no time limit attached not
to furlough any US Airways employee.
We are also confident that our business will grow and
create more opportunities and more jobs in the future in this
region. We recognize that an important issue for Pittsburgh has
to do with the construction of a new maintenance facility here.
Our chairman, Jim Goodwin, has pledged that we will make a
decision on that issue before the end of the month. We will, of
course, advise you both and the community as soon as we
determine what those plans will be.
Senators, thank you for inviting me here today and for
allowing me to discuss our transaction.
Senator Specter. Thank you very much, Ms. Longmuir. I will
now turn to Mr. Larry Nagin, executive vice president of
Corporate Affairs and general counsel of US Airways since
February 1996; bachelor degree in international relations from
the University of Southern California; and a J.D. degree from
the University of California, Hastings School College of Law.
Thank you for joining us, Mr. Nagin, and we look forward to
your testimony.
STATEMENT OF LARRY NAGIN
Mr. Nagin. Thank you, Senator Specter and Senator Santorum.
Good afternoon. We have had the privilege of appearing before
you, Senator Specter. We have had the privilege of meeting with
Senator Santorum on several occasions.
I think you know the history of our company well,
representing your Commonwealth here, as well as with respect to
your duties in the Senate.
I don't want to retread previous ground, but would like to
respond to a few of the questions that have been raised not
only by both of you Senators, but also by the preceding panel.
And perhaps that will allow some further discussion on issues
that are clearly important to both of you.
We take your concerns very seriously. We don't give them
short shrift. We're respectful of them. We think they're very
legitimate questions that are deserving of being asked, and
you're deserving of appropriate and responsive answers to test
your comfort level and for you to make your independent
judgments.
With that in mind, Senator Santorum, you mentioned you had
some concern with respect to the size of the Pittsburgh hub.
Just to put it in perspective, at Pittsburgh, US Airways and US
Airways Express have on a daily basis in the month of July 605
departures.
Compare that with the Continental Airlines in Cleveland
that has 435 departures; Continental at Newark, 585 departures;
Continental at Houston, 607 departures, just two more than we
have here in Pittsburgh; and United in San Francisco, 534
departures.
So I think just to name a few of the hubs in the country,
Pittsburgh, for the size of its community, is second by only
shy of two flights. It has a very significant hub here which
we're very proud of.
Second, Senator Specter, you made mention of a report of
Saturday's Washington Post with respect to bonuses, as you
characterize them. That article made reference to a public
filing that US Airways made on Thursday afternoon before the
Securities and Exchange Commission, which is the proxy to be
reviewed by the SEC before it goes to shareholders to vote yea
or nay on the merger proposal of United Airlines.
And, indeed, that proxy was absolutely consistent with all
of the previous proxies the previous 4 years with respect to
the very important change in control agreements that the senior
executives have at US Airways.
All of them had been previously disclosed, number one and
in some cases voted upon by shareholders. And, more
importantly, it is an absolutely standard tool used in
corporate America to attract and retain the best management
possible.
Without casting any aspersions on anywhere and anyone, I
think you're all very familiar with the situation that faced
USAir then in 1996, when Mr. Wolf joined the company. I think
the press heralded his coming to the company as a savior, if
you will, with respect to his track record in improving the lot
of airlines throughout the country.
He is a man with an impeccable record of 30 years of
management in the airline business.
As a result, USAir then was transformed into US Airways,
and we reequipped the fleet, changed our image.
And you will both remember all too well the very sad days
we had here in Pittsburgh in previous years. It was a very
difficult time with the Pittsburgh community being tremendously
supportive of the company, and the company has paid that
support back by growth and opportunities here in Pittsburgh
that we're very proud of.
By the way, Senator, with respect to those changes in
control agreements, those were by an independent board of
directors, an independent human resources committee, and indeed
this entire transaction was approved by our independent board
of directors and will go to our shareholders for their
independent vote, consistent with what they believe to be in
their best interests.
And, again, these changes in the control agreements
areconsistent with insuring fiduciary duties are met by executives
throughout the United States.
Finally, with respect to the future, the prior panel talked
about the future of Pittsburgh. Both of you Senators have
voiced great concern with respect to the new growth or the new
outlook.
This transaction brings it to Pittsburgh by bringing United
to Pittsburgh.
I see my time is up. I'll be glad to respond to the
questions on pricing and Q&A if you deem it appropriate,
Senator.
Senator Specter. Let me take you up on the point as to the
compensation here. To say that it's consistent with all of the
practices on filing with the Securities and Exchange
Commission, I understand that.
When you talk about to attract and retain, we're really at
a termination point. It's not a matter of attracting Mr. Wolf.
He's there. It's not a matter of retaining him. In fact, it's
counter retaining him. It's losing him.
But in addition to the $11.7 million in severance, their
additional annual retirement benefits of $87,000, there is an
additional stock option, there is a commitment to pay all of
the taxes from the stock option.
And when you have a company where there is a suggestion as
to whether, as a mature company, it can survive alone, and you
have an issue as to so many commitments which United is
making--and I appreciate the fact, I understand that this is
commonplace. I don't think that justifies it, however.
On a recent bank merger in Philadelphia, the CEO walked
away with more than $40 million, but the question is why? What
is the justification for it?
Mr. Nagin. Well, there are two pieces to it. The
justification, that is, I think, for the shareholders to make
that determination and certainly you, Senator, in your position
that you hold.
But in terms of this transaction, anything that Mr. Wolf or
any other executive, if you will, will realize from this
transaction was the going in bid to bring and attract them to
the company. And, indeed, there are two pieces to it, two
components, if you will.
One is the change in control component that deals with
being removed or experiencing a change of control. Mr. Goodwin
at United, I'm sure----
Senator Specter. You mean Mr. Wolf is losing his job?
Mr. Nagin. Well, I'm not suggesting that anyone should be
concerned that Mr. Wolf is losing his job. Mr. Wolf----
Senator Specter. He can take care of himself.
Mr. Nagin. But if you weigh that against what is occurring
with everything else here, in terms of its fiduciary duties,
sir and Senator Santorum, every stockholder I think, is getting
twice the current market value when the deal was announced.
Senator Specter. I was just wondering, all of the things
that are happening with Senator Santorum, who makes $141,000 a
year.
Mr. Nagin. I never said things were fair, Senator, and I
would never consider them to be fair. I think public service
has its own benefits beyond monetary. Thank God there are
people willing to do it.
Senator Specter. You say it's not fair?
Mr. Nagin. I wouldn't think it's fair, no. I think school
teachers, librarians----
Senator Specter. Never mind what Senator Santorum is
earning. I'm more concerned about what Mr. Wolf is getting. Is
that fair?
Mr. Nagin. Is it fair? It's what is called for under the
contract. Is it fair compared to the man on the street who is
homeless? I would say absolutely not. Is it fair to a school
teacher who should earn more? Probably not. Is it fair to a
librarian? Probably not. Is it fair to other public servants?
Probably not.
But that is the way that it works. And the shareholders to
whom Mr. Wolf owes a fiduciary duty, and that is the standard
by which he is judged, if you will, are all fairing extremely
well, to the point that our board of directors voted
unanimously to approve this transaction, and we're hopeful that
our shareholders will vote.
But they are the ultimate arbiters. Just as the ballot box
is the test for both of you, our shareholders are our test, as
well as the courts and the Department of Justice.
Senator Specter. I appreciate your candor with that long
recitation to all of the people to whom it was not fair. And
the shareholders are getting a big increase in the value of
their stock, so they're happy because they're sharing in the
unfairness, perhaps.
But the question that is on my mind as a member of the
Antitrust Subcommittee, a member of the Judiciary Committee of
the U. S. Senate, is who is going to pay for it? Is it going to
be paid for by the consumers somehow, who will have a reduction
of service or increase in price?
Will it be paid for by some of these employees who will not
be furloughed but asked to move so far away they can't possibly
take the job?
Somebody is going to have to pay for it. Wouldn't you agree
with that?
Mr. Nagin. I'd agree with the macro statement somebody is
going to pay for it, but that somebody is United Airlines. Sir,
the benefit to United Airlines of US Airways joining their
network is significant, or else they would not agree to do
this.
The detriment to US Airways for not being able to join to a
larger network is also significant. Because as was pointed out,
we're the last of a rare breed of pre D regulation carriers.
It is a complex issue, but United sees the benefit to offer
this money. United is promising a job not for 2 years, but
throughout for the employees of US Airways. And I think that's
a big benefit that comes out of this.
They're also pledging support to the communities. You know,
I polled, if you will allow me, a list of the communities that
US Airways serves of this Commonwealth. It's quite dramatic.
And there are no barriers to entry to any of these
communities, Allentown; Bethlehem, where you have a hearing on
the 24th, sir; Wilkes-Barre; Scranton; Erie; Harrisburg;
Philadelphia; Pittsburgh, of course; Altoona; Bradford; Warren;
DuBois; Erie; Franklin; Williamsport; Johnstown; Latrobe;
Lancaster; Harrisburg; Reading; State College.
No other airline serves those communities like we do. And
after this merger is approved, United Airlines will be there
bringing the world to these communities. And they pledge not to
decrease service. They've pledged not to reduce employment, and
they have pledged price freeze.
Senator Specter. Thank you very much, Mr. Nagin. I have
decided not to ask you about your additional compensation. And
if I had to decide to ask you about your additional
compensation, I would have changed my mind after that very
excellent answer. Whatever it is, you're worth it.
Mr. Nagin. Thank you, sir.
Senator Specter. Ms. Longmuir, just a couple of questions.
I'll ask you to do this in writing, because I don't want to
impinge anymore on the time here and yield to Senator Santorum.
The structured fares, according to my information,
constitute only 15 percent of fares of United, so that they're
making a commitment for 2 years on structured fares. It doesn't
seem to be very significant.
If you'd care to respond now, you may. Senator Santorum has
just given me the green light.
Senator Santorum. I had that question, too, so you can use
my time for the answer.
Senator Specter. Answer that question on his time, and I'll
go on to the next question.
Will you give us an answer in writing on the issue of
transfers and relationship to your commitment not to have
furloughs?
Ms. Longmuir. An answer in the sense that we will commit to
no furloughs----
Senator Specter. Well, what are the risks of those who have
a commitment not to be furloughed to be transferred someplace
which makes their job meaningless?
Ms. Longmuir. What is the risk, sir? Our clear expectation
is that we will not have to transfer anyone, because from a
purely financial perspective, being one of those employees who
has just been transferred for a happy reason from Washington to
Chicago, it's tremendously expensive to the company, lost time,
relocation, et cetera.
Our whole underlying theme and benefit of this merger to
United Airlines employee owners and stockholders is because
it's based on growth.
We are hoping to take the framework of the system that US
Airways has built and to grow that dramatically.
So based on a growth premise, we're hoping not to have to
transfer anyone, because we have right now in this incredibly
booming economy a shortage of people at every level within our
company.
Senator Specter. Listen, I know United has to run a
business. When you tell me you're hoping not to transfer
anybody, it doesn't have a whole lot of meaning to me.
To the extent you can be any more positive about it, and I
know that the 17,000 Pennsylvanians will appreciate it.
Final question I have for you is the business in writing.
You and I talked about it in Philadelphia. Your CEO and I
talked about it in Washington, as to the structured fare, as to
the furloughs, as to the commitments to the international
airport here. You heard what Mr. Roddey has to say, he wants it
in writing.
Ultimately, would United be prepared to back up what
representations you make as a written commitment?
Ms. Longmuir. Senator, our goal, truly, in becoming a more
important corporate citizen within Pennsylvania is not to talk
past either you or Senator Santorum, but to have a very
positive relationship.
We want to extend to you the reassurances that you are
properly seeking on behalf of your constituents. So if the
Department of Justice ultimately does not seek the fare
commitment in writing, as we have discussed previously, as you
have discussed with our CEO, we want to reach a way to
accommodate and to address those concerns. And I know Jim
Goodwin desires that very much.
Senator Specter. Well, I take that last answer to be you
talked right past me, but I'll try again in Allentown. Senator
Santorum?
Senator Santorum. Maybe I can get her to be more specific
on that question. So what you're suggesting, if you're not
required to put anything in writing by the Justice Department,
you'll work to satisfy us in writing insome fashion, if that's
necessary?
Ms. Longmuir. Well, I'd like to take a look, if I could, at
the predicate behind writing to guarantee fares. It is,
frankly, contrary to what we understand as a result of
deregulation, that fares are not otherwise going to be
mandated. We have tried, and perhaps this was a tactical
mistake on our part.
We attempted in offering the commitment to have a fare
freeze for 2 years, except for an increase in CPI and fuel, to
offer on good faith on behalf of the company, reassurance to
the communities that we were coming in to serve, really pretty
much as an unknown, that we recognize their concerns and
anxieties and need for quality air service and, therefore, put
that freeze in place.
We plan on being in these communities for a very long time,
so we certainly don't want to----
Senator Santorum. How about with respect to the other
issues, with respect to the facilities here, with respect to
the issue--the employee issues? If those are not required in
writing, would you be willing to give us something in writing
about the facility here, the maintenance facility?
You talked about the reservations jobs. Again, is there
anything in writing that we will be able to receive?
For example, I think we heard testimony from Jim Roddey
today saying you would give us an answer on the maintenance
facility by the end of the month.
Ms. Longmuir. Correct.
Senator Santorum. I assume that's something that we can
have that we can count on that can be, in writing or have some
sort of legal force that we can say, OK, well, they promised?
Will we have something of that nature, or will it just be,
well, hey, trust us, we're going to do this?
Ms. Longmuir. I assure you on behalf of Jim Goodwin that
you will have a decision that will be a bankable decision.
Senator Santorum. OK; can you answer Senator Specter's
question on my time now?
Ms. Longmuir. Certainly; Senator Specter is absolutely
correct that the fare freeze goes to 15 percent of the fares in
place. But, however, that drives 40 percent of the revenue that
is generated from the total revenue fare structure.
The reason why we chose the point-to-point fare structure
as a means to essentially drive and freeze fares was because we
thought it was the easiest way for someone to monitor us, and
it was the only, if you will, common thread that we could find
in our fare structure.
We have 750,000 fares in the marketplace today. We change
on average 57,000 of those today. When there is a fare sell,
that number goes up dramatically.
But we were trying to find the largest basket, if you will,
of fares to be driven and frozen, which is, to a great degree,
the back board against which all other fares and fare sales
emanate from.
Senator Santorum. And so you have no intention of expanding
that number, or is this something that's part of a negotiation,
that you can have a broader number of fares that could be
frozen over time? Or just to give--well, is there any thought
of expanding that beyond the 15 percent that you suggested?
Ms. Longmuir. No, there isn't, Senator Santorum, because we
think that's fairly dramatic in itself, and as broad as we and
our financial people could frankly come up with.
Senator Santorum. A couple other questions about here in
Pittsburgh. We talked about the reservations folks on Friday.
We made our case on the issue of the maintenance facility. I
know there are some people out in the audience that are
dispatchers that are located here in Pittsburgh, and they have
some concerns about what the futures of their jobs--these are
the folks who, I guess, are the dispatchers systemwide for US
Airways.
Has that issue been brought to your attention, and can you
tell us if you have any announcements on that, or can you give
us a timeframe of when we would know what the impact would be
on those dispatching jobs here in Pittsburgh?
Ms. Longmuir. I certainly appreciate your concern, Senator
Santorum. This is the first time I have heard of this issue.
Senator Santorum. I'm glad I brought it up then.
Ms. Longmuir. But I know it is within a whole category of
employee concerns and job groups that we are trying to address
in a very methodical basis. And again I would underline that
our desire and what is in our company and our employee owners'
best interest is to lower the cost of operation through
unnecessary transfers as much as possible.
So we would hope not to have to dislocate or relocate
individuals.
Senator Santorum. I understand that. Can you today give me
some sort of timeframe of when you--these are issues that I
would like to have resolved for me to feel comfortable that
we're moving forward in a way that you suggested, which is that
you want to be a partner here in Pennsylvania, and you want to
be a good corporate citizen team player, as I think you--the
corporate citizen aspect that you talked about 44 years ago in
your statement when you came to Pittsburgh.
We have folks here that would like to know what theirfuture
holds, and if we could know that, obviously, as much in advance as
possible, so you can put that on your list of things we'd like to have
resolved, so we can have answers to make decisions by.
Ms. Longmuir. I commit to you certainly to make that a
priority, and we'll get back to you and to Senator Specter very
promptly.
Senator Santorum. I appreciate that. Another question, this
has to do with the maintenance facility. My understanding is
the way the maintenance contracts were structured for the US
Airways, and maybe, Larry, you can pitch in on this if you're
aware, is that the new Airbuses were going to come in, but the
engines were going to be privately contracted out. United
doesn't do it that way. You service your own engines.
My question to United would be assuming that all things go
well here and that we build a new maintenance facility here in
Pittsburgh, a United maintenance facility to service those
aircraft, do you intend to continue to have those engines
contracted out, or would those engines be serviced inhouse?
Ms. Longmuir. I think that is something that is internally
being reviewed, Senator, which we would be able to give both
you and Senator Specter definitions before the end of the
month.
Senator Santorum. OK; that was my question. I just wanted
to make sure that that component of the discussion was also
included in our answer by the end of the month.
Senator Specter. Thank you very much, Senator Santorum.
Thank you Ms. Longmuir and Mr. Nagin. Appreciate your being
with us.
Senator Specter. Coming now to panel three. Mr. Glenn
Mahone, Kent George, Dr. Lowell Taylor, Mr. Tony Fratto.
Our first witness here is Mr. Glenn Mahone, chairman of the
Allegheny County Airport Authority, bachelor's degree from Penn
State and J.D. from Duquesne. Also holds an LLM from Yale
University. He served as bond counsel underwriter and insurance
counsel across the broad range of State and municipal authority
transactions. Thank you for joining us. Do you pronounce that
Mahone?
Mr. Mahone. I'll respond to both, Senator, but it's Mahone.
Senator Specter. Mahone. The floor is yours, Mr. Mahone.
PANEL CONSISTING OF GLENN MAHONE, CHAIRMAN OF THE ALLEGHENY
COUNTY AIRPORT AUTHORITY, ACCOMPANIED BY KENT GEORGE, EXECUTIVE
DIRECTOR, ALLEGHENY COUNTY AIRPORT AUTHORITY; LOWELL TAYLOR,
PROFESSOR OF ECONOMICS, H. JOHN HEINZ III SCHOOL OF PUBLIC
POLICY AND MANAGEMENT, CARNEGIE-MELLON UNIVERSITY; AND TONY
FRATTO, PUBLIC AFFAIRS ADVOCATE, PITTSBURGH TECHNOLOGY COUNCIL
STATEMENT OF GLENN MAHONE
Mr. Mahone. Thank you, sir, and thank you Senator Santorum
for convening this important forum. With me today is Kent
George, the executive director of the Authority.
We would first like to thank you and the committee for the
opportunity to present our views on the pending purchase of US
Airways by United Airlines.
Second, Mr. Jim Roddey, county executive of Allegheny
County, testified earlier on this region's position on the
acquisition of US Airways by United Airlines.
The airport authority completely supports Mr. Roddey's
testimony and encourages your committee's inclusion of this
region's desires in your report.
The Allegheny County Airport Authority operates the
Pittsburgh International Airport, which provides the businesses
and residents of Southwestern Pennsylvania, Eastern Ohio, and
Northern West Virginia their access to the world.
The airport authority is in the enviable position of
operating one of the world's most modern facilities that is
capable of immediate expansion within its 10,000 acres.
Pittsburgh International is this country's 25th largest
airport in passenger traffic and was recently ranked number one
in the United States and third in the world by readers of Conde
Nest Traveler Magazine.
In short, Pittsburgh International Airport offers the
world's airlines an unrestrained, unrestricted, efficient and
effective facility to meet their current and future needs. The
airport authority stands ready to meet not only US Airways and
United's needs, but also the needs of any other carrier
desiring access to this region.
Again, thank you for this opportunity. Both Mr. George and
I will be ready to answer any questions you may have.
Senator Specter. Thank you very much, Mr. Mahone.
We now turn to Mr. Kent George, executive director of the
Allegheny County Airport Authority, undergraduate degree in
aviation management from Emory Riddle Aeronautical University,
and a master's degree in business administration from St.
Joe's.
Thank you for joining us, Mr. George, and we look forward
to your testimony.
Mr. George. Thank you, Senators, and in the interest of
time, we've done a joint testimony for the airport authority,
and you can move on, and we'll answer any questions that we'll
be able to--no need to repeat everything we've gone through
before.
Senator Specter. You are in jeopardy, Mr. George, of
becoming the most popular man at this hearing.
Mr. George. I've done this a few times before, Senator, and
I know how much you enjoy sitting there.
Senator Santorum. No, I really do enjoy it.
Dr. Lowell Taylor is professor of economics at H. John
Heinz, III, School of Public Policy and Management at Carnegie-
Mellon University, on the faculty there since 1990; a master's
degree in economics and statistics and a Ph.D. in economics
from the University of Michigan; Senior Economist of the
Council of Economic Advisors in the Executive Office of the
President earlier this year.
Thank you for joining us, Dr. Taylor, and we look forward
to your dispositive testimony. With that resume credential----
STATEMENT OF LOWELL TAYLOR
Mr. Taylor. It's my pleasure, Chairman Specter and Senator
Santorum.
Senator Specter. How are you so young, by the way, Dr.
Taylor?
Mr. Taylor. How am I so young? I wish my kids were here to
hear you say that. They would sadly disagree with your
assessment.
I have some issues I'd like to raise about the antitrust
and competition, questions about the merger of US Airways and
United.
Let me start by saying that the proposed merger does appear
to make some economic sense. We have US Airways in the east
that has a large network and Pittsburgh, of course, anchoring a
hub.
And, in addition, there is this large east-west United
system of routes and the international system. And Pittsburgh
travelers would enjoy this link to one-stop service, as has
been mentioned many times, to destinations in Asia and Latin
America.
Although there may be considerable value to Pittsburgh in
being a key hub in such a nationally and internationally
prominent airline, there are certain aspects of the proposed
merger that should make Pittsburgh residents nervous.
And here I'm actually just reiterating the concerns that
were mentioned by Hon. Mike Fisher and questions that you
raised yourself, Senator Specter. The issue is with pricing.
Let me pass over some of my academic discourse and head
straight to the table, which I think is most relevant. I hope
you have the testimony there, because I'm going to be referring
to Table 1.
Do you have extra copies that you could hand to the
Senators that they could take a quick look at?
Senator Specter. Dr. Taylor, why don't you describe the
table and what it's worth.
Mr. Taylor. I'll describe what I have, and then perhaps we
can get a table, too, as we go. My concern is about the average
fares that we pay in and out of Pittsburgh. So what I did is to
pull together data from the U.S. Department of Transportation
for a list of airports that have the following features.
They are all airports that have an average passenger
distance that is very close to Pittsburgh's. So, for example,
the average passenger coming to or from Pittsburgh happens to
travel 882 miles. I picked airports that have that same
characteristic, that is to say, they have an average distance
close to that 880 figure. Actually, it's plus or minus 30
miles.
And what I've done here is to consider only top routes.
These are only for fares that are for the top thousand routes,
between--typically between major cities.
So for Pittsburgh, for example, these are routes as it
turns out between Pittsburgh and Washington; Philadelphia; New
York; Atlanta, Georgia; Tampa, and so forth.
And what you notice is that the anecdotal evidence that
people have brought before you is correct, that people who fly
in and out of Pittsburgh do pay considerably more than people
flying out of other airports.
Let me emphasize, this is not because the flights out of
Pittsburgh are for shorter East Coast hops. These are all
comparable apples to apples. And it's not because they're
serving especially smaller markets, because these are only for
the top 1,000 flights, that is, only for the largest routes.
Pittsburgh, you will notice, we pay about 50 bucks a fare
more each way. You're wondering where $12 million might come
from. This is for only one quarter. There is a million
passengers here, each paying about $50 more than they'd pay to
come out of other airports. That's a lot of money.
If you split the page and look at table 2, you can see this
issue broken down by eastern markets, eastern destinations,
Midwest, Florida destinations, west and southwest.
Let me just, in the interests of time, draw your attention
only to the panel which is the eastern destinations, and then
I'll compare that with the bottom panel, which is to the west
and southwest.
In the east, US Airways has a huge market share. If you
want to fly to Washington or Philadelphia, you have virtually
no choice but to fly on US Airways. And you'll notice that the
average fares on those particular routes are far higher than
the median fares for comparable markets.
If you're flying to the west in contrast, US Airways does
have a large market share, but not merely as dominant. And
interestingly enough, the air fares are much the same out of
Pittsburgh as they are for other similar comparable markets.
The answer as to why this is, I think, is given by the
chart that you have behind you, Senator Specter, and it's just
simply the issue of market shares. This is what we would
typically expect of firms that develop a large amount of market
powers. They can use that to charge higher prices.
I think that the antitrust division of the Justice
Department will be, no doubt, carefully examining the effects
of the proposed merger on the competitiveness on a number of
routes, including the ones I'm sure that I have outlined for
you here.
I hope when they do that, they try to focus on Pittsburgh
specifically where we really do have a serious issue already
with large market share.
The chairman and CEO of United Airlines has proposed a
remedy in Reagan National Airport specifically for concerns
about the market share that this merger would create there. And
one thing that perhaps would be worth discussion would be
whether or not, in the process of forming this merger, similar
issues might be taken up at Pittsburgh.
That concludes my testimony. Thank you again for the
opportunity to speak.
Senator Specter. Thank you very much, Mr. Taylor. We'll
come back to you for questions in just a moment or two.
We turn now to Mr. Tony Fratto, the Public Affairs Advocate
for the Pittsburgh Technology Council. From 1991 to 1995, he
served as press secretary and legislative assistant to
Congressman Rick Santorum, now Senator.
He went on to serve as communications director for Senator
Santorum through 1997 to 1998. Graduate of the University of
Pittsburgh, a native of McKees Rocks, PA.
I thank you for joining us, Mr. Fratto, and we look forward
to your testimony.
STATEMENT OF TONY FRATTO
Mr. Fratto. Thank you, Senator Specter, for having me here
today and Senator Santorum. I appreciate the opportunity to
address this issue and also thank you for your sincere and real
dedicated, persistent efforts on economics development in this
region. It's greatly appreciated.
May I ask that my testimony be entered into the record.
Senator Specter. It will be, with no objection.
Mr. Fratto. I'll withdraw my comments, but we thank you
again, appreciate this opportunity. You may know that I also--
you mentioned the Pittsburgh Technology Council. I also
directly represent the Greater Pittsburgh Chamber of Commerce,
the Pittsburgh Regional Alliance, and the Allegheny County
Conference on Community Development, and a number of other pro
business and economic development groups in Southwestern
Pennsylvania, which puts me in a unique position to represent
the views of that community at this hearing.
The health of Pittsburgh International Airport is really
vital to the business and economic development interests of our
region. Clearly, the airport provides thousands of jobs for our
community and provides support for countless families.
And also for, really, millions of people, it provides often
at least the first look to our wonderful region, sometimes the
only look into our region. So the health of that asset is
extremely important.
None of the groups I represent at this time have staked out
a formal position on the merger. They're in the information
gathering stage, trying to educate their membership, as many
folks in this room are doing the same. However, they expect to
take formal positions shortly.
Some consensus on some key points has emerged, though, and
looking at the merger, first among them is the prospect of
increasing the number of flights to this region.
One-stop flights and direct flights both domestically and
internationally is vitally important to this region. Both you,
Senator Specter and Senator Santorum, and a number of others
were heavily involved in our region's effort to reinstate the
London to Pittsburgh route to Pittsburgh.
You know the effort that went into that effort to gain just
one flight. So I know you recognize the importance of adding
these flights.
In particular, especially to members of the technology
community in Pittsburgh, nonstop flights to Portland, OR, and
San Jose are very important, and also one-stop flights to Asia
are also very important.
The second area of consensus that's emerged is the
maintenance and expansion of hub status for our airport.Most of
the jobs related with Pittsburgh are--available in Pittsburgh are
related to our status as a hub airport. You want to put your people in
airports that are hubs.
So we strongly support that.
Each of our groups strongly encourages United Airlines to
follow through with US Airways' commitment to build a
maintenance facility in Pittsburgh. We think this is absolutely
vital.
As someone who grew up in western Allegheny County, I know
the impact of those maintenance jobs in our community and the
importance to our region that that has. We know that they're
studying their options right now. We hope that United follows
through and is able to give us that commitment.
Finally, I know this was mentioned earlier, and again by
Dr. Taylor, within the Pittsburgh business community, no issue
is certain to raise the ire, when you talk to business flyers,
than the cost of flying out of Pittsburgh International
Airport. It is absolutely one of the highest areas of concern.
I hope that as we look at the merger, that we can also look
at opportunities to provide more reasonable pricing for some of
these flights.
Now, as I note in my testimony, this puts me as an advocate
for business, this puts me in a curious position of objecting
to a private company's right to charge what the market will
bear. That being said, airports are unique business entities,
and we hope that some action can be taken in that area.
I'll stop my testimony there, and I'm prepared to answer
any questions you might have.
[The prepared statement of Mr. Fratto follows:]
Prepared Statement of Tony Fratto
Good Afternoon Chairman Specter and Senator Santorum.
My name is Tony Fratto and I am the Vice-President of Government
Affairs for the Pittsburgh Regional Alliance.
Thank you for giving me this opportunity today to address concerns
related to the proposed merger of US Airways and United Airlines.
I also would like to thank you both for your sincere and persistent
attention to economic development issues affecting our region. Whether
there is a crisis or an opportunity, we have never had to knock on your
doors, because your doors have always been open to us.
Also, the leadership of Allegheny County Chief Executive Jim Roddey
has been instrumental in dealing with this issue. We could not be more
pleased with his energetic and thoughtful representation of our
interests and we stand enthusiastically with him.
As you know, I represent the Pittsburgh Regional Alliance--the
prime business attraction and marketing group in the Pittsburgh region;
the Greater Pittsburgh Chamber of Commerce--our chief business advocacy
group; the Pittsburgh Technology Council--the largest regional
technology trade group in the nation; and the Allegheny Conference on
Community Development--the leading corporate civic group in our region.
By extension I also represent other pro-business, economic development
groups in southwestern Pennsylvania.
In fact, as a shared employee of these groups, I am in a unique
position to outline the concerns of the business community and the
greater economic development community in our region.
The health of Pittsburgh International Airport is vital to the
business and economic development interests of southwestern
Pennsylvania. The airport provides important links for our business
community and jobs for thousands of families. For hundreds of thousands
of air passengers every year, the airport provides the first--and often
the only--window into this wonderful region of ours. Clearly, for the
business and economic development communities of southwestern
Pennsylvania, the airport is a preeminent asset that should be both
protected and allowed to flourish.
I should be clear in nothing that no group I represent has taken a
formal position either in support or in opposition to the proposed
merger of these airlines. However, as you can imagine, news of the
merger has sparked significant discussion and debate. At this time,
each group is in the process of gathering information, educating boards
and membership, and analyzing key data. These groups can be expected to
take formal positions in the near future.
However, in discussions of the merger, agreement is clear on
certain significant points that I am pleased to outline for you today:
The prospect of increasing the number of direct and one-stop
flights to domestic and international destinations from Pittsburgh
International Airport presents a significant opportunity for our
region. Even in the ``New Economy'' there is no substitute for
efficient person to person contact in the business world. Our business
community places great value on the ability to fly to key destinations.
Our recent prolonged, but successful, fight to reinstate a direct
Pittsburgh to London route is an excellent example of the importance we
place on flight access. The proposed merger is expected to result in
significant new flight opportunities--including destinations of high
interest to the high tech community like San Jose, CA; Portland, OR;
and Asia. We strongly support increased destinations and encourage our
political leaders not to ignore the tangible benefits of these assets.
The maintenance and expansion of ``hub'' status for Pittsburgh
International Airport is essential to our economic development efforts.
While there are costs as well as benefits associated with hub airports,
we all agree that the benefits outweigh the costs and stand strongly in
support of retaining this status for Pittsburgh. United Airlines has
publicly stated that they intend to expand and grow Pittsburgh
International as a hub airport. We are hopeful that United is sincere.
Increased flights and the preservation of jobs across the board are
directly tied to our status as a hub airport. The costs associated with
hub status have mainly to do with pricing, and I will address that
issue later.
Each of our groups strongly encouraged United Airlines to build a
maintenance facility to accommodate the new Airbus jets at Pittsburgh
International Airport. Without question, no other issue has been
addressed with more concern or less information. Our local, state and
federal political leaders, as well as labor and community leaders have
all joined in unanimity in attempts to get this deal done. United
Airlines is currently studying their options. We join with you, Senator
Specter and Senator Santorum, our congressional delegation. Governor
Ridge and Chief Executive Roddey, and all concerned parties in voicing
our strong support for a positive decision on this issue. Speaking
personally, as a resident of western Allegheny County all my life, I
know what the economic impact of losing these maintenance jobs will
mean to the viability of communities in that region. We must all be
supremely diligent and persistent in affecting a positive outcome on
this decision.
I earlier mentioned pricing as a cost which mitigates the benefits
of being a hub airport. Within the Pittsburgh business community no
issue is certain to elicit more testimonials of outrage than the cost
of flying from Pittsburgh International Airport. In the interest of
decorum I have omitted some of the more colorful remarks in relation to
this issue, but such descriptive adjectives as ``outlandish,''
``outrageous'' and ``usurious'' are among the more frequent. We all
recognize that higher ticket prices on certain routes is the price we
pay for maintaining flight access. And the business community is
willing to pay a premium for that benefit. As an advocate for business
I am put in the curious position of objecting to a private company's
right to charge what the market will bear. But clearly some effort must
be made to reduce the size of the premium local flyers are forced to
carry.
Finally, any assessment of this merger must include an analysis of
US Airways' future prospects as a healthy and successful enterprise in
the absence of joining with United Airlines. It has been no secret that
US Airways has struggled to be consistently profitable due to a wide
range of factors--not the least of which is the high operating costs of
Pittsburgh International Airport. An objective conclusion could be
reached that US Airways' ability to compete on its own in the current
airline industry is precarious. If this airline were to collapse, the
negative economic impact to the region would be catastrophic and far-
reaching. Speculation as to the benefits or detriments associated with
the proposed merger might require a necessary leap of faith when viewed
in this light.
Business and economic development groups in southwestern
Pennsylvania cooperate to an extensive degree--expecially when issues
of such overarching importance as this proposed merger arise. I can
assure you that we will continue to fight to see that the region's
interests are advanced.
Senator Specter and Senator Santorum, thank you again for holding
this important hearing and for giving me the opportunity to address
these issues. At this time, I am available to answer any questions you
may have.
Senator Specter. Thank you very much, Mr. Fratto.
Dr. Taylor, we'll start with you. You say, obviously
accurately, that the market power on the increase enables the
charging of higher prices, but there's already a large market
share, and that's a matter that should be inquired into very
closely by various governmental agencies or committees of
inquiry.
Could you expand upon that? Just how do those
generalizations apply to this proposed merger?
Mr. Taylor. Well, what studies have generally shown is that
when an airline gains a market share somewhere in excess of 70
percent on a particular route, that that's where things start
to get dangerous, that that becomes close enough to a
monopolized power that they're able to raise hairs about what
the otherwise competitive level would be.
Frankly, my understanding is that when the antitrust
division of the Justice Department looks at a merger like this,
what they first focus on is the way in which it increases
market share on particular routes.
Now, in the case of United and US Airways, there aren't
that many routes out of Pittsburgh where they do compete head
to head. I know there is a Chicago route and some flight to
Dulles that would compete on the Washington routes, but mostly
US Airways dominates that.
So I don't think that's so much the issue. It's just when
you look at this issue from Pittsburgh's perspective, you sure
wish that we could somehow figure out a way to get a little bit
more competition, especially in the east.
And this seems like it's a step kind of in the wrong
direction. Because instead the merger with United worries me
now that instead of having--it's certainly not going to reduce
the competition in the east. And it worries me that it's going
to reduce the competition a little bit going to the west, where
we already are in better shape.
I have no idea, I have seriously no idea what the Justice
Department could do about this if they decide to approve this
merger or if they recommend to the Department of Transportation
to approve this merger.
It's possible they could negotiate or that you, along with
the regulators, could negotiate with United and US Airways some
divestiture here in Pittsburgh similar to what they've already
offered out of Reagan National, but again that's speculation on
my part.
Senator Specter. Mr. George and Mr. Mahone, you're
operating as a tag team here. What suggestions would you have
to try to bring other carriers in, and how can you attract
Southwest to fly to Philadelphia out of Pittsburgh?
Hypothetically I was about to say, but it's not a bad idea.
Mr. Mahone. Mr. George was asking me a question, also.
Senator Specter. Come up on the panel, Mr. George, if
you're going to ask questions.
Mr. Mahone. Mr. George, why don't you begin.
Mr. George. We believe that you must continue to bring in
competition, and the only reason those fares are high is
because we don't have competition on it. We've actively gone
after a number of different carriers, and we are talking with
carriers. US Airways has not tried to dissuade us from that.
Senator Specter. Do you have gates to put them at if you
get them?
Mr. George. Yes, sir, we do. I talked with your staff. We
have 75 total jet gates at the airport right now. We control
ten of those gates. Fifty of those gates are leased to US
Airways, the rest were leased to a number of other carriers,
some of them exclusive.
But we do have control, and we have the capability to
handle both international and domestic flights and expansion.
The facility is uniquely positioned, also, that within
construction time, we can put 25 more gates on.
Additionally, the turns on the gates are a little bit below
the average turns.
Senator Specter. Moving away from the gate issue, what are
the considerations on bringing in another carrier?
Mr. George. Well, I think it's more the consideration on--
--
Senator Specter. A few years back TWA competed with then
USAir, even then Allegheny on the Pittsburgh to Philadelphia
route. What happened with TWA, if you remember, or if you knew?
Mr. George. No, I didn't know that. I wasn't here then at
that time. But we brought in two new carriers--well, one new
carrier, Pan Am, has begun service at Pittsburgh, and they're
running about six flights a day out of here, 12 flights a day.
Senator Specter. To Philadelphia.
Mr. George. Not to Philadelphia. We're talking to them both
about Philadelphia and about Harrisburg. And a vanguard has
begun additional service not only to Chicago, but they started
flying to both Atlanta and Myrtle Beach, and immediately the
price came down.
And we're talking with three or four other carriers. We,
like every other airport in the country, have talked to
Southwest. We've talked with Jet Blue and also Air Tran about
coming in and providing some competition.
Senator Specter. Are there any prospects currently to find
an airline to come in to fly to Philadelphia from Pittsburgh?
Mr. George. No, not at this time, we don't have them. Pan
Am is talking to us about both Philadelphia and also
Harrisburg, but there has not been a commitment made yet.
Senator Specter. Mr. Fratto, do you expect that the
business community will take a formal position on this proposed
merger?
Mr. Fratto. Yeah. I expect that they will. I mean, and just
to add to Mr. George's response, actually the business
community has probably as much fault in this situation as any
other group.
We think of US Airways rightly so as a local company. We
know that they're headquartered in northern Virginia. But with
a number of jobs in Pittsburgh and their corporate presence
here, we think of them as a local company, and certainly the
corporate world thinks of them that way.
When competition is brought in and prices do come down,
ordinarily the business community has seen competitive prices
at US Airways, has always gone back to US Airways and has not
helped competing airlines compete in our market.
I don't know that they've recognized this in the past that
that's the way it works. But they need to participate in that
effort, if there is going to be any effort to bring down the
prices.
If they're comfortable with US Airways or it becomes
United, there is nothing anybody can force them to do, but they
have to look at the macro picture here in how competing
airlines will affect the prices in this market.
Senator Specter. Thank you, Mr. Fratto. Senator Santorum?
Senator Santorum. Tony brings up a good point, and I think
in many respects I am a typical Pittsburgher. If I have a
chance to fly US Airways or United, I fly US Airways. If I have
a chance to fly US Airways or any other airline, I fly US
Airways. Because I try to support the local folks.
And maybe that results in less competition. I don't know.
But, you know, I think we out here in Southwestern
Pennsylvania, you know, are very loyal, and we're going to
support our own hometown folks.
And that probably is in some respects it's a great,
wonderful quality, but it doesn't help you expand the
competition if you're not going to fly to other airlines.
Is that----
Mr. George. That's very correct, Senator. What happens is
that a vanguard will come in. They'll drop their fares. US
Airways will, of course, automatically match them. But like
you, I have my frequent flyer miles with US Airways.
And what we have to do is convince the business community
and the people to fly on the vanguard, fill up their seats,
then go to US Airways, because the minute the vanguard doesn't
make money and leaves is the minute US Airways is going to
increase their prices again.
Senator Santorum. Dr. Taylor, looking at your chart here,
which shows Pittsburgh as higher than any of these other
comparable areas, I see only three of those long list of cities
are also hub airports.
Mr. Taylor. Right.
Senator Santorum. It would be Chicago, Detroit, and
Washington. If you run a similar analysis on looking where we
are with respect to hub airports, number one, number two, why
do you think Pittsburgh is so much higher?
Mr. Taylor. Well, you almost answered your question. The
hub aspect really does matter a lot. If we were to do this same
analysis for all airports across the country, what you discover
is that, you know, having already taken account of the
passenger distance--that's obviously going to matter. The
longer the passenger distance, the higher the fares.
But having taken that into account, people flying out of
hubs do pay more. This is true generally. People out of
Cincinnati pay more, people out of Dallas or St. Louis.
So part of this is the hub. But, of course, that's exactly
the whole point of this antitrust issue. The folks at antitrust
and the Department of Justice are really worried about this,
because the hub and spoke system is an efficient model. It's a
good business model.
But what it can do is when it runs amuck, it can give one
airline simply too much power out of one airport, and then
there is not that much that can be done about it.
The kind of behavior that Mr. George talked about is
illegal, but it's not generally prosecuted.
Senator Santorum. OK; just even looking at those cities
that are hubs, we are higher than anybody else. Is there any
other particular reason, if you would look at other hubs, why
Pittsburgh is highest?
Mr. Taylor. I don't have a definitive answer, but I can
give you a guess. If you look at the other hubs, Detroit,
Chicago, and you mentioned Washington, none of them have
anywhere near as high a dominance of one airline as does
Pittsburgh.
Actually having done this for your committee, I'm going to
use this for my class this fall when I talk about monopoly and
just ask them the question, based on market shares, which would
you predict to have the highest fares? And it will be
Pittsburgh because of the extremely high market share that US
Airways holds.
Senator Santorum. Can I maybe throw another factor in that
at least leads me to think maybe one of the reasons we're
higher, Kent, what percentage of the passengers flying out of
Pittsburgh originate in Pittsburgh, originate or end up in
Pittsburgh?
Mr. Taylor. These are all--I don't know the answer to your
question, but just to clear up the analysis, this is all point-
to-point service.
Senator Santorum. I understand that. That's not the
question but----
Mr. George. About 30 percent to 35 percent.
Senator Santorum. What is average for a hub?
Mr. George. It depends on their O&D market, and in Chicago
it's huge, but in Atlanta it's huge.
Senator Santorum. How about Detroit?
Mr. George. I don't have that answer, but in Charlotte it's
about like us or a little bit less. Charlotte has high fares,
also. But you have the trade-off. We have access to the world.
Senator Santorum. I guess the point I'm trying to make is
when I look at these other cities that we're compared with
here, and I don't know Detroit, but I certainly know Chicago
and Washington. We have a much higher percentage of the
traveling public going to those airports that originate in
those cities.
So I would think that that would have an impact on the cost
of the fares, because you're getting a lot of through traffic
as opposed to origination traffic. Maybe? Maybe not? Yes? No?
Mr. Taylor. It's unclear to me why having through traffic
should make the fares coming out of Pittsburgh higher. So when
I fly to Washington, as you do on US Airways, I'm sure, we're
sitting along with people who have come from Erie and over from
Detroit and who knows where alongside us.
Senator Santorum. Why don't you talk to some people in the
airline industry and see if they can give you a reason as to
why having through traffic as opposed to origination adds to
the cost? Because that is something that I have heard a concern
about this hub.
And one of the big concerns I have about this hub is the
fact that we have a very small percentage, relatively speaking,
to other hubs of originations, and that that does have an
impact on the cost structure of the airline operating out of
that hub.
Mr. George. They charge what they feel that they can
charge, Senator, and what they come through with, when these
planes are literally 70 percent full when they come through
here through the hub, and that's what makes it so efficient,
when the local O&D traffic is sitting here, they're going to
charge what the local market will bear.
And if they lose some of that, in our case it's to
Cleveland or Columbus, or in some cases even to Baltimore, MD,
outside of our catchman area, when they lose that, they're not
losing money, because everything is incremental over and above
that 70 percent.
Mr. Mahone. I would add to that, Senator, that we've been
beating around the bush quite a bit, but I think the critical
component of what has created the situation here in Pittsburgh
is simply market dominance. Without that these fares would not
be as high as they are.
And when you look at other carriers and invite them to come
in and deploy their assets against a monopolistic situation
like Pittsburgh, it's just not attractive.
Senator Santorum. I guess I understand. I guess a couple of
comments--I know my time is up, but Senator Specter is a very
patient man--you're describing to me the current situation, and
I'm looking at an increase in dominance of about 2 percent as a
result of this merger in Pittsburgh, not what I would consider
to be particularly substantial.
And so, again, I come back to the question how does this
adversely affect Pittsburgh? I understand it doesn't get any
better, but how does it adversely affect Pittsburgh?
And I almost feel in some respects when we're talking about
fares coming out of Pittsburgh, we're the guy living in the $2
million mansion in Fox Chapel complaining about our property
taxes. I mean, you've got a $2 million mansion here. I mean,
it's a nice place. You've got great service, you've got all of
these things, and we're complaining how much it costs. Well,
then, you know, build a smaller house.
I mean, but we have a big house here. We've got a big
airport. And it's very expensive. And if we don't have a lot of
people coming in and out of here, in other words, if we don't
have a hub, we've got no way to pay these bonds. Okay?
So I understand the complaints about fares, but I also
understand, you know, this county spent a billion bucks
building this thing for one reason. They wanted a hub. Eyes
wide open as to what that meant with fares.
Mr. Taylor. I think you make an excellent point. So the
answer to your question is the 2 percent doesn't strike me as
making a real big difference, except possibly on specific
routes.
And it really is fair for you folks and for the folks at
Justice to pay attention to those specific routes, so to
Chicago, for example, to Washington, for example. And, you
know, from our perspective, well, 2 percent, that's not a big
deal.
It would be kind of nice to be going 2 percent in the other
direction. So maybe, as part of the merger discussions, US
Airways and United could say, all right, let's see if we can't
do something better for Pittsburgh.
First of all, there is the issue of the maintenance
facility, which you correctly point is a very important issue.
And then maybe they could do something along the lines of what
they're doing at National to bring in additional competition.
But I agree with your point completely, and you're exactly
right, two percent.
Senator Specter. Thank you very much, Mr. Mahone, Mr.
George, Dr. Taylor, Mr. Fratto.
Senator Specter. We now move to our final panel, Mr. Frank
Schifano, Ms. Christine Fox, and Mr. David Guerriero.
Our first witness is Mr. Frank Schifano, currently the
president and chairman of the International Association of
Machinists, Local Lodge 1976, serving his third term as
president and chairman. He represents approximately 2,800
mechanics and related members at the Pittsburgh International
Airport.
Welcome, Mr. Schifano, and we look forward to your
testimony.
PANEL CONSISTING OF FRANK SCHIFANO, PRESIDENT AND CHAIRMAN OF
THE INTERNATIONAL ASSOCIATION OF MACHINISTS, LOCAL LODGE 1976;
CHRISTINE FOX, PRESIDENT, COMMUNICATION WORKERS OF AMERICA,
LOCAL 13302, PITTSBURGH, PA; AND DAVID GUERRIERO, VICE
PRESIDENT, MASTER EXECUTIVE COUNCIL, US AIRWAYS FOR THE
ASSOCIATION OF FLIGHT ATTENDANTS, AFL-CIO
STATEMENT OF FRANK SCHIFANO
Mr. Schifano. Thank you, Mr. Chairman and Senator Santorum.
Thank you for having us here today. I guess this is a benefit
to going last. We got to hear what everybody else had to say
about us.
There has been a lot of testimony regarding how the
proposed merger will affect competition and the service to the
traveling public. Those areas are important, and I believe they
must be addressed.
But in my testimony today I would like to discuss the
effects on employees of both United Airlines and US Airways.
International Association of Machinists and Aerospace
Workers represents nearly 67,000 employees on both carriers.
Our international president has instructed our legal department
to closely examine the proposal and the impact on our members
before we will make a decision as to whether to endorse or to
oppose the merger.
We have many concerns including a fair and equitable
contract, job security, and where will these jobs be located,
as we talked about and had heard many discussions today on.
I appear before you today representing the mechanical and
related group at the Pittsburgh International Airport.
Pittsburgh is US Airways' largest maintenance center in the
United States, and our concern is for its future.
Even though there has been testimony by United officials
that would protect jobs, the uncertainty of where those jobs
are for the IM members of both airlines is a concern of ours.
For 2 years we've been working on a project to build a new
state-of-the-art maintenance facility in Pittsburgh, as we
discussed. We have the support of the Federal, State, and local
elected officials, along with business, community leaders, and
labor leaders, also.
We believe this facility in Pittsburgh would make good
business sense, but would also bring stability to the
Pittsburgh region and would also stabilize United's system.
My belief is that United employees are as concerned with
the seniority of our members and the ability to be displaced as
our members are as to have to exercise that seniority.
The IM understands that there is great potential for future
growth and job security, but our members in both United and US
Airways must be assured of this, and we believe that Pittsburgh
could be the key to this whole puzzle.
With that said, I would like to thank the chairman for the
opportunity to testify before you today.
Senator Specter. Thank you very much, Mr. Schifano.
We turn now to Ms. Christine Fox, elected in June of this
year to serve as president of the Communication Workers of
America, Local 13302 in Pittsburgh.
She's worked for US Airways for 32 years. Local 13302
represents agents of the Pittsburgh Airport, Pittsburgh
Reservation Center, and agents of the Baggage Call Center,
which includes 1,700 union members from the Western
Pennsylvania area.
Thank you for joining us, and we look forward to your
testimony.
STATEMENT OF CHRISTINE FOX
Ms. Fox. Thank you. First of all, I want to thank you for
this opportunity to address the committee. You have some very
important issues regarding this merger.
My name, of course, is Chris Fox. I'm the president,
recently elected, so I'm new at this. You have to forgive me.
Our membership consists of what we term inside or the
public contact workers. These are the gates, ticket counters,
the club representatives, the special assistance workers, all
of those people that you see when you go through the airports,
as well as when you use the city ticket offices.
We also represent the Baggage Call Center, which is not
public, but when you have a problem with your bags, that's who
you talk to, and our reservation center.
Now, our reservations centers are very diversified. We have
specialty desks. We have an international department in
Pittsburgh, as well as the dividend miles awards, part of the
reservations. So there are a lot of specialty job functions, as
well as just making regular reservations.
We also represent Erie--we can't leave them out--Erie,
Pennsylvania, and then our other local is the Philadelphia
local, 13301. It's in the process of being established with
their local officers, and there's about 700 people there.
So although we don't represent the clerical, the trainers,
the various persons at administrative representatives, we are
concerned for them. We want their futures and their job
security here in Pittsburgh, as well.
Many of the jobs at United and USAir are--they share a
common day-to-day operation so mentioned like the dispatchers
earlier. We have the same, similar situations in a lot of our
administrative work in the Pittsburgh area.
These jobs involve industry-specific skills, which if
something were to happen and these people did not have these
jobs here, it would be hard for them to go out in an entry
level position and get a job that pays comparable, has the same
benefits.
Most of our reservations and Baggage Call Center people are
women. If for some reason United decided to keep the
reservation center but to downsize it considerably, a lot of
these women might have the opportunity to transfer to another
city, but probably would not take those jobs because of their
husbands' careers, because of their many family network that
help them with their children.
Single mothers, for example, probably would find it hard to
move, because I know, being a single mother, I have had help
from my family all of the years I've raised my children.
So you have to look at those type of jobs. When they say no
furloughs, that generally means we have offered you a job
somewhere, and it's up to you if you want it or you turn it
down.
That's mainly what I want to put an emphasis on. We've
heard the promises that reservation won't leave Pittsburgh, but
we don't know will it remain as large.
We have 900 people in the reservation center and another 70
in the Baggage Call Center. We don't know where those jobs--are
900 jobs going to stay in Pittsburgh? Are the administrative
people that support us going to remain in Pittsburgh?
So that's mainly our concern. We need guarantees for all of
the jobs here. The effort of the Allegheny County leadership to
secure the proposed maintenance facility for the airport is
important to the security of certain jobs in this area.
We support those efforts. However, we don't want to be the
trade-off for those jobs. We hear the promises that, you know,
the hub will remain a hub. United Airlines insists that they
want to grow the hub, as well as Shelley's promise about
reservations, but we're suspicious of such verbal promises.
We've seen reservations close because of mergers. I've seen
four of them close. We've seen hubs come and go. Cleveland and
Dayton are examples. Baltimore is also an example.
Baltimore and Washington, it was a hub, then it wasn't a
hub. Now it's a hub for Metro Jet.
So, you know, it's nice to say that none of these things
will ever happen, and I know there is no guarantees for life,
but I think we need to see something a little more specific in
their planning, like what they plan to do with certain
departments.
These types of promises we want for our workers in
Pittsburgh, but we want something more solid than just saying
it. There is an anticompetitive impact on the United and US
Airways merger on Pittsburgh.
Granted, Pittsburgh has mostly US Airways and has little
competition, but we control about 75 percent of this market, is
what I've been told.
By way of comparison, Philadelphia would control about 55
percent. United is the second largest competitor----
Senator Specter. Ms. Fox, your entire statement will be
made a part of record. So to the extent you can summarize, we
would appreciate it.
Ms. Fox. OK. all right. Well, I won't go through then--
there are some charts here, but you can look at those later.
All I want to say is that in Pittsburgh we have seen the
various mergers and the impacts. Earlier someone did state
about certain mergers like Koppers and Mellon and different
things. And there is good and bad mergers. We're not debating
that.
But I've seen the effects in communities likes Aliquippa,
Braddock, and Homestead, and many others when they were bought
up by larger companies. They're still struggling to recover.
Many families left their homes, relocated, took their
lifetimes to rebuild their entire careers. Many stayed in the
region. Many homes broke up.
You know, what happens to communities like Moon Township
when something does eventually happen to this hub? We don't
take a position on this merger, but we do want some answers,
and we would like them in writing. And we thank you.
Senator Specter. Thank you very much, Ms. Fox.
[The prepared statement of Ms. Fox follows:]
Prepared Statement of Christine A. Fox
Good Afternoon Senator Specter, Senator Santorum and fellow
Pennsylvanians. Thank you for the opportunity to address the committee
today on our important issues regarding the United/US Airways merger.
My name is Chris Fox. I am the President of the Communications Workers
of America, Local 13302 that represents nearly 1,700 members in the
Pittsburgh region. Nationally, we represent about 10,400 customer
service and reservations employees at US Airways. Our membership
consists of what we term the ``inside'' or public contact workers at
the airport operation. These include: ticket counter, baggage service,
and gate agents; special assistance representatives and US Airways
clubs; five city ticket office locations; the baggage service call
center and reservations. We also represent the US Airways Passenger
Service workers in the Erie Airport. Our Sister local 13301 in
Philadelphia represents another 700 passenger service workers in
Philadelphia, Harrisburg, Allentown, and Wilkes-Barre.
Although we do not represent the many clerical and administrative
employees at US Airways in the Pittsburgh area, we are also concerned
about their futures and job security.
Many of the jobs that United and US Airways share in common are
crucial to the day-to-day operation of the airline. These workers along
with our represented passenger service workers are often long-term
employees who have built their careers from entry-level positions to
the quality, good paying jobs they hold today. Many of these jobs
involve industry specific skills; new jobs with comparable benefits and
salaries would not be available in the area if there were closures or
staff reductions. Many would be forced to relocate or survive on a
lesser standard of living. Most of our reservations and baggage call
center employees are women. If those departments were closed or
downsized, it is doubtful that most would attempt to relocate because
of their spouses' career obligations. Single mothers would have to
consider separating from their network of support of family and
friends. Beyond the personal impact on the affected workers, the
political, economic, and social ripple effect of lost jobs on this
scale would be significant to the region and its development.
We need guarantees for all jobs here in Pittsburgh and not only for
two years. The efforts of the Allegheny County Leadership to secure the
proposed maintenance facility for the airport is important to the
security of certain jobs in the area. We support these efforts.
However, this proposed facility must not be a trade-off for the workers
in the Pittsburgh region.
We hear the promises that the Pittsburgh Airport will remain a hub;
in fact, United Airlines insists that they want to grow the hub. In
addition, Shelly Longmuir, Senior Vice President of International,
Regulatory and Governmental Affairs at United has stated that there was
``no plan to transfer the reservations work in Pittsburgh to another
location.'' This promise is like a ``shell game.'' While the
reservations office may stay in Pittsburgh, what happens to the
specialty desk functions or vice versa? But we are suspicious of such
verbal promises. We have seen reservations centers close as well as
hubs come and go in this industry. Remember Cleveland and Dayton? In
Dayton, US Airways management told our workers to ``go ahead, buy your
new homes, US Airways is here to stay in Dayton as a HUB.'' Within
weeks, the employees got the news, first from the newspapers, that the
Dayton Hub was being eliminated. Baltimore/Washington (BWI) is another
example of a former Hub location. Only when US Airways created Metrojet
did BWI return to Hub status for Metrojet. Are these the type of
promises we want for our workers in Pittsburgh? While we are not
standing opposed to this merger, we want written guarantees of
acceptable job security.
There is an anti-competitive impact of the United and US Airways
merger on Pittsburgh.
The air-traveling public in the Pittsburgh region have very little
choice when they fly. US Airways controls 75% of the market at
Pittsburgh. By ways of comparison, US Airways controls 55% of traffic
at its Philadelphia hub.
United is the second largest competitor to US Airways at Pittsburgh
with 4% market share. Delta is US Airways closest competitor with
nearly 6% market share. The destinations for which consumers have some
choice of airlines are the hub cities of the competing airlines. The
merger between US Airways and United will significantly reduce
competition in the routes between four of United hub cities.
ANTI-COMPETITIVE IMPACT OF MERGER: PITTSBURGH ROUTES
----------------------------------------------------------------------------------------------------------------
US Airways % United % Combined %
Destination market share market share market share
----------------------------------------------------------------------------------------------------------------
San Francisco................................................... 80.1 8.5 88.6
Denver.......................................................... 72.7 13.6 86.3
Los Angeles..................................................... 79.7 5.9 85.6
Chicago......................................................... 44.3 27.2 71.5
----------------------------------------------------------------------------------------------------------------
Increased concentration in market power resulting from this merger
may allow the new United to raise fares and/or reduce the level of
service by consolidating flights and reducing the number of departures
to these markets.
Finally, mergers and buyouts are no stranger to the Pittsburgh
area. There are many stories about our communities and their people
that have suffered through plant closures and downsizing. What happened
to the economies in Aliquippa, Braddock, Homestead, and many others?
They are still struggling to recover. Many families left their homes,
relocated in other states, and took years to rebuild their lives. Many
stayed in the region, but were forced to work several minimum wage jobs
in order to survive bankruptcy. The financial stress from these
hardships and the disruption to what was a prosperous life caused the
breakup of many homes and devastation in the lives of innocent
children. What happens to communities like Moon Township where most of
their businesses are supported in majority by US Airways employees?
As I stated before, we have not taken a position on this merger.
However we are not strangers to adversity. We are hardworking,
dedicated, long-term employees who have suffered: wage freezes, pension
elimination, health care reductions, and three union elections in the
past nine years. After two years of contract bargaining, we have a
ratified contract gaining back some of those losses. We ask for your
consideration and protection. Thank You.
Research Attachments for anti-trust considerations:
Appendix of Tables
airport: pit--pittsburgh, pa
For Year: 99; Mileage Range: All
------------------------------------------------------------------------
Local Connect
Rank/Airline Pax--OUT+IN % Share
------------------------------------------------------------------------
1. US................................... 4,837,890 75.20
2. DL................................... 366,860 5.70
3. UA................................... 242,740 3.77
4. TW................................... 170,820 2.66
5. AA................................... 141,570 2.20
6. NW................................... 130,860 2.03
7. NJ................................... 113,070 1.76
8. RU................................... 96,810 1.50
9. CO................................... 93,990 1.46
10. XJ.................................. 93,630 1.46
11. MQ.................................. 84,420 1.31
12. 9N.................................. 49,140 0.76
13. W9.................................. 10,080 0.16
14. YY.................................. 1,800 0.03
15. HP.................................. 90 0.00
-------------------------------
Total............................. 6,433,770 100.00
------------------------------------------------------------------------
DOT 0&D Table 10/Aviation Data Banks Report #401.
market: pit--pittsburgh, pa/den--denver, co
For Year: 99; Distance: 1,302 nonstop miles
------------------------------------------------------------------------
Local & Connect
Rank/Airline Pax--OUT÷IN % Share
------------------------------------------------------------------------
1. US USAIR............................ 93,690 72.70
2. UA United........................... 17,570 13.63
3. NJ Vanguard......................... 5,610 4.35
4. TW Trans World...................... 4,270 3.31
5. DL Delta............................ 3,430 2.66
6. NW Northwest........................ 2,390 1.85
7. AA American......................... 1,210 0.94
8. CO Continental...................... 710 0.55
--------------------------------
Total............................ 128,880 100.00
------------------------------------------------------------------------
DOT O&D Table 10/Aviation Data Banks Report #403.
market: pit--pittsburgh, pa/sfo--san francisco, ca
For Year: 99; Distance: 2,253 nonstop miles
------------------------------------------------------------------------
Local & Connect
Rank/Airline Pax--OUT+IN % Share
------------------------------------------------------------------------
1. US USAIR............................. 142,470 80.62
2. US United............................ 15,030 8.50
3. TW Trans World....................... 6,120 3.46
4. DL Delta............................. 5,220 2.95
5. AA American.......................... 4,190 2.37
6. NW Northwest......................... 1,910 1.08
7. CO Continental....................... 1,750 0.99
8. YY Unknown........................... 30 0.02
-------------------------------
Total............................. 176,720 100.00
------------------------------------------------------------------------
DOT O&D Table 10/Aviation Data Banks Report #403.
market: pit--pittsburgh, pa/chi--chicago (ord-mdw+cgx), il
For Year: 99; Distance: 404 nonstop miles
------------------------------------------------------------------------
Local & Connect
Rank/Airline Pax--OUT +IN 1% Share
------------------------------------------------------------------------
1.US USAIR.............................. 172,710 44.28
2. UA United............................ 106,110 27.20
3. NJ Vanguard.......................... 77,210 19.79
4. MQ Simmons........................... 30,380 7.79
5. AA American.......................... 1,310 0.34
6. DL Delta............................. 1,090 0.28
7. TW Trans World....................... 870 0.22
8. NW Northwest......................... 230 0.06
9. CO Continental....................... 100 0.03
10. YY Unknown.......................... 40 0.01
11. RU Continental Exp.................. 30 0.01
-------------------------------
Total............................. 390,080 100.00
------------------------------------------------------------------------
DOT O&D Table 10/Aviation Data Banks Report #403.
market: pit--pittsburgh, pa/lax--los angeles, ca
For Year: 99; Distance: 2,125 nonstop miles
------------------------------------------------------------------------
Local & Connect
Rank/Airline Pax--OUT+IN % Share
------------------------------------------------------------------------
1. US USAIR............................. 146,710 79.67
2. UA United............................ 10,910 5.92
3. TW Trans World....................... 9,520 5.17
4. DL Delta............................. 6,890 3.74
5. AA American.......................... 4,910 2.67
6. CO Continental....................... 2,750 1.49
7. NW Northwest......................... 2,400 1.30
8. YY Unknown........................... 60 0.03
-------------------------------
Total............................. 184,150 100.00
------------------------------------------------------------------------
DOT O&D Table 10/Aviation Data Banks Report #403.
Senator Specter. We turn now to our final witness, Mr.
David Guerriero, vice president of the Master Executive Council
at US Airways for the Association of Flight Attendants, AFL-
CIO, representing over 10,000 members at US Airways.
He began working as a flight attendant 14 years ago, was
elected to vice president for a 3-year term representing nine
US Airways. Bachelor of science degree in computer science from
the University of Pittsburgh.
Thank you for joining us, and we look forward to your
testimony.
STATEMENT OF DAVID GUERRIERO
Mr. Guerriero. Good afternoon, Senators. Thank you very
much for giving me the opportunity to speak to you today on
behalf of AFA and the 10,000 flight attendants that I represent
for US Airways.
I am here to testify on behalf of the association and
specifically Lynn Lenosky. President Lenosky sends her
apologies and was unable to attend due to a sudden death of a
family member over the weekend.
In our initial public statement we said that we needed more
details about the proposed transaction before we would pass
judgment on it. That continues to hold true today.
In late June, United management met with our union
counterparts. In that meeting few details were provided beyond
what was already public knowledge. US Airways management hasn't
been forthcoming with details, either. So questions abound.
There are two primary issues facing flight attendants
concerning the proposed merger. And they are negotiations for a
single contract that would cover both US Airways and United
flight attendants, and also United's plans for the treatment of
the wholly-owned subsidiaries.
Those are the US Airways express carriers at PSA, Piedmont,
and Allegheny, which are part and parcel of the purchase of US
Airways Group.
AFA believes that in order to merge the operations of the
airline, negotiations must result in a ratified contract that
covers all flight attendants at the new United.
We are committed at working toward a contract that provides
the flight attendants with the best working conditions, best
rates of pay, and best benefits in the industry, one that
reflects the size and strength of the new United.
We will not approve of this transaction unless negotiations
with United to merge the work groups results in such a
contract. The AFA has been learning from the negotiating
practices of Mr. Wolf and his negotiated contract.
AFA's leadership is also committed to insuring the futures
of flight attendants at US Airways' wholly-owned subsidiaries,
they're treated fairly in the merger process.
We will not stand idly by while United violates any of our
flight attendant contracts, if, in fact, that is their intent.
Merging our seniority list is provided for in the AFA
constitution and bylaws, and we're committed to that process. A
US Airways flight attendant job is protected by a no furlough
clause that lasts throughout the year 2005.
Our seniority is also protected by the Allegheny Mohawk
Labor Protective Provisions negotiated as a part of our
contract. Additionally, our contract is protected with a
successor clause that is binding on the company.
However, we will remain neutral in our assessment of the
corporate transaction until our questions are answered and our
issues are addressed.
The subcommittee should know that the US Airways and the
United flight attendants met in Washington, DC, 2 weeks ago to
discuss the proposed merger. At the conclusion of the meeting,
the leaders resolved to remain fully committed to the principle
that the merger of these airlines must result in working
conditions, rates of pay, and work rules for all members that
are the best in the industry and farsighted in scope.
During our meeting 2 weeks ago, the leadership reaffirmed
our commitment to insure a smooth transaction and effective
implementation of the AFA merger policy and related provisions
of the AFA constitution and bylaws.
The AFA merger policy stipulates that when two airlines
merge, the flight attendants' seniority lists are merged in the
most fair and equitable manner for all using date of hire. But
again we stopped short of endorsing the proposed transaction
and instead passed a resolution that concluded.
Therefore, be it finally resolved that we will withhold our
support for the proposed transaction until we have successfully
concluded that the negotiations necessary tofacilitate the
combination of United Airlines and US Airways Group have resulted in
the best flight attendant contracts in the industry and an acceptable
resolution is reached to protect the future of all flight attendants.
I want to stress that the leadership of all carriers
involved will work together for the mutual benefit and
protection of all AFA members.
I'd like to thank you for the opportunity to speak with you
today again, and I will be happy to answer any questions that
you have.
Senator Specter. Thank you very much, Mr. Guerriero, for
your testimony and for your approach. You want to see exactly
what's going to happen to your membership before you take a
position.
And I think that's what Mr. Schifano said, and Ms. Fox laid
it right on the line. She said that she was suspicious.
What's the difference, Ms. Fox, between suspicious and
skeptical? You don't have to answer that question. But when you
said you want to have it more specifically and you'd like to
have it in writing, that pretty well sums it up, in order to
make a judgment.
And Senator Santorum and the subcommittee and the full
committee and the Senate and the U.S. Government want to make
sure that everyone is treated fairly, that there is not an
oligopoly which unfairly raises prices through market share and
that the employees are treated fairly. And when you talk about
no furloughs, it doesn't mean an, in effect, dismissal because
you're being asked to move somewhere which is unrealistic.
So we intend to keep looking, keep plugging, and we like
what we hear, that you're going to keep looking, too. Because
that's the way to find out exactly what it is so we know what
position to take or where to get the safeguards that will give
appropriate assurances.
Senator Santorum. Thank you, Mr. Chairman, and I just have
a comment, also, and that is I think I've made it fairly clear
from my comments prior to this hearing and my comments at this
hearing that while I have concerns generally about the
traveling public and the fares in service, I frankly don't see
any down side from that perspective of this merger.
What I do see as a potential down side with respect to some
of the employees that you represent here in Pittsburgh, and
that is my focus, and that will remain my focus until that
focus is brought into clarity and I get an answer that is
acceptable to the people at this table. So let's continue to
stay in touch.
Senator Specter. Thank you all for coming today. We will
have another hearing two weeks from today in the Lehigh Valley,
and we will keep looking and keep examining that this proposed
merger makes sense for Pennsylvania and the United States.
Thank you.
[Whereupon, at 2:19 p.m., the subcommittee adjourned.]