[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
EFFECTS OF THE PROPOSED ARRANGEMENT BETWEEN DHL AND UPS ON COMPETITION, 
                    CUSTOMER SERVICE, AND EMPLOYMENT

=======================================================================


                               (110-168)

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 16, 2008

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure




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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             WAYNE T. GILCHREST, Maryland
JERROLD NADLER, New York             VERNON J. EHLERS, Michigan
CORRINE BROWN, Florida               STEVEN C. LaTOURETTE, Ohio
BOB FILNER, California               FRANK A. LoBIONDO, New Jersey
EDDIE BERNICE JOHNSON, Texas         JERRY MORAN, Kansas
GENE TAYLOR, Mississippi             GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland         ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California        HENRY E. BROWN, Jr., South 
LEONARD L. BOSWELL, Iowa             Carolina
TIM HOLDEN, Pennsylvania             TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington              TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington              SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts    BILL SHUSTER, Pennsylvania
TIMOTHY H. BISHOP, New York          JOHN BOOZMAN, Arkansas
MICHAEL H. MICHAUD, Maine            SHELLEY MOORE CAPITO, West 
BRIAN HIGGINS, New York              Virginia
RUSS CARNAHAN, Missouri              JIM GERLACH, Pennsylvania
JOHN T. SALAZAR, Colorado            MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            TED POE, Texas
NICK LAMPSON, Texas                  DAVID G. REICHERT, Washington
ZACHARY T. SPACE, Ohio               CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              JOHN R. `RANDY' KUHL, Jr., New 
BRUCE L. BRALEY, Iowa                York
JASON ALTMIRE, Pennsylvania          LYNN A WESTMORELAND, Georgia
TIMOTHY J. WALZ, Minnesota           CHARLES W. BOUSTANY, Jr., 
HEATH SHULER, North Carolina         Louisiana
MICHAEL A. ACURI, New York           JEAN SCHMIDT, Ohio
HARRY E. MITCHELL, Arizona           CANDICE S. MILLER, Michigan
CHRISTOPHER P. CARNEY, Pennsylvania  THELMA D. DRAKE, Virginia
JOHN J. HALL, New York               MARY FALLIN, Oklahoma
STEVE KAGEN, Wisconsin               VERN BUCHANAN, Florida
STEVE COHEN, Tennessee               ROBERT E. LATTA, Ohio
JERRY McNERNEY, California
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland

                                  (ii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    iv

                               TESTIMONY

Brown, Hon. Sherrod, a United States Senator from the State of 
  Ohio...........................................................     6
Fisher, Hon. Lee, Lieutenant Governor of the State of Ohio and 
  Director of the Ohio Department of Development.................    15
Hammes, Gary, Senior Vice President and Chief Operating Officer, 
  ASTAR Air Cargo, Inc...........................................    35
Hete, Joseph C., President and Chief Executive Officer, ABX Air 
  and Air Transport Services Group...............................    35
Mullen, John P., CEO, DHL Express................................    35
Prater, Captain John, President, Air Line Pilots Association 
  International..................................................    35
Raizk, Hon. David L., Mayor, City of Wilmington, Ohio............    15
Ross, Captain David R., President, Airline Professional 
  Association, Teamsters Local 1224..............................    35
Simon, Samuel R., the American Antitrust Institute...............    35
Turner, Hon. Michael R., a Representative in Congress from the 
  State of Ohio..................................................     7
Wallace, Burt, President of Corporate Transportation, United 
  Parcel Service of America......................................    35

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Carnahan, Hon. Russ, of Missouri.................................    79
Costello, Hon. Jerry F., of Illinois.............................    80
Latta, Hon. Robert E., of Ohio...................................    84
Mitchell, Hon. Harry E., of Arizona..............................    88
Oberstar, Hon. James L., of Minnesota............................    89
Richardson, Hon. Laura A., of California.........................    94

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Brown, Senator Sherrod...........................................    96
Hammes, Gary.....................................................    99
Hete, Joseph C...................................................   114
Mullen, John P...................................................   129
Prater, Captain John.............................................   146
Raizk, Hon. David L..............................................   159
Ross, Captain David R............................................   201
Simon, Samuel R..................................................   218
Turner, Hon. Michael R...........................................   228
Wallace, Burt....................................................   231

                       SUBMISSIONS FOR THE RECORD

Wallace, Burt, President of Corporate Transportation, United 
  Parcel Service of America, supplemental statement..............   243

                        ADDITIONS TO THE RECORD

The Honorable Ted Strickland, Governor of the State of Ohio, 
  written statement..............................................   248
The Honorable George V. Voinovich, a United States Senator from 
  the State of Ohio..............................................   250

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HEARING ON THE EFFECTS OF THE PROPOSED ARRANGEMENT BETWEEN DHL AND UPS 
            ON COMPETITION, CUSTOMER SERVICE AND EMPLOYMENT

                              ----------                              


                      Tuesday, September 16, 2008

                  House of Representatives,
    Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:15 p.m., in Room 
2167, Rayburn House Office Building, the Honorable James L. 
Oberstar [Chairman of the Committee] presiding.
    Mr. Oberstar. The Committee on Transportation and 
Infrastructure will come to order.
    I see we have a very lively interest and apparently a very 
long line of people outside. I hope there is accommodation for 
them in the Subcommittee hearing room to follow the 
proceedings.
    In the interest of time, I will make an opening statement 
and frame the issue in its broadest strokes, then yield to the 
Ranking Member, Mr. LaTourette, and we will go directly to 
witnesses. I will ask Members to use their five-minute time to 
make their own usual comments.
    In light of the late start, because of the length of the 
previous hearing, I want to get right to the subject matter on 
the effects of the proposed arrangement between DHL and UPS on 
competition, on customer service and on jobs.
    DHL Express and UPS announced that they intend to enter 
into an agreement for UPS to provide airlift services for DHL's 
domestic express and international package volume in the U.S. 
and between the U.S. and Mexico, the U.S. and Canada.
    The two are competitors in air express service. Packages 
are picked up by trucks, moved by air, delivered again by 
truck.
    Over the past several years, DHL has contracted with other 
air carriers, ABX and ASTAR, to do the airlift portion of their 
service. DHL has said that this agreement is the only way it 
can continue to maintain its presence in the U.S. market in 
view of their losses, some $3 billion in losses since 2003.
    But concerns have been raised about the anticompetitive 
effect that the proposed UPS/DHL deal would have in the air 
express market. Furthermore, Members of Congress from Ohio 
particularly and those in the Wilmington, Ohio, area where the 
DHL hub is located are concerned. Not only concerned, they are 
stunned by the loss of thousands of jobs and local revenue.
    I understand that. We have had iron ore mining facilities 
close in my district. We have gone from 16,000 jobs in mining 
down to 1,800 in 18 months, and the devastation that produces 
on local economies is painful.
    So far, there has been no concrete agreement between DHL 
and UPS, and it may not be consummated for yet another few 
weeks.
    As you look at this proposition, it is probably the most 
complex operating and financial arrangement in the post-
deregulation era of aviation. I will attempt to lay out just 
the highlights of the issue.
    DHL is an important but not the largest competitor in the 
air express market. In 2007, that market was $32.8 billion. 
FedEx had 43 percent of the market; UPS, 32 percent; DHL, 8.5 
percent; U.S. Postal Service, 2.8 percent.
    But it has not been growing. The express market has 
stagnated or slipped. The daily package volume in the U.S. is 
now at 6.6 million shipments a day, and that is down just under 
2 percent from last year and 5 percent below its 2000 peak.
    Now that is attributable to downturn in the national 
economy, to the internet for transmission of documents, to jet 
fuel prices, a host of other business factors.
    But if you look forward, if the agreement were consummated, 
clearly from what I have heard from my colleagues and then 
independent review, it would devastate the economy of the City 
of Wilmington. Air Park is the largest employer in southwest 
Ohio, 9,000 jobs alone: 725 employees of ASTAR, 1,200 DHL, 
7,000 ABX employees.
    Competition in the express delivery market may also be 
adversely affected if the deal is consummated. Various 
observers of the scene, those who are not directly affected, 
have said that it potentially could violate antitrust statutes 
that prohibit agreements that result in restraint of trade, but 
this is a different kind of an arrangement.
    It is not a merger. It is not an acquisition. It is not 
subject to Hart-Scott-Rodino. So the parties are not required 
to file documents for pre-implementation review under the 
antitrust statute.
    Therefore, the Ohio congressional delegation and the State 
of Ohio have been frustrated in their attempt to get a better 
understanding of or respond to the situation.
    Now this doesn't mean that the Department of Justice cannot 
review the agreement to determine whether there are 
anticompetitive effects, but I think we have a somnolent 
Department of Justice.
    Others have said if you allow DHL to outsource airlift to 
UPS, a competitor, DHL then would be captive to UPS in terms of 
capacity, price and customer service. Airlift is about 60 
percent of the cost of shipping a package overnight. So, if you 
lose a significant percentage, then an important part of DHL's 
costs will be controlled by UPS.
    DHL could lose the ability to price its services so as to 
compete realistically with both UPS and FedEx, a condition 
called price squeezing. Either way, DHL could well go out of 
business, leaving the market in a duopoly condition. UPS will 
control capacity on its aircraft, and if DHL is not guaranteed 
space its ability to ensure on-time arrivals will be hampered.
    If the industry is reduced to two major express carriers, 
competition would be reduced, prices will go up.
    When established carriers control markets, the tendency is 
for carriers to follow each other's pricing rather than really 
compete with each other. We have seen that in the passenger 
market. So, if DHL is neutered in the marketplace, then UPS and 
FedEx will have less incentive to compete with one another, 
increasing the price for express delivery packages.
    I think those are the broad issues that frame this inquiry 
today.
    With those remarks, I yield to the distinguished gentleman 
from Ohio, Mr. LaTourette, for a comment. Then I see the 
Ranking Member of the Aviation Subcommittee has arrived, and we 
will hear from him.
    Mr. LaTourette. Thank you, Mr. Chairman, now that I am back 
in the cheap seats.
    Mr. Chairman, I want to thank you for having this hearing 
and as a testament to the bipartisan nature in which you deal 
with any issue dealing with transportation in the United States 
of America. As I said on the day of your elevation to the 
Chairmanship, none of us on the Republican side would have 
chosen to be in the Minority, but if we had to we are glad that 
you are the Chairman of our Committee.
    I also want to single out for praise my colleagues from 
Ohio, although Wilmington is a little bit south from 
northeastern Ohio. When this matter, which really is going to 
have catastrophic consequences to Wilmington, Ohio, came to the 
attention, two public figures--among others but also above 
others--Congressman Mike Turner of Dayton and our junior 
Senator, Sherrod Brown, really stepped into the fray and are 
attempting to move heaven and earth to find a resolution for 
those who are about to be displaced.
    Credit also goes to our former colleague, Governor 
Strickland, and his Lieutenant Governor, Lee Fisher, who have 
been intimately involved and have looked at everything, I 
think, that they can possibly look at from the State side.
    This is troubling issue. It is troubling because about 
12,000 people have the potential to lose their job, but it also 
has to be considered in sort of a world view.
    If you look at what has happened to the price of fuel, jet 
fuel being included, there is not a lot of money being made 
today in the air freight business. As a matter of fact, the 
United States Postal Service, which is also in the air freight 
business, is looking at closing a number of its air terminals 
because it has turned out to be not the moneymaker they thought 
that it, in fact, was going to be. And so, anything that we 
discuss has to be discussed in terms of where we are with the 
cost of fuel in this Country.
    It is my understanding also and I think the Chairman 
rightly says that there is no agreement between DHL and UPS at 
this moment in time. So, therefore, it is tough to determine 
whether or not it runs afoul of something when we don't even 
know what it says.
    Just from a business standpoint, I guess I understand UPS's 
position, and that is they have excess capacity at their 
facility in Kentucky and why wouldn't they want to use their 
assets to full capacity.
    The difficulty that I have, I think, in this case is with 
DHL, the German almost owned, German-owned company, 100 percent 
owned by the Germans, in that it is my observation from just 
looking at the facts that they made a bet. They made a bet that 
somebody in the Congress was going to blink on the ownership of 
American Airlines, and when they didn't blink it thwarted their 
plans to go from a minority shareholder--and I get them 
confused, whether it is ASTAR or ABX--to actually taking 
control. That then has sort of led to a downward spiral.
    But whatever the situation, wherever the fault lies, I 
think that is incumbent upon this Congress to join with the 
State of Ohio and do whatever we can to alleviate the suffering 
that is going to occur in Wilmington.
    And, the reason I am glad it is here in this Committee is 
this is an issue that doesn't have anything to do with 
politics, Mr. Chairman, but I was down in southern Ohio two 
weekends ago for my nephew's wedding, and I saw an 
advertisement that somehow this business in Wilmington, Ohio, 
is John McCain's fault.
    It is not John McCain's fault. It is not Barack Obama's 
fault. We will perhaps determine whose fault it is, but to 
suggest that it is the fault of one party or another to get 
somebody elected or not elected to become the next President of 
the United States, I think is disgusting.
    Quite frankly, even though I don't come down on this side 
of the issue, if this Congress had accepted this 
Administration's recommendation on the foreign ownership of 
airlines, perhaps DHL wouldn't have made this decision and 
10,000 people wouldn't be losing their jobs.
    So I hope we take it out of politics and we put it back 
where it belongs, and that is let's make sure that we do 
whatever we can with whatever resources we have to help these 
folks that are looking at a very bleak feature.
    I thank you, Mr. Chairman, and yield back.
    Mr. Oberstar. I thank the gentleman.
    I certainly concur. This is a business proposition that we 
need to examine from the standpoint of its effect on the 
economy and its effect on international aviation and trade in 
cargo.
    Now the distinguished Chair of the Aviation Subcommittee, 
Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you.
    Mr. Chairman, in the interest of time so that we can get to 
our first panel, Senator Brown and Congressman Turner, let me 
be very brief. I will insert a statement in the record.
    I, obviously, have some of the same concerns Mr. LaTourette 
and you share concerning the employees, what it does to the 
local economy, the competition in the industry, and in 
particular I am interested in hearing from Mr. Simon concerning 
the pros and cons of this proposed arrangement for both 
consumers and for the employees. So I look forward to hearing 
his testimony and the testimony of the other witnesses.
    I thank you, Mr. Chairman.
    Mr. Oberstar. I thank the gentleman.
    Mr. Petri, the Ranking Member and Ranking Member of the 
Subcommittee on Aviation.
    Mr. Petri. Thank you very much, Mr. Chairman. I, too, am 
looking forward to the testimony of our witnesses today, and I 
thank you for holding this timely and important hearing.
    It is essential that we focus on the financial issues 
facing the airline industry right now, not least of which is 
the unprecedented price of jet fuel over the last few months 
and its impacts on air carriers, both passenger and air cargo. 
These difficult financial times have pushed many air carriers 
to make difficult business decisions and to pursue cost-cutting 
and revenue-generating actions.
    In fact, DHL has cited a decline in air express volume and 
increased operating costs, especially jet fuel expenses, as a 
reason that they are pursuing the significant steps that are 
the subject of today's hearing.
    As part of their plan to address their ongoing losses, in 
May, DHL announced that it will work together with UPS toward 
an agreement to have UPS provide airlift to all of DHL's 
express, deferred and international package volume within the 
United States. DHL's airlift service has been and currently is 
provided by two small air carriers, ABX and ASTAR.
    It is not surprising that since the proposed transaction 
was announced, aviation experts, labor groups, affected 
communities and other interested parties have commented both 
for and against this potential arrangement. Indeed, the 
proposed arrangement's impact on the marketplace competition, 
customer service and employment have been the subject of much 
speculation.
    While the potential agreement between DHL and UPS is still 
being negotiated, it has generated great concern particularly 
among those who could be the most impacted: ABX, ASTAR and the 
communities such as Wilmington, Ohio, where many, many good 
jobs could be lost.
    This concern is understandable and, given the potential 
impacts of this agreement, it is both important and necessary 
for this Committee to fully explore the proposed transaction.
    At the same time, DHL has cited that the agreement and 
restructuring is necessary to address over $1 billion in annual 
losses. The future of DHL operations in the U.S. also must be 
considered.
    Today, we have before us, representatives of the interested 
groups to testify about the proposed DHL and UPS agreement. I 
look forward particularly to hearing from my former colleague 
and now Senator, Sherrod Brown from Ohio and Representative 
Mike Turner and welcome them here today. I also look forward to 
the testimony of Lieutenant Governor Lee Fisher and Mayor David 
Raizk.
    Finally, we will hear from all four of the air carriers 
involved--ASTAR, ABX, DHL and UPS--two pilot union 
representative from the American Antitrust Institute.
    Again, I look forward to hearing the testimony of all those 
who are appearing today and thank you again, Mr. Chairman, for 
having this hearing.
    Mr. Oberstar. I thank the gentleman.
    And now, we will proceed with the testimony from our first 
panel, Senator Sherrod Brown, a former House colleague--he got 
good training over here in the House and went over to raise the 
caliber of the United States Senate--and Congressman Mike 
Turner, Representative of the area most directly affected.
    We thank both of you for your advocacy for this hearing and 
the concerns expressed so adroitly.
    Senator Brown.

   TESTIMONY OF THE HONORABLE SHERROD BROWN, A UNITED STATES 
                 SENATOR FROM THE STATE OF OHIO

    Senator Brown. Thank you, Mr. Chairman, and thank you. I 
concur with the words of my friend, Steve LaTourette, about 
your Chairmanship. Thank you for that.
    And, Ranking Member Petri and Chairman Costello, thank you.
    And, Steve LaTourette, thank you for your always support on 
transportation issues.
    I would thank the Ohio Members especially here, Jean 
Schmidt and Zach Space and Bob Latta, for their work on this 
issue. I have seen just terrific support from both houses 
including my senior colleague, Senator Voinovich, and the 
entire delegation in both parties.
    I especially thank Representative Turner who has absolutely 
led the charge on this issue and has really stepped up.
    We both were sort of laughing--that may be the wrong word--
with many of the pilots who are here in the room behind us 
today, that DHL did not expect this kind of community 
opposition and opposition from people who represent this 
community to this decision. It did sort of strain credibility, 
but it is pretty clear how important this is to all of us.
    Also, a special thanks to the Governor and to Lieutenant 
Governor Fisher who have been in there every day on this issue 
and Mayor Raizk who has just always been on the phones, meeting 
with people, doing whatever he had to do to fight for these 
jobs, and the leadership of Teamster Local 1224, Captain Ross, 
and the Air Line Pilots Association, Captain John Prater and 
the other pilots that are here today.
    Last week, Mr. Chairman, in the House Judiciary Committee, 
we learned that DHL voluntarily went before the Justice 
Department, which we appreciate. Yet it will not submit itself 
to a voluntary investigation and plans, it says, to consummate 
the deal regardless of the status of the investigation.
    That makes it very difficult for the Justice Department to 
do its work, to examine the deal from the customer's 
perspective. I hope both companies will reconsider and allow 
the Justice Department to investigate and not consummate the 
agreement until the government completes that investigation.
    I am particularly disturbed that DHL's confidentiality and 
exclusivity agreement with UPS to complete this contract limits 
it from alternative structures that can keep DHL competitive, 
that can benefit consumers and that can keep jobs in our State.
    Specifically, DHL embarked on this proposal with UPS before 
really engaging the incumbent carriers, ABX and ASTAR, in an 
effort to reduce costs. ABX and ASTAR have ideas. They had 
plans. They had proposals. But DHL chose this course before 
talking with the Governor about ways the State might help DHL 
cut costs.
    After not choosing to work with its partners, DHL went 
ahead and bound itself to a confidentiality and exclusivity 
agreement with UPS.
    Considering the lengths the State of Ohio went some four 
years ago when DHL bought Airborne, the lengths the State went 
to and surrounding communities took to welcome DHL to 
Wilmington including some $400 million in direct and indirect 
incentives, DHL's behavior is hardly a model of corporate 
responsibility.
    All of this raises several questions which I don't think 
have been answered:
    How can DHL, under this proposal, lower prices or improve 
service?
    How can DHL prevent UPS from manipulating costs and 
service?
    How does DHL prevent UPS from obtaining sensitive 
information on customers and pricing?
    Congress also needs to understand how DHL took Airborne 
Express, a company in southwest Ohio that was profitable, and 
in just four years generated staggering losses while DHL in 
Germany and Europe overall has been a very, very profitable 
company. As you know, it is owned by Deutsche Post, the former 
German privatized post office, a very profitable company in 
Europe--not so, supposedly, in the United States.
    When DHL purchased Airborne Express in 2003, it had an 18 
percent market share. By last year, its market share had 
dwindled to about 7 percent.
    The ripple effects of this proposed deal, Mr. Chairman, if 
it goes forward would reach beyond, as Mr. LaTourette said, the 
financial hardship it would create in Ohio. The final result 
may leave a mark on how our government approaches something 
that I know you are so concerned about, Mr. Chairman, the next 
stage of the U.S./E.U. Open Skies Initiative which aims to 
loosen existing rules and regulations and restrictions on E.U. 
air carriers operating in our Country.
    Its proponents claim that these negotiations ultimately 
will create thousands of U.S. jobs and benefit our Nation's 
economy enormously. Ohioans have heard this before five years 
ago.
    So, Mr. Chairman, I will close with we certainly want DHL 
to stay in Ohio. We want them to be successful. We want to work 
with them. We want them competing in this market.
    We want the 8,200 Ohioans, many of whom are represented 
here today, to continue working, continue being the productive 
employees they were, many of them, for Airborne prior to five 
years ago and all of them the productive employees they have 
been for DHL in the last year or two or three.
    Thank you, Mr. Chairman.
    Mr. Oberstar. Thank you, Senator.
    Congressman Turner, welcome.

TESTIMONY OF THE HONORABLE MICHAEL R. TURNER, A REPRESENTATIVE 
               IN CONGRESS FROM THE STATE OF OHIO

    Mr. Turner. Thank you, Mr. Chairman. I greatly appreciate 
your holding this hearing today and your great summary as we 
begin the discussion on this matter because you really laid out 
some of the important issues that we need to address in this 
hearing.
    I also want to thank Senator Brown for his hard work and 
leadership on this issue and Senator Voinovich who has 
submitted written testimony.
    We also want to recognize the Ohio delegation Members--
Space, Schmidt, LaTourette and Latta--and, of course, 
Congressman LaTourette's leadership post on this Committee.
    And, Lieutenant Governor Fisher and Mayor Raizk, we 
appreciate their participation.
    We even have the support of the two presidential 
candidates. Obama and McCain have both weighed in, indicating 
that this transaction deserves greater scrutiny.
    Last week, we had a hearing before the Judiciary Committee. 
Chairman John Conyers, upon hearing testimony, said that he 
believed there were further questions that even his Committee 
wanted to look at, and he asked for the two parties to hold off 
on the transaction until his Committee could move forward.
    We are certainly hopeful that as you all hear today this 
testimony, that additional questions that you might have could 
be addressed in the future.
    This has been a bipartisan issue, and Mr. Chairman, I 
appreciate your elevating it before your Committee today.
    Wilmington, Ohio is in my district, and I want to tell you 
a little bit about the people that are there. This facility is 
not closing because of the people that are there. They are 
hardworking, they are professional and they are committed.
    This facility that is being subject to possible closure 
operated at a profit prior to DHL's acquisition and its 
operation.
    Professions in this community will be lost. Homes are at 
risk. Dreams are at risk. The ability to send children to 
college is at risk.
    In a nine-county area around Wilmington, Ohio, people send 
family members to this facility in order to obtain health 
insurance. Families' farms and small businesses depend on the 
health insurance that is offered at this facility.
    Additionally, non-profits and community service 
organizations will be impacted.
    Mr. Chairman, I would ask that I would be able to submit 
written testimony from Mary Houghtaling, who is President and 
Co-Founder of Community Care Hospice in Clinton County, which 
speaks of the issue of the impact on small business and non-
profits in the area.
    Mr. Oberstar. Without objection, so ordered. The document 
will be received for the Committee record.
    Mr. Turner. Thank you, Mr. Chairman.
    But today I wanted, with the others, to outline for you 
what is bad for the U.S. consumer and what is bad for the U.S. 
air cargo industry.
    If you go back just four years ago and view this as a 
stepped transaction, you have a very different picture of the 
U.S. air cargo industry.
    Four years ago, there would have been five major carriers 
that were operating. UPS acquired Emery which disappeared. DHL 
acquired Airborne which operated at the facility that they are 
now attempting to close, which disappeared. And now with DHL 
and UPS looking to combine their operations, we are going to go 
down to with what was five to two operators in the U.S. market.
    But don't just stop there. You also need to look at what is 
going on in the European market. The Atlanta Journal-
Constitution reports that of the three major carriers in 
Europe--UPS, TNT and DHL--they say UPS and TNT, number three 
and number two, are in negotiations for a merger. That would 
mean that in Europe, where there were three major, they are 
going down to two.
    But, in reality, it will be one because if you go to send a 
package in Europe to the United States and you go into a UPS 
office or a DHL office, you will in effect be dealing with the 
same company, the combined operations which we will see in our 
market.
    So what else is bad for the U.S. economy if this occurs 
besides this consolidation? Well, there are huge barriers to 
entry in this market. What is an industry that grew slowly now 
is an industry that requires full integration and logistics 
throughout the Country.
    No one else will be able to now enter the market where this 
consolidation has occurred. So we have consolidation and we 
have preventing further competition.
    Once they have market control, what will happen? Well, they 
can limit service, and they can affect price.
    What are some of the things that we do know? Well, I met 
with DHL officials in my office, and here are some of the 
things that we do know about this:
    Their computer systems will have to be integrated because 
they will have to talk to one another as they go through 
sending packages of their various volumes.
    Their costs will have to be coordinated because DHL will 
basically become UPS plus.
    I also asked them, the DHL representatives, is it possible 
that this strategic alliance that they are forming with UPS, 
could it involve also their Asian and European markets, and 
they indicated that it could.
    So what do we need to know? We need to know:
    Why would UPS and DHL agree to this?
    How did DHL take Airborne, a prior business that was 
profitable, and generate losses?
    What is the future relationship with DHL? Is this just the 
start?
    And what does it mean for the 10,000 people who are 
Wilmington?
    Is UPS in negotiations to acquire others? Is DHL?
    I recently had a conversation with the German Ambassador to 
the United States and discussed with him the issue of the 
proposed or possible UPS acquisition of TNT, and he indicated 
to me that perhaps if UPS and DHL combined here that it would 
affect other approvals for UPS in Europe in the future. That is 
something UPS needs to consider.
    Usually when something doesn't make sense to me, I think 
that something else must be going on. In this instance, I 
believe this is a de facto merger.
    Why else would DHL hand its clients to UPS?
    Why would DHL agree to a cost structure that will become 
basically UPS plus?
    If DHL is going to share its information with UPS, why 
wouldn't UPS steal DHL's clients?
    Why would anyone choose DHL when everyone would know that 
they are a front office then for UPS?
    And why is there no deal for us to scrutinize? Why aren't 
they able to place before us the transaction?
    Well, to me, if it doesn't sound right, it probably isn't 
right.
    I would like to conclude with a paragraph that I put in an 
op-ed piece that I had in the Cincinnati Inquirer:
    All of this should be unnecessary. If DHL lived up to its 
promises to Ohio and to the Town of Wilmington, we all would be 
focusing on how to make DHL more successful.
    Wilmington's past support for DHL should count for 
something. The surrounding community accepted DHL's vision of a 
global company operating in their back yards and understands 
that DHL must curtail its losses.
    However, usually when a company is losing money, they fire 
someone. They don't fire a whole town.
    Now, in this instance, DHL is going to come forward and 
they are going to tell you that they are losing a lot of money.
    I have to tell you that I believe that bad management is 
never an excuse to allow market consolidation. DHL has an 
opportunity to put its house in order without doing harm to the 
U.S. economy and the U.S. shipping industry.
    I guess now that we know that maybe there is a difference 
with DHL. Perhaps the letters of DHL stand for Do Harm and 
Leave.
    Thank you, sir.
    Mr. Oberstar. That was very powerful testimony from both 
the witnesses.
    Is there any set of circumstances that either of you can 
conceive of under which, with a contractual arrangement, where 
the air services of DHL could remain competitive in Wilmington?
    Mr. Turner. Yes. DHL acquired Airborne. As you recall, DHL 
was operating its own facility down in Cincinnati, and Airborne 
was operating there in Wilmington.
    When they acquired them, Airborne was profitable and had 
not generated the losses that DHL had. Certainly, DHL would 
have an ability to manage its resources so that it does not 
have these losses.
    Now they have mentioned frequently that their inability to 
own their own airline may contribute to their losses. But even 
so, they have publicly estimated that of the $1.3 billion that 
perhaps they lost from bad business decisions, only $300 
million may be attributable to not actually owning their own 
airline.
    While this deal has been going forward with UPS, 
contractually UPS and DHL have entered into an exclusivity 
agreement prohibiting their current carriers from even making 
proposals to them. So we don't have the ability to give 
scrutiny to what their other options are because those 
negotiations have been thwarted.
    Senator Brown. I would add two things, Mr. Chairman, where 
I agree with Congressman Turner.
    One is that my conversations early in this process with ABX 
and ASTAR is that they have in fact made approaches. Because of 
the agreement that Congressman Turner mentioned, they have been 
rebuffed.
    Second, we know that DHL has been a very profitable company 
in Europe. We are not so sure. We have not been able yet to 
determine if they have moved profits and losses on paper across 
the ocean, one to the other, but there is some evidence that 
when a flight goes from the United States to Europe they may, 
in fact, credit some of the losses to the U.S. division and the 
gains to the European part of DHL. We are looking into that.
    To run up those kinds of losses after the profit that they 
enjoyed, that Airborne enjoyed just five years ago certainly 
raises some questions.
    Mr. Oberstar. Thank you.
    Mr. LaTourette.
    Mr. LaTourette. I don't have any questions.
    Mr. Oberstar. No questions. Any questions?
    Congressman Space.
    Mr. Space. Thank you, Mr. Chairman.
    I would like to thank Chairman Oberstar and Ranking Member 
Mica along with Subcommittee Chairman Costello and Subcommittee 
Ranking Member Petri for facilitating this important hearing 
today. It means a lot to me. It means a lot to the other 
Members of the Ohio delegation, and it means a lot to the 
people of Ohio.
    I would like to thank Lieutenant Governor Fisher, Senator 
Brown, Representative Turner, Mayor Raizk and others for 
testifying today.
    I certainly thank Governor Strickland in his absence for 
his interest in this issue.
    I think their participation in this hearing and their 
actions so far have demonstrated the commitment that the people 
of Ohio have to handling the various problems caused by this 
transaction.
    I am hoping that this hearing will shed some light on this 
merger that will harm not only thousands of families in Ohio 
but also millions of business and individuals that ship 
packages every year.
    If this deal goes through, the loss of jobs to Ohio are 
enormous. Southern Ohio's economy is already much worse than 
most areas of the Country, and this decision will exacerbate an 
already very difficult economic situation, difficult in a 
number of senses.
    We have seen a steady evaporation of our manufacturing base 
in Ohio. We have faced numerous infrastructural challenges. We 
have a glaring lack of access to health care, education and 
technology.
    Our wage scales have become stagnant. Our unemployment is 
rising much faster than the national rate, and poverty is 
running rampant, poverty that exceeds 30 percent in some of the 
counties of my district, poverty in all of its manifestations 
which include hunger and homelessness and addiction, crime and 
even the breakdown of the traditional family unit.
    It is precisely because of these conditions and these 
challenges in Ohio that this company was offered such an 
attractive incentive package just a few years ago. Well, we 
don't know the full extent of that incentive package today, but 
it ranges between 100 and 400 million dollars.
    And now, DHL is, in a sense, closing its doors under a veil 
of secrecy and in the dead of night.
    Using what they refer to as a confidentiality agreement, 
they are refusing the State of Ohio's offer to come in and 
provide assistance and any means necessary or, at the very 
least, mitigate the effects of this action on those thousands 
of employees whose lives will be affected. I find that action 
both offensive and insulting.
    We need to get to the bottom of why DHL has turned its back 
on Ohio, whether DHL has done anything improper and how this 
transaction will affect American consumers, the cargo industry 
and the State of Ohio. Ultimately, I hope DHL will reconsider 
alternatives to its plans with UPS.
    Thank you, Mr. Chairman.
    Mr. Oberstar. I thank the gentleman.
    Congresswoman Schmidt.
    Mrs. Schmidt. Thank you, Mr. Chairman. I do want to thank 
you for holding this hearing. I will echo Mr. LaTourette. I am 
glad, since we are not in the Majority, that you are at the 
helm. You are really guiding the ship in a very fair and 
nonpartisan way.
    I also want to thank Senator Brown for coming forward on 
behalf of the citizens of Ohio and, of course, my dear 
colleague, Congressman Turner, who is majorly affected by this.
    My district is also affected. About 750 jobs are affected 
if DHL pulls out.
    But really my concern here is something that Congressman 
Turner echoed too, and I would like him to explain it a little 
bit more carefully for everyone to fully understand what I 
think is going on here.
    Like, Congressman Turner, when it doesn't smell, it is not 
right. It is like when you open up milk, and it is all curdled 
at the top, that is not necessarily cream.
    I don't think this is cream here. I think there is 
something else afoul, and I really think that what DHL wants to 
do is to force this into a duopoly situation, jacking up the 
prices and making this unfair for not just the consumers here 
in the United States but the consumers across the globe as 
well.
    That is where the Department of Justice really needs to 
enter the situation.
    But, Congressman Turner talked about UPS's intention with 
TNT, and I would like you to kind of explain that a little bit 
more fully to all of us because it is something I wasn't aware 
of until you brought it forward just a few minutes ago.
    Mr. Turner. Well, the Atlantic Journal-Constitution 
reported that UPS is in these negotiations to acquire TNT.
    Mrs. Schmidt. TNT stands for?
    Mr. Turner. I am not certain, but they listed it as number 
two in the carrier service industry for Europe. They listed UPS 
as number three and DHL as number one.
    What I think the whole point of that is, is this will not 
be the end of consolidations. So that if you view this as these 
two companies are, in effect, merging, what will be the 
evolution in this industry where we go down to what will be two 
in the United States and perhaps two or one in Europe?
    You have to look at it as a stepped transaction to see what 
the total impact will be on the market.
    The concerns for the market are, obviously, their ability 
to affect service, their ability to affect price because once 
people get control over a market they have ability to say: Your 
town is too small; we are not going to serve you. Your area is 
not profitable; we are not going to serve you.
    Or, the ability to discriminate through price and to affect 
other competitors.
    What we are seeing is that through this consolidation they 
will gain that ability, and that is what our concern needs to 
be.
    The human story of the 8,000 jobs that are being lost in 
southwest Ohio certainly tells the compelling nature of the 
immediacy of the need for review, but the most underlying 
important issue is that this is bad for the U.S. economy, bad 
for the U.S. consumer and bad for this industry to see this 
level of consolidation.
    Mrs. Schmidt. May I have a follow-up?
    Also, Congressman Turner, I believe it was in your 
testimony, you talked about the fact that if DHL has this 
arrangement with UPS, there is not going to be able to be a 
firewall between the two of them regarding price.
    Maybe you could expand a little bit on what happens when 
the bar code label is put on a package and how that bar code 
may be expanded when it goes through the processing center so 
that whoever is processing it can make sure that the proper 
price is being paid for the actual shipment of it, which what I 
believe then--correct me if I am wrong--is it makes it 
painfully aware to UPS exactly what DHL is charging so that 
they can know what price point is there.
    Mr. Turner. That is an interesting point because DHL and 
UPS allege that they are going to continue to compete with each 
other as independent companies.
    But in order to consolidate their logistics of the airlift, 
so to speak, their computers system are going to have to be 
linked because if I send a package through DHL and they drop it 
off at UPS and I want to know where it is, it is not just going 
to go in this black hole of nothingness. UPS is going to be 
communicating to DHL. DHL won't just say to me, call UPS.
    In a way, that shows that the data between the two 
companies will be shared. UPS will know volume, destination, 
perhaps pricing. They certainly will know cost.
    Those are all the elements necessary to know what your 
competitor is doing. They are the types of things that you 
would get in a merger.
    Mrs. Schmidt. Thank you. I have no more questions.
    Mr. Oberstar. Do others have questions?
    Mr. Arcuri.
    Mr. Arcuri. Thank you, Mr. Chairman. I have a question.
    You indicated that Airborne was running at a profit. It was 
profitable five years ago. Is that correct, Senator?
    Is there any indication as to why changes in the market or 
is there any identifiable reason why DHL is now no longer 
making a profit at that facility, anything?
    Senator Brown. As I mentioned in my testimony, they have 
lost a significant amount of market share, and I think from 
Congressman Turner's discussion earlier that that is a question 
of management in many ways.
    I think at the same time they have continued. He may know 
more precisely, other factors, but at the same time they have 
been immensely profitable in Europe.
    We haven't really seen the question answered: Are they 
moving profits and losses from one continent to another in part 
to perhaps deflect some criticism of this merger?
    Mr. Turner. I don't specifically. It will be a great 
question for DHL as to how they take a company that was 
profitable and generate $1.3 billion in losses.
    There are a number of reports in industry magazines that 
indicate poor service, overspending, expansion of 
infrastructure that did not justify based on customer base and 
loss of customers.
    One other thing, by the way, Congresswoman Schmidt asked 
what TNT stands for. I am told it is Thomas Nationwide 
Transport.
    Mrs. Schmidt. Thank you.
    Mr. Arcuri. Thank you very much.
    Senator Brown. I would add too, if I could, Mr. Chairman 
and Mike, after DHL bought Airborne, they also got significant 
government help. They still had those kinds of losses in spite 
of the help they got from particularly the State of Ohio but 
also some local communities.
    Mr. Arcuri. So they received a package to stay, they bought 
the company, and then they are still showing losses.
    Senator Brown. To stay. They promised more jobs. They have, 
within half a decade, made this kind of a decision.
    Mr. Arcuri. I have nothing further. Thank you, Mr. 
Chairman.
    Mr. Oberstar. Ms. Hirono.
    Ms. Hirono. Thank you, Mr. Chairman.
    This potential agreement raises a lot of issues, not to 
mention the antitrust concerns, anticompetitive concerns. Is 
the Department of Justice going to be reviewing this potential 
agreement in any way, shape or form?
    Mr. Turner. The Senator was just saying we are certainly 
hopeful. We have no communication from them that they are. We 
have requested it.
    Both presidential candidates have indicated that it would 
be a worthwhile review to occur. I know a number of other 
Members of Congress have stepped forward and said that they 
believe the Justice Department should also.
    Senator Brown. And the Administration has. We don't have 
commitment yet on that, but the Administration has been 
helpful. When I asked them for a point person, someone who had 
the President's ear and the President's Chief of Staff's ear 
directly, they gave us someone who has been very helpful to 
coordinate any response from Justice, Department of Labor, 
Department of Transportation, other Federal Agencies.
    So we are hopeful, but we don't know yet.
    Ms. Hirono. So would it be appropriate for Congress to 
request that the Department of Justice undergo a thorough 
review of this agreement, potential agreement?
    Senator Brown. We have made that. I don't know if Congress 
as a body ever does that. I certainly wouldn't object to that. 
Many of us have done it directly and personally.
    Ms. Hirono. Okay. Thank you very much.
    Senator Brown. Thanks for the suggestion.
    Mr. Oberstar. Other Members have questions, comments?
    If not, we thank you very much for your presentation, very 
enlightening on the subject at hand.
    Both are welcome to remain here. Although under Committee 
rules non-Committee Members are not allowed to ask questions, 
but you are certainly welcome to remain as part of the 
Committee to hear the rest of the testimony.
    Our next panel consists of the Lieutenant Governor of the 
State of Ohio, who is also Director of the Ohio Department of 
Development, the Honorable Lee Fisher and the Mayor of 
Wilmington, Ohio, the Honorable David L. Raizk.
    Lieutenant Governor Fisher, thank you for being here.
    Our thanks to our former colleague, Governor Strickland. I 
had the opportunity of traveling in his then congressional 
district in the Port of Columbiana and meeting with local 
development interests on very important transportation and 
intermodal issues that they presented. This was several years 
ago.
    I understand the devastation from weather effects that have 
left two million people without power, that the Governor felt 
he needed to stay and sent you in his stead.
    So, please proceed.

 TESTIMONY OF THE HONORABLE LEE FISHER, LIEUTENANT GOVERNOR OF 
   THE STATE OF OHIO AND DIRECTOR OF THE OHIO DEPARTMENT OF 
 DEVELOPMENT AND THE HONORABLE DAVID L. RAIZK, MAYOR, CITY OF 
                        WILMINGTON, OHIO

    Mr. Fisher. Mr. Chairman, thank you very much for giving me 
the opportunity to appear before you today.
    As you indicated, Governor Strickland wanted to be here, 
was actually scheduled to be here, but we have had a weather 
crisis in the State of Ohio. The aftereffects of Hurricane Ike 
have hit Ohio quite hard. More than two million Ohioans are out 
of power. Four hundred and fifty school districts have been 
closed
    Governor Strickland is doing what, of course, he always 
does in these situations, and that is feet on the ground, 
touring the areas and working to identify what we can do to 
deal with this emergency, including the possibility and the 
likelihood of seeking Federal help.
    But I will tell you, Mr. Chairman, that Governor Strickland 
and I discussed you in particular, and he has the greatest 
admiration and respect for you and wanted me to convey that 
today.
    I want to thank you, Mr. Chairman, and all the Members of 
the Committee, particularly my colleagues from Ohio, all of 
whom I know quite well.
    I want to begin by repeating what Senator Brown and 
Congressman Turner said, that this has been a remarkably 
bipartisan effort. Congresswoman Schmidt, Congressman Space, 
Congressman Latta, Congressman LaTourette and many other 
Members of this delegation, in fact, all the Members of the 
delegation have joined us in this effort.
    I am the Lieutenant Governor of Ohio, and I also have the 
dual honor and responsibility of serving as the Director of the 
Ohio Department of Economic Development. I previously served as 
Attorney General of the State of Ohio, and during that time I 
was the Co-Chair of the National Association of Attorney 
Generals Antitrust Committee.
    As a former attorney general and the current director of 
our economic development efforts in Ohio, I am very troubled by 
the proposal which will potentially eliminate more than 8,000 
jobs in Wilmington. Governor Strickland and I believe that this 
proposed transaction, in addition to leading to devastating job 
losses, will seriously undermine competition in the United 
States package market.
    But the human cost is what we really focus on. We speak in 
terms of 10,000 jobs at stake, but that is 10,000 families. It 
is 10,000 homes and far, far more than 10,000 lives literally 
turned upside down.
    The Wilmington Air Park is the largest privately owned 
airport in the United States. It is the single largest employer 
for the residents of six Ohio counties. Every lost job will be 
felt time and again when these hardworking women and men stop 
shopping in the stores, eating in the restaurants and buying 
the houses.
    Even as the first round of layoffs has already begun and 
with the imminent threat of closure dangling over them, the 
hardworking men and women of ASTAR and ABX and other facilities 
in the Air Park show up every day, and they give all to their 
jobs.
    DHL has taken the position that this is not necessarily a 
matter worth of their attention.
    Mr. Chairman, attention must be made.
    In a free market, businesses can fail, jobs can be lost. I 
see that every day. We lament the ups and downs of the business 
cycle, and we make preparations for a better day.
    But I would submit to you this is not a free market 
transaction that we are discussing. It is, in fact, an 
anticompetitive deal.
    After this billion dollar a year deal is in place, a deal 
that hands over the actual--do you hear that sound?
    [Remarks off microphone.]
    Mr. Fisher. Okay. I wondered if that was your way of saying 
I should stop. Okay.
    [Laughter.]
    Mr. Oberstar. The gentleman from Florida will not do that.
    Mr. Fisher. Okay. Thank you, Mr. Chairman.
    After this billion dollar a year deal is in place, a deal 
that hands over the actual shipping process to DHL's main 
rival, the company assures us that DHL and UPS will remain 
competitors, and I expect that you will hear that today from 
DHL. In fact, DHL has recently said in the New York Times that 
DHL is trying to make life as difficult as possible for UPS.
    Well, if I were going to make life difficult for someone, 
Mr. Chairman, I could think of a few things I would try before 
giving them a billion dollars.
    DHL insists that this deal keeps DHL and UPS full-tilt 
competitors.
    I am a Cleveland Browns fan, and the Cleveland Browns will 
travel to Baltimore this Sunday to play the Ravens. If one of 
the Ravens fumbles, there is a reason why no one on the 
Cleveland Browns will pick up the ball and politely hand it 
back.
    It is because competitors are not partners. They have never 
been, will never be. You are either one or the other.
    This deal is a merger in everything but name. If you hand 
the essential functions of your business to a competitor, that 
is a merger. If you discard the planes and the people that make 
your business possible, that is a merger.
    It would be one thing for a company that makes 
refrigerators or pencils to outsource their shipping services, 
but DHL doesn't make products. It ships them. If you business 
is shipping and you outsource the shipping, that is a merger.
    There is a very real threat to the consumer here. When UPS 
essentially controls DHL's costs and operations, then UPS 
controls DHL's pricing. When that happens, there will be 
effectively only two shipping companies to serve the North 
American market.
    I think it is Economics 101 that if you create a duopoly, 
you diminish consumers' choices and you raise consumers' costs.
    Governor Strickland and I believe that the U.S. Department 
of Transportation has jurisdiction to investigate this 
financial agreement. DHL is a common carrier under Federal law, 
and the U.S. Department of Transportation has authority under 
the Federal Transportation Code to regulate carriers' business 
practices and the terms on which they hold out service to the 
public.
    We asked Secretary Peters to exercise her jurisdiction in 
this matter, and she has respectfully declined, saying that she 
does not believe that she has authority to investigate.
    We are asking this Committee to review Secretary Peters' 
statements and to encourage the DOT to examine the economic 
impact of this transaction as is their authority under law and 
in a way, of course, that would not interfere with the review 
of the transaction by the U.S. Attorney General's Office or the 
investigation of the Ohio Attorney General's Office.
    Let me add, Mr. Chairman, that the creation of this duopoly 
would undercut the ability of ABX and ASTAR to continue 
operating. These pilots you see before us are wonderful 
professionals. It is their jobs, their families, their 
livelihood that is on the line which is why they are spending 
every single day doing everything they can, including being 
here.
    I was here last week, testifying before Congressman Conyers 
and the Judiciary Committee, and they were here in full force, 
and I expect they will always be here in full force as long as 
these proceedings occur in the United States Congress.
    It would force off the stage the two major players in an 
industry, ABX and ASTAR, with incredibly high barriers to 
entry.
    If this were truly a competitive free market transaction, 
why weren't DHL's existing service providers, ASTAR and ABX, 
not to mention the State of Ohio, given a chance to actually 
present clear alternatives to this transaction and, in the case 
of ABX and ASTAR, to submit a bid for the work?
    Why wasn't our State given a chance to respond before the 
deal had been decided upon?
    I think it is important to point out that Senator Brown 
made an important statement. He said that we want DHL to 
succeed, and that is correct. We do. We want them to succeed, 
but we also want them to live up to their commitments.
    And, Mr. Chairman, we are prepared and we have said this 
repeatedly to work with DHL to deal with their losses, to work 
with them on an economic development transaction that can be a 
win-win--a win for DHL, a win for ABX and ASTAR, a win for Ohio 
but most importantly a win for the men and women whose jobs are 
seriously at risk.
    When this issue first arose, we immediately assembled a DHL 
Regional Economic Task Force co-chaired by Mayor Raizk, who you 
will hear from in a minute, and myself and all the Members of 
the congressional delegation.
    Last week, we learned from DHL and UPS during another 
congressional hearing that they have a memorandum of 
understanding prohibiting them from talking with other parties, 
including the State of Ohio, while their negotiations are 
ongoing.
    In this hearing room today, I join Senator Brown and 
Congressman Turner in publicly requesting that both DHL and UPS 
discard this arrangement so that our administration and other 
parties involved can present good faith alternatives to the 
transaction with UPS. DHL made $6 billion in profit last year, 
and we have no doubt their Ohio operation could contribute to 
that bottom line.
    I want to thank the Members again of the Ohio congressional 
delegation and you, Mr. Chairman. The Federal Government once 
helped to facilitate DHL's acquisition of Airborne Express, and 
now we need the Federal Government's help to facilitate DHL's 
continued existence in Wilmington, Ohio, as a real service-
providing company.
    Thank you, sir.
    Mr. Oberstar. Thank you very much, Governor Fisher. I 
greatly appreciate your testimony and elaborating on the 
arrangement between the State and DHL.
    Mayor Raizk. I pronounce it Raizk.
    Mr. Raizk. Raizk.
    Mr. Oberstar. But I earlier pronounced it Raizk. That is 
the way we would say it in Slovenian. That must be Polish, 
though.
    [Laughter]
    Mr. Raizk. No, it is not. Senator Voinovich says the same 
thing, but actually my background is Lebanese. It is an Ellis 
Island spelling.
    Mr. Oberstar. Oh, okay. Well, it is a good ethnic name 
anyway.
    Mr. Raizk. It is a good ethnic name, absolutely.
    Mr. Oberstar. Very much at home in my part of the world.
    Mr. Raizk. Absolutely.
    Mr. Oberstar. Yes. All right.
    Mr. Raizk. Thank you very much, Mr. Chairman, and I 
sincerely appreciate the opportunity you have given us by 
holding this hearing and to hear our story in Wilmington, Ohio.
    First of all, I said after last week's hearing that I was 
never prouder to be an Ohioan than I was on that day. For 
everyone to see the total bipartisan effort of all the Ohio 
delegation in coming to the aid of Wilmington has been truly 
amazing.
    I can't thank enough Senator Brown and Congressman Mike 
turner. They have been with me almost every step of the way.
    Also, Senator Voinovich and all the Ohio delegation, I 
appreciate all of your efforts, and certainly Governor Ted 
Strickland and this gentleman to my right, Lieutenant Governor 
Lee Fisher. Since three days after the announcement we have 
been together, and he has supported me in everything that I 
have done.
    I am also honored to represent the community that I serve, 
my home town, Wilmington, Ohio. Wilmington in Clinton County is 
a wonderful place to live, work and raise your family. But 
since May 28th, a storm has been hanging over Wilmington, and 
it won't go away.
    On May 28th, DHL--Wilmington's and Clinton County's largest 
employer and the largest employer in the five surrounding 
counties--announced that they were seeking a deal with UPS, 
their biggest competitor, to handle their airlift operations in 
the United States, effectively ceasing operations at the 
Wilmington DHL airport.
    This was particularly difficult for me as I received this 
news firsthand in Germany at DHL/Deutsche Post World 
Headquarters. I was in Germany as a guest of DHL, representing 
the City of Wilmington and the Wilmington Airport, the largest 
hub in the DHL network at the grand opening of their new hub in 
Leipzig.
    Given the current economic climate that has been going on 
and continues, we knew that some restructuring was in the works 
and some job losses would be coming primarily as a result of 
the standing down of the DC-9 portion of their business.
    But there was reason for optimism concerning the Wilmington 
Air Park. In February, I hosted a conference call in my office 
with Governor Strickland, representatives of ASTAR Air Cargo 
and ABX Air, DHL's partners for airlift and sorting operations 
in the United States, and representatives of DHL. At that time, 
DHL assured the Governor that although there would be some job 
cuts coming, they were committed to the Wilmington Air Park.
    In April, in discussion with DHL on possible assistance 
from the State of Ohio, Lieutenant Governor Lee Fisher was also 
assured of DHL's commitment to the Wilmington Air Park.
    So it was with some comfort level that I went to Germany to 
represent Wilmington. That comfort was further enhanced when 
German Foreign Minister Steinmeier, the keynote speaker at the 
hub opening, mentioned Wilmington, Ohio in his address.
    Imagine my shock two days later when I received the news 
firsthand that DHL was seeking a deal with UPS.
    CEO John Mullen of DHL, whom you will hear from later 
today, was very gracious in granting me an audience after that 
announcement.
    What will be the result of this proposed transaction? What 
will be the impact?
    The job loss alone which includes DHL, ABX Air, ASTAR Air 
Cargo and 18 companies located in and around the Air Park with 
direct or indirect relationships with the operations there 
would be almost 10,000. The annual payroll for ABX Air, DHL and 
ASTAR Air Cargo alone is $257 million. Health care benefits 
provided for their employees are another $63 million.
    These employees of these three companies provide 9 percent 
of the revenue to our local hospital. Losing that would result 
in a loss of seven to eight million dollars in revenue plus the 
resulting increase in charity care when these benefits cease. 
It would put them out of business.
    This transaction would bankrupt the State's unemployment 
insurance fund. The impact to schools, city and county 
government, non-profits and local businesses would be 
devastating. Our data analysis indicates that one in five small 
businesses will fail in the region.
    If I sound alarmist, it is because we are facing an 
economic catastrophe of unparalleled proportion.
    We are not trying to save old technology jobs that have 
failed to keep pace with the new economy. These are 21st 
century jobs: pilots and crew members, supply chain and 
logistics professionals, airframe and aircraft mechanics, 
conveyor engineers.
    And, this isn't Rust Belt versus the Sun Belt. These jobs 
simply disappear.
    In 2004, we welcomed DHL and ASTAR Air Cargo into the 
Wilmington family. ABX Air and its predecessor, Airborne 
Express, accounting for over 6,000 of these jobs, have been 
with us for 30 years. They are part of the fabric of our 
community.
    There is an Air Park employee in one of every three 
households in Wilmington. Many husbands and wives both work at 
the Air Park.
    Many family farms are saved because part-time work at the 
Air Park provided the health care that they needed for their 
families.
    Students at Wilmington College, many the first in their 
families to go to college, reduced their indebtedness at 
graduation by working with ABX.
    In short, these jobs just didn't appear in 2004. Over the 
last 30 years, the community has grown with the growth of the 
Air Park. This proposed transaction would literally rip the 
fabric of our town.
    Now I don't know about antitrust, and I don't know the 
definitions and what your criteria are. I am a simple mayor 
from a small town in southwestern Ohio.
    DHL and UPS say this is a contractor-vendor relationship. 
But to abandon your largest hub and deliver the freight to your 
number one competitor, then I say it is a de facto merger. How 
can you be a player without a hub?
    FedEx has a hub. UPS has a hub. DHL will no longer have a 
hub if this goes through.
    Financial Times Deutschland, this past week, recently 
reported that CEO Frank Appel of Deutsche Post World Net said 
that they are going to, instead of reducing their footprint in 
the United States 30 percent, they are going to move it to 50 
percent and, in doing so, may contract with UPS to handle some 
of their ground transport instead of the United States Postal 
Service for that last mile.
    Again, if we are losing air and ground, it is a de facto 
merger.
    Given the recent history of acquisitions of smaller air 
carriers by both companies and the significant antitrust 
waivers embedded in the Open Skies agreements, a picture starts 
to form. There is something more going on here.
    In Wilmington, a foreign-owned company with huge assistance 
from the State and local governments took over ownership and 
operations of the largest private airport in the United States, 
a state of the art facility. In a little over three short 
years, if they complete this transaction, they will have taken 
two American companies that had significant market share off 
the board. In the process, they will displace almost 10,000 
American jobs.
    If this is what unfettered globalization means to America, 
then to paraphrase Senator Sherrod Brown, we are indeed in a 
race to the bottom.
    For, at the end of the day, this is about people. These 
folks are not just numbers on a page. They are our friends and 
our neighbors, our families. We go to church with them. We 
attend PTA meetings together. We go and watch our kids play 
ball.
    How will they pay their mortgage? How will they feed and 
clothe their kids? How will they educate their children?
    Please think about these hardworking Americans as you 
consider these issues.
    Thank you very much for the opportunity to speak, Mr. 
Chairman.
    Mr. Oberstar. Thank you, Mayor, for painting a picture in 
the very stark and real and personal way that you did.
    Lieutenant Governor Fisher, you were formerly Attorney 
General. How can there be real competition in ground service if 
UPS is going to handle all the air service?
    They say this is a contractual arrangement for the air 
service, that the ground service of DHL will remain or will 
survive the agreement. If UPS provides the feed, then how can 
there be a real competition?
    Mr. Fisher. Mr. Chairman, I think first, as you have heard 
Mayor Raizk say, the ground transportation actually may be 
next, that this may be the next step.
    The combination of UPS's and DHL's overnight shipment 
business would give UPS total control of more than half of the 
small packages that are shipped for overnight delivery in the 
United States.
    That high market share is magnified by the fact that it is 
highly unlikely that any new competitor would be able to enter 
the relevant market following the consolidation because the 
industry, Mr. Chairman, already has high barriers to entry in 
the form of significant up-front capital investments, marketing 
costs, important name recognition requirements, a large number 
of exclusive contracts, and the competition that has been 
represented by DHL has served as an important constraint on 
UPS's pricing and forced continual improvement of quality of 
service. That is what happens when you have competition.
    I think FedEx, with all due respect to it, unlike DHL, does 
not have the incentive to be a price maverick like DHL has 
been.
    And so, I think the bottom line result here is that, as has 
been said many times, it is in fact, we think, a de facto 
merger.
    Mr. Oberstar. Thank you for that response.
    The State of Ohio, you spelled out, gave $400 million in 
incentives.
    We have been through something similar in Minnesota with 
Northwest Airlines when they were at the edge of bankruptcy, 
and the State Government, actually it was the airport 
authority, provided bridge funding for Northwest Airlines to 
convert their high cost, short-term debt to lower-cost long-
term debt in the aftermath of the Checchi-Wilson buy-out that 
loaded the company with a huge amount of debt.
    But there were caveats. Not caveats, there were agreements 
in that funding that made certain obligations upon Northwest: 
Maintain their headquarters in Minnesota. Maintain a 
Minneapolis-St. Paul hub. Maintain a certain level of 
employment.
    Over time, those agreements have been modified, eroded 
because of market conditions.
    Were there similar commitments made by DHL in exchange for 
the funding provided and the financial incentives for them to 
locate and are they enforceable?
    Mr. Fisher. Chairman Oberstar, the answer is yes. With 
every economic development transaction in which we provide tax 
credits, grants and/or loans comes a corresponding commitment 
by the company with regard to the retention and/or creation of 
certain job levels over a period of time.
    In this particular case, in 2004, a job retention tax 
credit based upon a $295 million payroll was offered with an 
estimated credit value of about $66 million, a job creation tax 
credit at 90 percent for 5 years with an estimated credit value 
of about $13 million, direct grants called Rapid Outreach 
Grants of $2 million, workforce training grants up to $2 
million, a roadwork grant of $1 million, and a commitment to 
build a new route called the Wilmington Bypass.
    Now, in fairness, DHL has not received at this point all of 
those commitments. It has received some, particularly the 
outright grants.
    We have callback provisions in all of our agreements. If 
this transaction does in fact go through and in fact they do 
abandon southwest Ohio, we will aggressively seek back all 
those commitments that we are lawfully allowed to do.
    Mr. Oberstar. Of course, you really want the jobs. You 
don't want the callbacks.
    Mr. Fisher. That is exactly right.
    Mr. Oberstar. Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman.
    Actually, Mr. Chairman, our Lieutenant Governor is hiding 
his light under a bushel basket. When he was elected to be the 
Attorney General, we used to call him Landslide Lee because he 
won by 1,234 votes and anytime you went to one of his speeches 
he would say his favorite numbers are 1,2,3,4.
    Mr. Fisher. That is right.
    Mr. LaTourette. And just the last note on your statement, 
Lieutenant Governor, if the Browns recover a fumble after 
watching them play the Cowboys and the Steelers, I will be 
shocked.
    [Laughter.]
    Mr. Fisher. You said that. I didn't, sir.
    Mr. LaTourette. Lieutenant Governor Fisher, you have 
outlined the incentives that the State of Ohio has offered or 
is prepared to offer DHL, and I thank you for that.
    In your observations, you talked about an MOU, a memorandum 
of understanding. I don't find anything sinister in the fact 
that two parties that are discussing. I think it is pretty 
boilerplate that they would have a clause that you are not 
going to talk about what it is you are talking about and also 
competitors.
    But the question I would ask you is have you or the 
Governor or Senator Brown or Congressman Turner made the 
request of DHL and UPS that they release that last piece?
    I mean I don't think it is unreasonable that two businesses 
talking about whatever it is they are talking about don't have 
to tell you what it is they are talking about.
    I think that for them, for DHL, well, I guess they don't 
have shareholders because they are owned by the German 
Government. I think for DHL to make a business decision as to 
whether or not this is a good deal with UPS or not, I think it 
would be incumbent upon them to see what else is out there.
    Have you all made that request of the two companies and, if 
so, have you received a response?
    Mr. Fisher. Mr. Chairman and Congressman LaTourette, the 
answer is yes, we have. I have had two phone conversations with 
Frank Appel who is the CEO of Deutsche Post World Net in Bonn, 
Germany and, to him and also to Mr. Mullen, we have made the 
request that they consider alternatives both from the State of 
Ohio, ABX and ASTAR and give us the opportunity to meet with 
them any time, any place including in Germany.
    The Governor and I both have offered actually to travel to 
Germany on a moment's notice if we believe that they would 
seriously consider an offer by the State.
    They have indicated that they do not believe there is any 
alternative that is viable, and they have also recently 
indicated that the provision of their agreement with UPS bars 
them from actually engaging in that discussion.
    We have asked them both privately and publicly to, in fact, 
set aside that portion. I think you are right. We are not 
asking for the details, at this point anyway, of their 
transaction with UPS. We will see that eventually if, in fact, 
it goes through in a written agreement.
    What we are asking is that before they actually sign on the 
dotted line and consummate such agreement, it seems to me it is 
only good business sense beyond the interest of fairness, good 
business sense to explore every viable alternative.
    Now they, I think, would say to you they have looked at 
alternatives, but I think that that would be disingenuous 
because the State of Ohio obviously has resources available to 
it that could be offered to DHL under the appropriate 
circumstances. They have never asked us for that, and we have 
never been given the opportunity to offer them.
    Mr. LaTourette. We are going to see their representatives 
on the next panel, and I will ask them that question.
    Mayor, in your testimony, you talked about a meeting where 
everybody said, we love Wilmington. Then you had another 
meeting. Everything is going great. Even though with the way 
the economy is going, you expected some job losses.
    Then they have you over to Leipzig, apparently to a big 
party, and they sort of lowered the boom. I hope you had your 
ticket paid for on the way back.
    What happened? I mean were they just lying to you? Did they 
hose you?
    What happened between those happy meetings and when they 
gave you the news in Germany?
    Mr. Raizk. I really don't know. As I said, before I left, 
we vetted it out very carefully that there was going to be some 
announcement in Germany on the 28th.
    But in consultation with the Department of Development and 
Lieutenant Governor Fisher's office, in consultation with both 
ASTAR Air Cargo and ABX officials before I went, everybody felt 
comfortable with the idea that there were going to be some cuts 
coming. They were looking at restructuring.
    We had this conversation back in February, as I said, with 
the Governor on a conference call in my office. The Governor 
was very specific in his request of DHL officials, that okay, 
we know that things are going to have to happen and you have 
some losses, but are you committed to the Wilmington Air Park? 
And the answer to that was an unqualified yes.
    Then I can only and the Lieutenant Governor can verify with 
the conversations that he had in April, still prior to my 
going.
    So you can understand that looking at those, if I took the 
history of those conversations and also even the day before I 
left, what we felt might comprise the announcement on the 28th.
    It was certainly a blow because it was just out of left 
field that we were going to not cut jobs necessarily or 
restructure how we are operating, but we are going to turn it 
over to UPS, which was completely a rout.
    In fairness, no one said on May 28th in the announcement to 
their shareholders that they were abandoning Wilmington, the 
Air Park. But what they said, if they handed their airlift to 
UPS, UPS's hub is in Louisville, 125 miles from Wilmington. It 
doesn't take a lot of math to figure out that Wilmington was 
done and the freight was going to go to Louisville.
    So, no, I don't know. Frankly, I believe that this decision 
was at a very, very high level amongst Deutsche Post and DHL 
officials. I do not believe that very, very few people in 
America even knew of this decision or of this, and I think that 
has been borne out subsequently.
    Mr. LaTourette. Mayor, thank you. We are going to see that 
same bunch in the next panel. I will ask them.
    Mr. Raizk. You can ask them.
    Mr. LaTourette. I will ask them.
    Thank you, Mr. Chair.
    Mr. Raizk. Thank you, Congressman.
    Mr. Oberstar. Other Members wish to be heard?
    Ms. Johnson. Thank you, Mr. Chairman.
    I am trying to determine as I listen whether this is an 
acquisition or a contract. Is the business closing?
    Mr. Fisher. Congresswoman, I think that it is fair to say 
that it is named one thing but is another. It is being termed a 
transaction or an agreement, but we think it has all the 
effects and the results of an actual merger.
    The result of that transaction or merger, whatever you call 
it, will be the loss of some 10,000 jobs in southwest Ohio 
because they will either be eliminated entirely or moved, as 
Mayor Raizk just said, 125 miles south to Louisville, Kentucky, 
where UPS has its hub, because UPS will now be the provider of 
DHL's air services.
    Ms. Johnson. What is the motivation for this happening? Are 
they losing money?
    Mr. Fisher. Congresswoman, yes, the answer is that their 
motivation, as has been explained to us, is that they are 
losing money.
    Our response is I am not at this point disputing whether or 
not they are losing money. I don't have enough information to 
be able to say that is true or not true. But I do think even if 
we accept that as fact, what is important is that they explore 
every viable alternative before engaging in a de facto merger 
that would have the result of the loss of 10,000 jobs.
    One of those alternatives would be sitting down with the 
State and the two carriers that they currently contract with, 
which are called ASTAR and ABX, and either separately or 
preferably together see if we could work out ways to deal with 
their cost issues and challenges, at the same time, saving the 
jobs in Wilmington.
    Ms. Johnson. Thank you.
    Thank you, Mr. Chairman.
    Mr. Oberstar. I would like to observe for the record that 
Senator Voinovich has talked to me about this situation, and we 
will keep the record open for a statement that he may submit, 
but he is very deeply concerned.
    He and I worked together on a great many issues of economic 
development over the years, going back to when he was Mayor of 
Cleveland.
    Congressman Mack? No questions.
    Congresswoman Schmidt.
    Mrs. Schmidt. Thank you, Mr. Mayor. Don't ever let anyone 
say that a mayor doesn't have a big job because you certainly 
do, especially in this situation.
    In your written testimony, you indicated that the losses to 
the Wilmington community, should DHL reach an agreement with 
UPS and decide to shut down the Wilmington Air Park, will be 
enormous.
    Everyone has been focused on job loss, but as a former 
local government official I know that the underpinnings of that 
can be far more devastating than just the actual loss itself. 
Could you please elaborate to this Committee what you believe 
will be the underpinnings of that pullout?
    Mr. Raizk. Thank you, Congresswoman Schmidt.
    First of all, it is not just Wilmington, and I think it is 
important for the Committee to understand the regional nature 
of the employment at the Air Park. As you indicated, in your 
area, there is a significant number of jobs of folks who work 
there. It is the six surrounding counties that are affected.
    So, as we look at this, for instance, just the uncertainty 
alone, sales tax receipts are down in our county. Even though 
there has not been a significant job loss, there has been some, 
over a million dollars in the last month because people are 
scared, and they are not purchasing or buying or doing those 
things that they would normally do, because they don't know if 
they are going to have a job or not.
    I think the biggest thing is not just the employment, but 
it will be the concept of retraining, and that is going to be 
difficult. There is going to have to be huge resources for 
retraining.
    And it is real interesting. As I have said, these are 21st 
Century jobs. How do you retrain folks who have the skills for 
the 21st Century? What do we retrain them to?
    The impact on small business, as you know, Ohio's number 
one employers are small businesses all over the State. Although 
we still have agriculture in our area, the impact on the small 
business is just going to be huge. We have determined through 
some data analysis that one in five will fail, and that is not 
just in Wilmington. That is throughout the region.
    Then there is the resultant more job loss that are not 
reflected in those 10,000 because most people work for small 
business in Ohio.
    So I think the health care system is going to just get a 
terrible situation of how they are going to survive because 
they are going through rough times as it is.
    Education, I am really concerned about the schools. For 
instance, the Wilmington City School District is supported by a 
1 percent income tax. If these jobs go away, they will have a 
devastating effect to their school system.
    Mrs. Schmidt. Mr. Mayor, I would like to continue along 
that line. You said that the Wilmington schools have an income 
tax that feeds their schools, and so a loss of jobs is a loss 
of income to them. But what about the City of Wilmington as 
well?
    I am sure you have a fire department, a police department. 
You have a road department. How many employees do you have? 
What is your budget?
    How much of that budget is dependent upon DHL's presence 
and, with a DHL pullout, what does that do to the City of 
Wilmington directly?
    I mean you have talked about the indirect effect, and I 
think that speaks miles that you are looking out for everyone 
around you, but I also want to hear what the effects are going 
to be for the City of Wilmington directly.
    Mr. Raizk. Well, it is funny you should ask that because 
the City of Wilmington has always supported the Air Park 
through infrastructure, through the impact that its citizens 
have put up with. We are a community of about 12,000 that 
basically during the day supports a community of about 30,000 
because we provide water and sewer and the road structure. 
Everything comes through the town, the freight, the fuel 
trucks.
    But until January of this year, the Air Park was not a part 
of the City. We did just recently annex the Air Park with the 
anticipation that we would receive, because we do have a 1 
percent income tax as you know, about $2.5 million a year that 
we have been looking sorely forward to because for the last 30 
years the citizens have been supporting the Air Park and that 
infrastructure out of their own pockets without receiving any 
revenue.
    So, while we have geared up to take care of all of those 
things, it was time to get the citizens paid back for their 
contributions to the economic engine out there. Unfortunately, 
just as we are starting to get the receipts in, now we are 
under the threat that they are going to take them away.
    We have about 160 employees in the City of Wilmington. We 
are very unique. We operate our own fully permitted EPA 
landfill. We have our own water. We have our own sewer. We have 
our own full-time fire department and police departments.
    Certainly, we have geared up with anticipation of taking 
care of this additional acreage and those folks who work out 
there. Now we are looking at probably having to retrench if we 
can't have that income.
    Mrs. Schmidt. Thank you.
    Thank you, Mr. Chairman.
    Mr. Oberstar. Congressman Space.
    Mr. Space. Thank you, Mr. Chairman.
    Mr. Mayor, I just want to commend you for the very able 
representation on behalf of your constituents that you have 
rendered today.
    Mr. Raizk. Thank you.
    Mr. Space. Lieutenant Governor Fisher, I have had the 
pleasure of working with you and your staff on a number of 
projects in southeastern Ohio in the past, and I have found 
that you and your staff have repeatedly bent over backwards to 
help those existing businesses as well as prospective 
businesses that we are trying to draw. It has been nothing but 
positive at every turn in dealing in very difficult 
circumstances.
    I just want to make sure I understand your testimony 
correctly. It sounds to me, from what you have indicated, that 
you have reached out to DHL in an effort to provide them with 
information and specifics on what kind of incentives the State 
of Ohio may be willing to offer in an effort to keep them in 
their status quo or something like it and that they have 
rejected that offer, that extension of an offer for help on the 
basis that they can't about it due a confidentiality agreement 
that they have signed.
    Is that a correct representation?
    Mr. Fisher. Congressman Space, let me back up and just say 
a few things. First of all, thank you for what you said.
    First to amplify on what Mayor Raizk said, prior to May 
28th, we had several conversations with DHL on a variety of 
different matters in which, although it was not necessarily the 
subject at hand, we specifically asked the question: What was 
the future of the Wilmington air hub? And I think it is fair to 
say the answer was that they were experiencing some financial 
challenges but led us to believe that the future was still 
good, solid and bright despite those financial challenges.
    Now I do want to say that I think Mayor Raizk is probably 
right, that those with whom we were speaking at the time 
probably did not have knowledge that superiors in Germany were 
thinking something else.
    In other words, I want to give them the benefit of the 
doubt that they were not purposely misleading us. I have no 
reason to believe they were misleading us. I do have reason to 
believe that they had an opportunity to give us information 
that the company itself clearly had even if the individuals 
with whom we were speaking did not.
    The second point I would want to make is that repeatedly 
after May 28th, in meetings with senior executives of DHL and 
in two conversations with Frank Appel, we have indicated that 
we would like the opportunity to sit down with him and find 
ways where the State could be a risk-sharing, collaborative 
financial partner with them.
    Now, no specific offer of a specific amount of tax credits, 
grants or loans has been offered nor could it be until we were 
actually in such discussions. But the point is we want to have 
such discussions, and we have been rebuffed in our request to 
have such discussions.
    Mr. Space. Has that refusal to sit down been ostensibly 
based upon the statement or the position that they can't talk 
about it due to confidentiality provisions within an agreement 
between them and UPS?
    Mr. Fisher. Congressman, initially, no. Initially, the 
response was simply that they believe that internally they have 
already examined all their alternatives and do not believe that 
there is any information that we, ABX or ASTAR could present to 
them that they don't already have.
    Later on, as the weeks went by, we learned that there was 
apparently a confidentiality or exclusivity agreement with UPS. 
That was confirmed publicly, I believe, by Mr. Mullen in his 
testimony before the House Judiciary Committee last week.
    I think it is fair to say that that is now an additional 
reason that has been offered, but that was initially not the 
reason that was offered, that was given to us why they wouldn't 
consider the alternative.
    Mr. Space. Okay. Thank you, Lee.
    I yield back.
    Mr. LaTourette. This is what they call a bloodless coup.
    [Laughter.]
    Mr. Petri. Congratulations, Mr. Chairman.
    Mr. Oberstar. There will not be a coup. This is going to be 
a long hearing. I need more coffee.
    [Laughter.]
    Mr. Oberstar. Now let's see. The gentleman from Ohio has 
completed his questions. So, Mr. Petri.
    Mr. Petri. Thank you very much, Mr. Chairman. I really just 
have one question as kind of background for this and how it 
fits in with the State of Ohio.
    I wonder if you could, Governor Fisher, comment about the 
state of the unemployment fund for people in Ohio and how this, 
if it goes through, could affect that fund?
    Mr. Fisher. Congressman, I think it is fair to say that it 
puts it at serious risk. As the Mayor has indicated, we already 
are facing some serious problems with regard to our 
unemployment fund, and this would only exacerbate them.
    I can't give you specific figures today, but I don't think 
there is any question that in all my years in and out of public 
service, which totals 28 in Ohio, I have never seen this kind 
of job loss in one fell swoop like this. So it only goes to say 
as a result, logically, that it is likely to have a very 
significant negative effect on our unemployment compensation 
fund.
    Mr. Oberstar. Ms. Hirono.
    Ms. Hirono. I note in the Mayor's testimony that, 
Lieutenant Governor, you have confirmed that the Attorney 
General of Ohio is looking at this proposal.
    Does the State's antitrust laws mirror the Federal 
antitrust laws?
    Mr. Fisher. Yes, Congresswoman, it does. Ohio has an 
antitrust law known as the Valentine Act which has very similar 
provisions to the Sherman and Clayton Acts on the Federal 
level.
    And so, the answer is that the Ohio Attorney General, Nancy 
Rogers, is currently conducting her own independent information 
gathering. She is in a position really similar to the U.S. 
Justice Department, and that is until there is an agreement, if 
there is one, until there is an agreement with UPS, they have 
nothing they can actually analyze.
    The good news, however, is that both the Ohio Attorney 
General and the U.S. Attorney General, at our urging, are 
collecting facts. So they will be able to hit the ground 
running if and when there is an agreement between UPS and DHL 
to determine whether either a State and/or Federal 
investigation are appropriate.
    And, they are not dependent on each other. For example, if 
the Federal government decides that they are not going to 
pursue it, that would prevent or prohibit the State from 
conducting its own antitrust enforcement action or an 
investigation.
    Ms. Hirono. So does that mean that if this agreement, once 
there is something to look at and analyze, if the agreement 
were to contravene the State antitrust laws, that Ohio could 
prevent this agreement from going through?
    Mr. Fisher. It is my belief that it could. Under Ohio's 
antitrust laws, yes, I believe that is possible. It remains to 
be seen whether that will be happening, but the answer is yes.
    Ms. Hirono. Thank you.
    Mr. Oberstar. Mr. Duncan, the gentleman from Tennessee.
    Mr. Duncan. Governor Fisher, three of my dad's sisters 
moved to Cincinnati when they were young, two of his brothers 
to Dayton. A cousin on my mother's side is a car dealer in 
Cleveland Heights. Our best friends in Knoxville are from 
Cambridge. I think I have more connections to Ohio than any 
State other than Tennessee.
    Mr. Fisher. Wow.
    Mr. Duncan. No Member on either side wants to see anybody 
lose their jobs and especially a job loss of this magnitude.
    Mr. Mayor, I will tell you I haven't voted for a lot of 
this what some people have called globaloney. I heard you 
mention the globalization.
    But having said that, I haven't studied this to the extent 
that you all have. I was told that DHL is losing a billion 
dollars a year or perhaps even more. Common sense would tell 
you, you can't force a company to keep losing money. They have 
to, at some point, pull out or let people off or something.
    I notice, Governor, that you said you don't know whether 
they have really lost this money or not, but that assuming they 
had you don't feel like they have looked at all the reasonable 
alternatives.
    What I am wondering about is what are the alternatives as 
you see them?
    What could they do if, as you said, assuming they are 
losing this horrendous amount of money? What alternatives do 
they have?
    Mr. Fisher. Congressman Duncan, first let me just say that 
I know lieutenant governors love to be called governor, but I 
don't like being governor.
    Mr. Duncan. Well, Lieutenant.
    Mr. Fisher. We only have one governor.
    Mr. Duncan. Okay.
    Mr. Fisher. So Lieutenant Governor or LG or something like 
that.
    Mr. Duncan. All right. All right.
    Mr. Fisher. The thing that I would say, Congressman, is 
that every day we are working with companies that are facing 
losses. That is not unusual.
    What is unusual is that a company with whom we have ongoing 
communication and, frankly, a good relationship, all of which 
certainly typifies what we had with DHL, goes ahead and makes a 
decision without discussing it with the State to see if the 
State would be able to help them deal with their financial 
challenges and makes a decision which has a seriously negative 
effect on employment and Ohio's economy. That is unusual.
    It is not unusual for us to sit down with a company and try 
to work out their financial issues. Do we think the State, by 
and of itself, can solve them? Of course not.
    However, one of the things we specialize in is bringing 
together resources from a variety of different sectors: the 
Federal Government, the local government, the county 
government, private equity, private sector, non-profit. That is 
what we do every day in our department.
    Do we always succeed? Of course not.
    But are we given the chance almost 99 percent of the time? 
Absolutely. We got no chance here.
    I cannot tell you positively that had we been given the 
chance or that if we were to be given the chance, that we could 
address most or all of their challenge. But I know that given 
our record of success, that DHL owes it to the people of Ohio 
to give us a chance to see if we can.
    Mr. Duncan. Do you have anything to indicate to you? I mean 
if a company is losing a billion dollars a year here in the 
U.S., do you have anything to indicate to you that they haven't 
on their own explored every reasonable alternative?
    When you say that you do this every day, have you ever been 
able to save a company that is facing losses of this magnitude?
    Mr. Fisher. Congressman, I think.
    Mr. Duncan. I am not arguing with you. I am really asking.
    Mr. Fisher. No. I know what you are asking.
    Mr. Duncan. I don't really know.
    Mr. Fisher. No. That is a fair question. I think it is fair 
to say that it is rare, and I can't think of a precedent right 
now where a company said they were losing as much as DHL was 
losing. So I think that is a fair point.
    But I would also tell you that let's take one possible 
solution here. There was a point of time, I believe in the not 
so recent past, where DHL wanted to deal with just one local 
carrier as opposed to two. There are two today, ABX and ASTAR.
    It is my understanding--and there are people sitting behind 
me who know more about this than I do--that DHL, which has a 49 
percent ownership share of ASTAR, attempted to purchase ABX. It 
is my understanding that the primary motive for that was it 
would make sense for them, apparently from a cost standpoint, 
to be able to deal with one carrier as opposed to two.
    That transaction was not consummated for a variety of 
reasons that are known better by people sitting behind me than 
me, but I think it is fair to say that there are people who 
know both companies and know DHL who believe that if that had 
happened, if ASTAR had purchased ABX, that we might not be here 
today.
    I don't know that to be the fact. I am just telling you 
that there are people who are knowledgeable about the facts, 
who tell me they believe that to be the case. So that in and of 
itself points out that there might have been a solution in the 
not so recent past that might have prevented us from being 
here.
    So, therefore, exploring a similar solution in the not so 
distant future might also lead us to believe that perhaps there 
is an alternative.
    They have done their own internal analysis that they have 
not shared with us and come to a different conclusion, but any 
analysis that does not include the State of Ohio as a partner 
is an incomplete analysis on their part.
    Mr. Duncan. All right. Thank you.
    Thank you, Mr. Chairman.
    Mr. Oberstar. I thank the gentleman. Are there other 
Members who wish to be recognized?
    Mr. Westmoreland had his hand up.
    Mr. Westmoreland. Thank you, Mr. Chairman.
    Governor, have you met with ABX and/or ASTAR to ask them 
what the failure was when they could not get together for a 
merger or buy-out or whatever? Did you work with them to see if 
there were any details you could work out in that relationship?
    Mr. Fisher. Congressman Westmoreland, yes, I have had a 
number of conversations with senior executives with both ASTAR 
and ABX. There are some commonalities, but there are also 
different perspectives, frankly, on what happened. There is, I 
think, an agreement to disagree on why that transaction was not 
consummated.
    I do believe that given the circumstances today, I have 
reason to believe that both ABX and ASTAR would be more than 
willing to come to the table and explore every possible 
alternative.
    Mr. Westmoreland. I can believe that. I can believe that 
now.
    Mr. Fisher. Yes, right. All I am saying is whatever reason 
it didn't happen in the past, I think it would not happen in 
the future in some way.
    Mr. Westmoreland. Yes, sir. Do you know what the total 
employment of DHL is and is the 8,000 jobs just in the south 
Ohio area or are there actually more jobs than that in that 
area?
    Mr. Fisher. I can only speak to the employment in southwest 
Ohio. ABX, I believe, employs approximately 6,000 people at the 
Air Park. I believe that ASTAR employs approximately 1,200 and 
that DHL employs approximately 1,000.
    But there are representatives here today from DHL, ABX and 
ASTAR that can correct me if I am wrong, but I believe those 
are the numbers.
    Mr. Westmoreland. Okay. But from what you are saying and 
what I hear the Mayor saying, I am assuming the Mayor, the City 
and the State would sit down together with these companies and 
try to work something out.
    It seems to me as if $2 billion a year roughly, that would 
be a hard nut to crack. I know this is a similar question to 
what you have already been asked, but do you have experience in 
doing this?
    And, from the breaks that I heard you give, it totaled to 
about $88 million in tax incentives, the employment credit and 
so forth and so on, and this is a one-shot deal, right, the $88 
million.
    In just reading some of the testimony here, it has been 
almost a $6 billion loss, I believe, over the last 5 years. 
That is a lot of money for a State or a city to try to absorb, 
and that would also be a lot of money for these two airlines to 
try to absorb. Do you have any idea how you could go about even 
trying to do that and is that even something that the State of 
Ohio would want to do?
    Mr. Fisher. Mr. Chairman and Congressman Westmoreland, 
first, I have to say to you that we are not in a position to 
accept the premise of the amount of the loss. In other words, 
the first thing we would do as part of our due diligence is 
work with the company, so we have a comfort.
    In other words, when a company says to us, we are losing X 
amount of money, we don't take that at face value. We can't. We 
owe it to the taxpayers of Ohio to actually independently 
verify that. So let's also focus on the fact that we don't know 
whether that loss is, in fact, true.
    I am not suggesting it is not. I am simply telling you that 
we have no information that has been given us to allow us to 
verify that. That is number one.
    Number two is that I am not suggesting to you that we can 
meet all those losses. Government should not be in the 
business, I believe, of literally saying to a company, we are 
going to deal with all your losses.
    Our business is to be a risk-sharing collaborative partner, 
and that means that the business is going to have to continue 
to find some of their own internal ways to deal with those 
losses, but we will help them.
    So there is no time that we ever completely fill the gap, 
whether it is $100,000 loss or a $1 billion loss. What we do is 
we try to meet them in a sense, halfway--sometimes more than 
halfway, sometimes less, but we are a partner.
    Mr. Westmoreland. Governor, you or Mayor, either one, has 
the State of Ohio or the City ever entered into any of these 
agreements with any company before now that has been able to 
save them from actually moving or relocating?
    Mr. Fisher. To be honest, Congressman, we do it all the 
time ranging from small and medium-size businesses to large 
businesses that are saying to us, we are considering leaving, 
folding, going out of business.
    Do we always succeed? No.
    But I can tell you our track record of success in helping 
companies deal with their financial challenges--which often by 
the way involves job retention, not job expansion--has been 
quite successful. We believe that every job retention deal is a 
future job creation deal and job expansion deal because you 
have to hold what you got first and then focus on expanding 
later.
    So the answer is yes.
    Mr. Westmoreland. Well, Mr. Chairman, I appreciate the 
opportunity to ask the questions.
    I think that sometimes we go down a real slippery slope 
when we start trying to get government too involved with 
private enterprise and different business deals that come 
about, but I certainly appreciate the position you are in and 
what the State of Ohio is in and what the Mayor of the City is 
in as far as these job losses.
    UPS happens to be a good Georgia company, and they are good 
folks. So I appreciate there is nothing devious that is coming 
out of this transaction that they are trying to do with DHL.
    Thank you, sir, and I yield back.
    Mr. Fisher. Thank you.
    Mr. Oberstar. I thank the gentleman.
    Mrs. Drake.
    Mrs. Drake. Thank you, Mr. Chairman.
    Certainly, I am from Virginia, so I am not familiar much 
with the problem. But in listening to you talk, my question 
would be it sounds like the deal with UPS is not finished, that 
there have been these negotiations, but it is not complete yet.
    I would make the assumption that any business owner has 
looked at all the options and is trying to figure out how to 
best support his business.
    So the question that comes to mind is what if they come to 
there is no deal with UPS? I wonder what your comments on that 
would be.
    The second thought would be if this does happen and this 
cargo goes out of Louisville, would there also be the 
opportunity of additional jobs in that area? Is this something 
where people could be?
    I don't even know the distance between the locations. I 
think you said 125 miles. But would UPS logically need 
additional employees to take on this work that has been done by 
two airlines?
    So I just wonder if any of that could be absorbed out.
    Mr. Raizk. I think to answer your question and also the 
other, it is important to understand a little bit of history 
here.
    The two airlines that we are talking about, ABX Air and 
ASTAR Air Cargo, were created because DHL, which was the former 
ASTAR Air Cargo, was acquired by Deutsche Post World Net. They 
could not own an airline, so they had to spin the airline off. 
So, essentially, they created this partner.
    Then DHL acquired Airborne Express, the same situation 
happened. They, because of their foreign ownership, could not 
own the airline or have the certificate as I understand it and 
had to create ABX Air. So the contractors were of the parent 
company's own making to be able to do, to take their market 
share.
    Realize that the two American companies, prior to 
acquisition, had 21 percent together of the air express market. 
That is a significant market share. That market share is now 
significantly reduced.
    So these two companies were once very profitable and have 
only recently become unprofitable.
    When we look at those losses, it appears to me and I am no 
expert, but I am just like you. I pick up the paper and read 
that every day. It appears to me that how can we go from a 
profitable situation to an unprofitable situation in such a 
short period of time?
    Mrs. Drake. Do you think it could be the price of jet fuel?
    Mr. Raizk. Absolutely. I mean $4 plus of jet fuel certainly 
is going to create a problem for everybody, and I mean there is 
no getting around that.
    But at the same time, have we looked at totally the 
management of taking two profitable companies and then making 
them all of a sudden unprofitable? I think there needs to be a 
look at that in terms of that, but certainly jet fuel is a 
problem and has created a lot of our problems.
    If there weren't this increase in jet fuel, would we be 
here today? Probably not. I doubt it, but maybe so. I don't 
know.
    Mrs. Drake. But one thing that could happen is there could 
be no deal. I mean DHL could say we can't make the U.S. 
profitable and leave. I mean that could happen.
    Mr. Raizk. They could say that. They would be abandoning.
    Mrs. Drake. Is one of the goals to have a better 
conversation with DHL with the State of Ohio?
    Mr. Raizk. Absolutely.
    Mrs. Drake. From this hearing today?
    Mr. Raizk. Absolutely.
    Mr. Fisher. Yes, Congresswoman, I would say that, 
absolutely. Our relationship and our conversations with DHL 
prior to May 28th, I would consider to be very, very good and 
very positive, very professional.
    They continue to be professional, but they do not continue 
to be productive.
    Mrs. Drake. Thank you, Mr. Chairman. I will yield back.
    Mr. Oberstar. I thank the gentlewoman for her questions and 
the panel for their responses. Thank you very, very much for 
all that you have invested, yourselves, in this issue and for 
the continuing effort.
    The Committee will continue to follow these matters very 
closely, and you are dismissed.
    Mr. Fisher. Thank you.
    Mr. Raizk. Thank you, Mr. Chairman.
    Mr. Oberstar. We are in the midst of a vote, the first of 
four votes on the House floor, but I would like to invite Panel 
Three to be available. I think we will recess.
    Let me get the names of the panelists there, and everybody 
can take a little break while we vote, and then we will resume 
within five minutes after the last vote.
    Our next panel consists of Mr. John Mullen, CEO of DHL; 
Burt Wallace, President of Corporate Transportation for UPS; 
Mr. Joseph Hete of ABX Air, President; and Mr. Gary Hammes, 
Senior Vice President of ASTAR Air Cargo; Captain David Ross, 
Airline Professionals Association, he is the President of 
Teamsters Local 1224; Captain John Prater, President of the Air 
Line Pilots Association; and Mr. Samuel Simon, the American 
Antitrust Institute.
    I think we will have a very interesting session with the 
next panel.
    The Committee will stand in recess, pending the four votes.
    [Recess.]
    Mr. Oberstar. The Committee will resume its sitting.
    The Chair has already announced the next panel, the current 
panel, and we will begin with Mr. Mullen.

 TESTIMONY OF JOHN P. MULLEN, CEO, DHL EXPRESS; BURT WALLACE, 
PRESIDENT OF CORPORATE TRANSPORTATION, UNITED PARCEL SERVICE OF 
AMERICA; JOSEPH C. HETE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
 ABX AIR AND AIR TRANSPORT SERVICES GROUP; GARY HAMMES, SENIOR 
 VICE PRESIDENT AND CHIEF OPERATING OFFICER, ASTAR AIR CARGO, 
 INC.; CAPTAIN DAVID R. ROSS, PRESIDENT, AIRLINE PROFESSIONAL 
    ASSOCIATION, TEAMSTERS LOCAL 1224; CAPTAIN JOHN PRATER, 
   PRESIDENT, AIR LINE PILOTS ASSOCIATION INTERNATIONAL; AND 
       SAMUEL R. SIMON, THE AMERICAN ANTITRUST INSTITUTE

    Mr. Mullen. Thank you very much. Chairman Oberstar, Ranking 
Member LaTourette, distinguished Members of the Committee, I 
thank you very much for the opportunity to come to talk to you 
today about the DHL situation in the United States and about 
the proposed contract with UPS.
    You will have received my written testimony already. I hope 
that you have had a chance to read it.
    Mr. Oberstar. Your entire testimony will appear in the 
record as submitted, and the gentleman is welcome to summarize 
the substance of the statement.
    Mr. Mullen. Thank you. I will paraphrase it as quickly as I 
can.
    Firstly, DHL is in a very difficult situation here in the 
United States. For over five years, we have battled to break 
into this market and be successful here. By the end of this 
year, we will have spent some $6 billion doing that.
    We have made a huge amount of progress which we are very 
proud of. We have built a strong brand. We have built out a 
quality infrastructure. But the reality is it has come at a 
very high price, and today we are losing some $5 million a day 
or a projected $1.3 billion loss this year.
    We are in a narrow express market that has been shrinking 
since the late 1990s, and there is intense compensation for the 
declining volume that remains. Now, on top of that, we are 
facing a worsening economy and very high jet fuel costs as 
well. We are a large company, but no company can lose this 
amount of money and survive.
    We are under intense pressure from shareholders, from 
analysts, financial markets and others to address these losses 
which have been going on for some time. There is considerable 
criticism that we have not done this earlier. So we simply have 
to take action and, with volumes declining, that simply means 
taking out costs.
    We have exhaustively examined all the options that we can 
see open to us from various restructuring proposals, 
discussions with private equity and other players, 
partnerships, even through to closing this business altogether 
in the United States.
    From that analysis, on May the 28th, we announced a 
restructuring plan for our U.S. business that had two key 
parts. The first was a major restructure of our ground 
operations from closure of some stations, reduction in trucking 
network and other measures. The second was the intention to 
enter into this contract with UPS to replace two existing 
aviation subcontractors with UPS itself.
    The goal of that is to save $1 billion per annum. Of all of 
the options we have studied, we believe that this represents by 
far the best chance that we have to remain a viable competitor 
in the U.S., thereby preserving competition.
    I would just like to quickly highlight a few points in 
respect to this contract. Firstly, it is not a merger. It is 
not a joint venture. It is not an alliance. It is not a 
transfer of assets.
    We are simply replacing two existing third party 
subcontractors with a different subcontractor for one part of 
our business.
    DHL remains as independent afterwards as it was before. Our 
pickup and delivery fleets, our billing systems, our customer 
service, our telephone routing, all of these things remain as 
they were previously.
    Customers will not see any difference. A package moving 
from New York to Los Angeles, the customer today doesn't know 
whether we use ABX, whether we use ASTAR, whether we use DHL 
aircraft, whether we use UPS aircraft. It will be picked up by 
a DHL courier and delivered by a DHL courier.
    There is no need for us to and we will not share 
confidential customer information. Some of the suggestions that 
UPS will have access to pricing and things like that are just 
simply not true. The only data that we will make available to 
UPS is sufficient data for them to sort and transport those 
packages. There is no IT link being envisaged as might have 
been suggested.
    Now this type of solution, we believe, is common in high 
capital equipment business: in the airlines where there is 
code-sharing amongst passenger airlines, in the shipping 
industry where shipping companies for many years have carried 
each other cargo, through telecoms where the last mile carriage 
on fixed copper lines is one carrier provides for many and so 
on.
    And, in our own industry here in the United States, there 
is an exact parallel where the United States Postal Service 
some years ago closed its hub and outsourced their aviation 
lift to FedEx, a very similar parallel to what we are 
discussing today.
    Now, obviously, all of that said, no such change comes 
without an impact. We are hugely sensitive to the impact that 
this decision will have on Wilmington, on the local community, 
on our subcontractors and many, many individuals.
    It is absolutely not a decision that has been taken 
lightly. We have agonized over this. We have been hugely 
criticized for taking as long as we have for making a decisive 
move. However, we believe we absolutely have to do this.
    So we formed a team which is putting a huge effort now into 
mitigating the impact of these changes. We realize, of course, 
that there is nothing we can do to entirely mitigate the impact 
on individuals and working families, but we are working to put 
in place a plan that we believe goes well beyond what is usual 
in this type of situation and well beyond what our contractual 
and legal obligations might be.
    What does that mean in practice? Well, we have allocated 
some $260 million in severance, retention and health benefits. 
Of that $260 million, only $35 million are actually contractual 
obligations. The other $225 million or nearly a quarter of a 
billion dollars are benefits over and above that we are paying, 
and I might add mainly to the employees of other companies, 
those of our subcontractors, not actually DHL employees 
themselves.
    In addition, we are working with local, State and community 
officials to try to help in as many other ways as we can, 
including we are discussing the possible donation of the Air 
Park to the local community.
    So, in conclusion, Mr. Chairman, may I just summarize 
again?
    This has been an exceptionally difficult decision. We are 
losing $1.3 billion in a declining market, and we have no 
option but to cut these costs.
    We have considered every option that we think is available 
to us, and we have talked to every party we think can help, and 
we now plan to implement a solution that addresses the 
situation.
    Such a plan will obviously not be liked by those affected, 
of course, but it is not a merger. It is not anticompetitive. 
It is common in many industries, and it exists here in the U.S. 
in our own industry.
    Hopefully, this leaves us as a viable competitor and will 
preserve competition in the U.S. market.
    Last, but most importantly of all, we are doing our very 
best to mitigate the impact by going well beyond our 
contractual and legal obligations as well as well beyond 
comparable benchmarks.
    Mr. Chairman, distinguished Members of the Committee, thank 
you very much for your attention, and I look forward to 
responding to any questions that you may have.
    Mr. Oberstar. Thank you for your testimony.
    Mr. Wallace.
    Mr. Wallace. Chairman Oberstar and Members of the 
Committee, UPS welcomes the opportunity to appear before you 
today to present as clearly as possible the facts regarding 
UPS's proposed agreement with DHL.
    On May 28th, 2008, UPS and DHL announced that the companies 
were working toward an agreement for UPS to provide airlift of 
DHL's express, deferred and international package volume within 
the United States and to and from Canada and Mexico. We are 
still negotiating this agreement.
    The proposed agreement is part of a larger restructuring by 
DHL designed to reduce its costs and to help the company to 
remain competitive in the U.S. It has been widely reported that 
this restructuring has several elements including engaging the 
U.S. Postal Service to provide last mile delivery of some of 
DHL's packages.
    DHL has stated very publicly and clearly that it would not 
be able to compete effectively or perhaps remain in the U.S. 
without restructuring its operations and costs. The company has 
reported it expects to lose $1.3 billion in the U.S. this year.
    Mr. Chairman and Members of the Committee, let me state as 
clearly as I can the anticipated agreement between UPS and DHL 
is not a merger or a joint venture. It is not an acquisition. 
It is not a consolidation.
    UPS and DHL continue to compete independently, and we will 
each price and market our brands and services. We will not 
share profits, costs or information about pricing of services 
to each other's customers.
    Under the proposed agreement, UPS will act as a vendor to 
DHL providing contractual services in the same way that 
carriers in our industry, including UPS and Federal Express, 
provide services to the United States Postal Service.
    This type of arrangement, where one company provides 
services to a competitor, is found throughout the 
transportation industry including in trucking, rail and ocean 
carriage. It is also found in other industries such as natural 
gas and telecommunications.
    UPS will not provide pickup or delivery of packages to DHL 
customers. DHL will deliver packages to UPS's airport locations 
for movement through UPS's air network to destination airports. 
DHL will then pick up the packages from the destination 
airports for final delivery to its customers. This is the same 
service currently being provided to DHL by two vendors, ABX and 
ASTAR.
    The anticipated agreement, in short, is simply an airlift 
contract, one part of a restructuring that DHL has concluded 
will significantly reduce its costs in the United States.
    There has been a great deal of discussion about the impact 
of DHL's restructuring on the job market of Wilmington, Ohio. 
UPS is a company that has a long history of providing good jobs 
and benefits for employees. We understand the importance 
communities place on attracting and retaining employment 
opportunities for their residents.
    It is very important to note in this regard that the 
expected result of DHL's restructuring will be to preserve 
approximately 40,000 DHL-related jobs in the U.S. that would 
otherwise be at risk. Further, the agreement with DHL will help 
to bring additional job security to more than 14,000 UPS 
employees in Ohio and 358,000 UPS employees in the United 
States.
    I should note that in 2003 UPS employed 317,000 people in 
the U.S. Since then, we have added more than 41,000 employees 
to our payroll which is 14,300 more people than the average 
total number of employees among the Fortune 500.
    It is our hope that growing our business will allow UPS to 
continue to increase the number of UPS jobs throughout Ohio, 
the Country and the world.
    Any suggestion that UPS could somehow manipulate the way in 
which DHL packages move through our system to gain a 
competitive advantage is simply untrue and gives DHL far too 
little credit for being able to protect itself. Let me assure 
you that DHL is a tough negotiator, fully able to protect its 
own interests.
    UPS will continue to compete vigorously with DHL and others 
in the U.S. and around the world, and we fully expect DHL to 
compete vigorously as well. DHL's restructuring, including its 
agreement with UPS, actually preserves competition in the 
package delivery business in the U.S.
    Now you might ask, why would UPS want to do something that 
helps a competitor remain in the market? For UPS, our goal is 
to find profitable opportunities such as this to better utilize 
our existing capacity, which makes us a more efficient 
competitor and allows us to create and provide career stability 
for our employees.
    In short, the proposed agreement represents a wise and 
efficient use of our assets, helps to protect the jobs of 
358,000 UPS employees in the U.S., and if we didn't pursue this 
agreement one of our competitors would have.
    Mr. Chairman, thank you for the opportunity to share UPS's 
perspective on an agreement that helps to strengthen a U.S. 
company that provides career opportunities to hundreds of 
thousands of people.
    I hope the facts I have outlined today address the 
questions and concerns of the Committee. I stand ready to 
answer any further questions that you and the Committee may 
have.
    Thank you.
    Mr. Oberstar. Thank you very much, Mr. Wallace.
    Mr. Hete.
    Mr. Hete. Chairman Oberstar and Members of the Committee, I 
am privileged to serve as the CEO of ABX Air and President and 
CEO of Air Transport Services Group, the parent company of ABX 
Air. Thank you for the opportunity to tell you about our work 
to help DHL compete more effectively in the U.S. market.
    Senior management of DHL and its parent company, Deutsche 
Post World Net, have asserted their only economically viable 
alternatives in the United States are an alliance with UPS or a 
complete withdrawal from the U.S. market.
    Like many in our industry, we believe that there are other 
alternatives. These other alternatives will ensure competition 
in the express delivery market and preserve American jobs.
    My remarks focus on the events during the past year that 
demonstrate how ABX Air has been very eager to help DHL 
overcome its structural inefficiencies and reduce its losses in 
the United States and, second, that ABX Air can provide DHL 
better value than UPS. If this is of interest to the Committee, 
I would be happy to expand on my remarks afterwards.
    We knew that DHL had not been meeting its business 
objectives in the United States for some time, but ABX Air 
leadership became especially concerned about DHL's situation 
over a year ago. Seeing their losses in the U.S., a softening 
economy and rising fuel prices, it was clear to us that DHL had 
to change and quickly.
    Because DHL is our largest customer providing 92 percent of 
our business and because we are their largest vendor, we 
brought our concerns to their attention and offered our help.
    In August, 2007, we had our first discussions with senior 
DHL Express management. We asked how ABX Air could help DHL cut 
costs in their U.S. network. In our discussions with senior DHL 
leaders, we offered to change every element of our agreements 
if we could help DHL stem its losses.
    DHL leaders offered us no information on what changes we 
might make to help them save money.
    By November of 2007, we had conducted several conversations 
with senior DHL leaders about our concerns, each time offering 
to help DHL lower its domestic costs, asking for specific ways 
we could help and asking about their plans for the future.
    Each time, DHL leaders thanked us for our willingness to 
help and told us they were still studying the situation.
    Though DHL has never shared its internal concerns or plans 
with us, when we saw their 2007 losses in the U.S., we knew 
something had to change. We built our own plan to dramatically 
cut DHL's domestic costs.
    Airborne Express had run a business similar to DHL's 
domestic one for over 23 years and, with the exception of the 
impact of September 11th, 2001, Airborne Express had never 
sustained an annual loss.
    We felt we understood something of DHL's issues. On March 
31st, well in advance of the May 28th announcement, I traveled 
to Bonn, Germany, and presented a proposal to John Mullen, DHL 
Express' global CEO.
    Our proposal provided DHL's network with over 250 million 
in annual savings based on the DHL domestic network then in 
place. Given how DHL has reduced its domestic network since 
then, we believe our plan would save DHL even more money now.
    After DHL's May 28th announcement regarding cuts from its 
domestic network, ABX Air went back again to DHL with a revised 
proposal. That proposal was very close in cost to what DHL 
intended to spend with UPS but provided DHL and its customers 
considerably higher value.
    DHL reported that it will pay UPS over a billion dollars a 
year to handle its freight. Our plan came in less than $100 
million above that but provided DHL the flexibility of 
maintaining its own sort and airline capacity in the U.S.
    Since we made that proposal, Deutsche Post World Net has 
declined to meet with us.
    The deal we have presented to DHL is so close in cost to 
what we understand DHL and UPS are discussing, so superior in 
value and so far less damaging to Ohio, that it invites 
discussion. We respectfully request that you strongly encourage 
DHL to negotiate with ABX Air to determine whether we can offer 
a solution. We urge you to do this before DHL and UPS take 
steps that will have an irrevocable effect on competition in 
the United States express delivery market as well as an 
unprecedented job loss impact.
    With more information about DHL's needs and cooperation 
from our organized employees, ABX Air can provide an 
alternative to the DHL/UPS agreement that sustains DHL as a 
true competitor with a proprietary network.
    As business people, we prefer solutions achieved through 
direct discussions with our customers. In the absence of that, 
we understand that government intervention may be required to 
produce an outcome that supports the viability of a principal 
air carrier in the express delivery market and provides long-
term stability to southwest Ohio, the State and the Nation.
    Finally, Mr. Chairman, I want to acknowledge the 
contributions of more than 10,000 ABX Air employees, the 
majority of whom directly serve DHL in the U.S. Their 
professionalism and strong work ethic has sustained DHL's 
reputation for high quality service over the years.
    In spite of the layoffs we are now making across our DHL 
system, our people have delivered 99 percent plus on-time 
reliability since DHL's restructuring announcement in May.
    As John Mullen himself acknowledged in his Judiciary 
Committee testimony last week, the cooperation DHL has received 
has been, to echo his words, simply outstanding. We appreciate 
that he shares our view, that the issues we are discussing here 
today are in no way a reflection on the commitment and 
dedication of the fine people who support DHL every day.
    On behalf of the employees and shareholders of ABX Air, 
please accept our sincere appreciation for the opportunity to 
testify before the Committee.
    We recognize that your responsibility in part is to monitor 
and promote a healthy U.S. airline industry and review the 
potential impacts of any consolidations on consumer choice and 
American jobs. ABX Air urges you to exercise your oversight 
role in seeking to promote strong, viable carriers as well as 
the American jobs that they represent in the express delivery 
market.
    Thank you, Mr. Chairman, and I stand ready to answer any 
questions of the Committee.
    Mr. Oberstar. Thank you very much for your testimony. We 
greatly appreciate it.
    Mr. Hammes.
    Mr. Hammes. Thank you, Mr. Chairman and Members of the 
Committee.
    My name is Gary Hammes, and I am the Chief Operating 
Officer of ASTAR Air Cargo.
    Thank you for inviting ASTAR to this hearing today and 
giving us the opportunity to explain why the DHL/UPS joint 
venture is not in the best interest of competition, customer 
service or employment. I would also like to explain that we 
believe there are alternatives to the UPS deal that could meet 
DHL's legitimate business needs to reduce its costs without 
producing the adverse effects I have identified in my prepared 
remarks.
    Although our primary focus is the welfare of ASTAR's 1,000 
employees, including over 300 military veterans, the 
ramifications of the DHL/UPS deal go far beyond our company to 
include the entire industry and its many millions of parcel 
customers.
    If DHL is permitted to outsource its primary and most 
important business and operational functions to UPS, it will 
compromise DHL's ability to remain an independent competitor, 
creating a UPS/FedEx, two-company marketplace. With only FedEx 
and UPS providing overnight package express services, those 
companies will be able to control pricing.
    One thousand good jobs at ASTAR Air Cargo will have been 
lost. Many thousands of jobs at ABX Air will have also been 
lost. Almost 10,000 of these jobs will be located in the 
Wilmington, Ohio area. That community will be devastated.
    DHL's overnight package delivery business, from pickup to 
delivery, is a tightly integrated system that relies on 
proprietary systems that are unique to DHL. The real-time 
tracking of packages and providing the tracking data to 
customers is a critical business function and a point of 
differentiation between corporations.
    DHL cannot hire UPS to transport its air transport and hub 
sorting without inserting a major competitor into the middle of 
its tracking system. By turning over this key differentiating 
activity to a competitor, DHL will have compromised its ability 
to continue to aggressively compete as an independent 
corporation.
    If linked to UPS, DHL's ability to continue to compete will 
diminish. DHL will find it more difficult to offer later 
pickups or earlier deliveries than UPS unless it can convince 
UPS to adjust its flight schedules to accommodate DHL's 
business requirements.
    UPS may well be reluctant to add capacity or tailor 
schedules to accommodate the unique needs of DHL customers 
particularly if DHL is seeking to take the business away from 
UPS. Indeed, just the act of conducting advance schedule 
discussions with UPS will tip off UPS to DHL's business 
strategies.
    UPS's first and controlling responsibility is to get its 
own packages to their destinations on time and to outperform 
its rivals, one of whom is DHL. Thus, if DHL contracts with UPS 
to transport its packages, UPS will have an inherent conflict 
of interest between meeting DHL's legitimate business 
requirements and meeting its own business requirements which 
include outperforming DHL.
    There is concrete evidence that UPS has embarked on an 
aggressive campaign to steal DHL customers based on the 
announced DHL/UPS joint venture. A UPS salesperson recently 
made a sales call on ASTAR, trying to convince ASTAR to switch 
its business from DHL to UPS.
    [Laughter.]
    Mr. Hammes. In this call, the UPS salesperson argued that 
once integrated into UPS's operation, DHL's service would be 
substandard.
    We have seen other evidence that UPS is aggressively making 
such calls on other DHL customers.
    DHL claims it needs the UPS deal to lower its costs. We 
agree fully that DHL should explore every opportunity to reduce 
its costs, but we also believe there are alternatives that DHL 
could pursue without compromising its competitiveness.
    When DHL purchased 49 percent of ASTAR last year, ASTAR 
committed to DHL that it would aggressively pursue every 
opportunity to control its own costs and pursue other 
strategies to help DHL control its overall air transportation 
costs. We have already made significant strides in this regard.
    For example, the new four-year collective bargaining 
agreement with ASTAR and ALPA signed last February specifically 
was structured to ensure that ASTAR crew costs would remain 
lower than that of UPS, and they are.
    In addition, last year, ASTAR approached ABX Air with an 
expression of interest to purchase that company with the intent 
of consolidating all of DHL's North American air transport 
functions into one company, thereby achieving significant 
efficiencies and cost savings to DHL. ABX Air rejected ASTAR's 
expression of interest, but DHL recognized then and I believe 
continues to recognize that this transaction would have made 
significant inroads in addressing DHL's efforts to contain and 
reduce its costs.
    ASTAR would be interested in renewing an effort to acquire 
the DHL-related portions of ABX Air if DHL were to advise that 
it would join ASTAR and ABX Air in such an effort.
    Thank you, Mr. Chairman. I would be happy to answer any 
questions you or other Members of the Committee may have.
    Mr. Oberstar. Very interesting testimony. I wonder how that 
transaction turned out or proposal turned out. We will find 
out.
    [Remarks off microphone.]
    Mr. Oberstar. I think you are right.
    Captain Ross.
    Captain Ross. Mr. Chairman, Mr. LaTourette, Members of the 
Committee, thank you for holding this hearing. You are 
performing a truly important service for thousands of workers 
and small businesses in America and for America's vital 
transportation industry.
    The proposed anticompetitive transaction between DHL and 
UPS rocketed to the top of the 2008 Presidential Campaign. I 
have had the privilege of personally briefing both Senator 
Obama and Senator McCain. I have heard them express their 
concerns about job losses and reduction in services to the 
customers and harmful impacts this de facto merger will have on 
our Nation's transportation sector.
    Mr. Chairman, I respectfully request that this Committee:
    One, oppose this proposed deal as destructive to U.S. 
aviation policy to promote competition;
    Two, request that the Justice Department immediately 
initiate an antitrust investigation;
    Three, request that the parties refrain from implementing 
the proposed alliance until the Justice Department concludes 
its investigation; and,
    Four, oppose any attempt to grant DHL a waiver of the 
citizenship laws that keep this Nation safe.
    I represent almost 700 pilots who fly for ABX Air, but I am 
also here to support more than 10,000 hardworking Americans 
who, like our pilots, will lose their jobs, lose their health 
insurance and their ability to support their families if this 
transaction is not stopped.
    Despite assertions by DHL and UPS to the contrary, the 
proposed deal will effectively reduce competition in the air 
express market from three to two. DHL, the firm with the 
smallest market share and the greatest incentive to compete on 
service and price, will be neutered as a legitimate competitor.
    Why? First, if this transaction is consummated, DHL will be 
forced to rely on its supposed competitor for its most crucial 
operations: air transport, package sorting and tracking.
    Second, a key element of the express delivery business is 
package tracking. It is the backbone of the service process. By 
combining efforts in this process, whether they admit it or 
not, DHL will be transferring highly sensitive proprietary 
commercial information about its customers and about its 
markets to UPS.
    Having watched express packages go through the sort for 16 
years and being in constant contact with the people doing the 
sorting, I can tell you there is no way UPS can transport, sort 
and track DHL packages without material and proprietary 
commercial information being transmitted by DHL to UPS.
    It makes no sense to rely on a major competitor for key 
elements of your service, especially in a highly consolidated 
marketplace. Indeed, there is every incentive for DHL's 
proprietary information to be disseminated through the sales 
and corporate organization of UPS to the competitive detriment 
of DHL.
    Perhaps DHL will insist that UPS construct a Chinese wall, 
maybe in the form of confidentiality agreements, to limit that 
dissemination. Unfortunately, Chinese walls leak and 
confidentiality agreements are breached.
    DHL CEO John Mullen testified last week before the House 
Judiciary Committee that it was UPS that approached DHL about 
merging their services.
    While I understand DHL's financial predicament and am 
actively trying to help them resolve it, I do not understand 
UPS's incentive. Why would UPS help the competitor in the only 
market in the world where that competitor is not number one?
    Mr. Wallace, why don't you waive the confidentiality 
agreements you have with DHL, so I can talk to them about 
saving jobs in Ohio?
    Our national transportation policy calls for placing 
maximum reliance on competitive market forces and on actual and 
potential competition to prevent unfair, deceptive, predatory 
or anticompetitive practices in air transportation. Regardless 
of how they label their deal, this transaction between DHL and 
UPS would clearly violate the letter and the spirit of that 
well-conceived national transportation policy.
    Through mismanagement of its North American operation, DHL 
is losing money. Rather than fix the underlying problem of poor 
management, DHL somehow would rather further undermine its 
position in the American market by essentially turning over its 
book of business to one of its competitors.
    Just last week, the Financial Times reported that DHL plans 
to further erode their business prospects in the American 
market by further reducing service. It was reported, DHL now 
plans to reduce their delivery capacity by half and also have 
UPS cover part of their ground deliveries as well.
    Mr. Chairman, we need your help to save them from 
themselves. DHL's proposed solution is a recipe for even 
greater failure. It is a potential death spiral.
    We, the employees of ABX, stand ready to help DHL fix their 
revenue and cost problems by working with them to increase 
efficiencies, improve service and move toward profitability. We 
stand ready to help them reverse their dim prospects instead of 
going forward with a self-destructive strategy that would 
improve the business prospects of their major competitor, UPS.
    Mr. Chairman, according to DHL's own web site, if you were 
to send an overnight package to each of your district offices 
today, the package to your district office in Duluth wouldn't 
get there until 5:00 p.m. tomorrow. For Chisholm, it wouldn't 
get there until 5:00 p.m. on Thursday. And for your Brainerd 
district office, I am sorry to say, sir, it won't get there 
until next Tuesday by 5:00 p.m. All of these arrival times are 
listed under DHL's next day 12:00 p.m. services.
    There are other Members of this Committee who have the same 
loss of service.
    On behalf of the tens of thousands of workers in Ohio and 
around America who will be dramatically harmed by this 
transaction and on behalf of all American small businesses and 
consumers, I urge this Committee to stop this potential 
violation of our vital national air transportation policy.
    Thank you very much for this opportunity, sir, and I am 
pleased to answer any questions you may have.
    Mr. Oberstar. Thank you very much, Captain Ross.
    I am rather surprised and impressed that you got these 
figured out, the shipping times to my various district offices. 
You probably can do the same for the rest of the Members of the 
Committee. It is very intriguing.
    Captain Prater.
    Captain Prater. Good afternoon, Chairman Oberstar. Thank 
you for allowing us to testify on behalf of our 53,000 airline 
pilots and especially the 500 pilots who fly for ASTAR Air 
Cargo, many of which have shared the afternoon with the 
Committee.
    For more than 30 years, these men and women have worked to 
make their company one of the most reliable cargo airlines in 
the world. Sadly, it appears that a corporate decision made in 
an office building in Germany could shut down ASTAR forever.
    What Deutsche Post, the owner of DHL, is saying is that 
your job does not depend upon your performance. It depends on 
the whims of a corporate bean counter who treats workers as 
just another expense to be cut in the name of restructuring.
    In fact, we heard from DHL that they don't even know what 
to call this. They sure have said what it is not to be called.
    What it will be: It will lead to more industry 
concentration, higher costs for consumers and more good jobs 
lost.
    I would like to take just a moment to thank the delegation 
from Ohio which has given so much effort to investigating this 
issue, and certainly this Committee as well as the Judiciary 
Committee, but the truly bipartisan effort from the Ohio 
delegation and the Governor's office as certainly been noted by 
our union.
    This proposal, there seems to be an assumption here that 
DHL is somehow addressing its problems through this arrangement 
with UPS. But where is the proof?
    What we are seeing out on the line is that DHL is actually 
already losing more business because of the uncertainty of what 
type of business they are going to run here in the United 
States.
    Second, there seems to be misunderstanding. While people 
throw out big numbers like a billion dollars a year--and I 
could certainly say if I was losing a billion dollars a year, 
that would be significant--is this arrangement going to cut all 
that billion dollars a year?
    Of course not. In fact, by what little public information 
is out there, we may be talking about a difference of $200 
million a year of savings.
    Certainly, we have committed to DHL to looking at any which 
way we can, along with our friends and brothers at ABX, to find 
the solutions to keep the business as is.
    What we are seeing is an awful lot of secret and double 
backstabbing dealing. While we are in negotiations with ASTAR, 
which is of course owned 49 percent by DHL, we are negotiating 
to protect our jobs. That happens to be the function of the 
union. At the same time that we are signing agreements with the 
company to protect our members' jobs, they are dealing with UPS 
to actually kill our jobs.
    In fact, what DHL is proposing me reminds me an awful lot 
like the defendant who shoots both of his parents and then 
cries for lenience for being an orphan.
    Well, in this case, we have a German company that buys two 
U.S. companies, wants to put a bullet in their head and then go 
on about their business. That just shouldn't be. We have men 
and women, communities that are deeply affected by these 
decisions that are being made.
    We have heard certainly from Congressman Westmoreland that 
he was proud of the corporate citizen of UPS. I guess maybe it 
is because I am married to somebody from Missouri, but I say: 
Prove it. Show me. Where are the jobs that come along with 
this?
    We are not seeing or hearing from UPS about any jobs for 
the displaced thousands of workers if this deal goes through.
    We have asked this Committee and the Justice Department to 
insist on reviewing these supposed firewalls that they are 
talking so much about.
    Last week, the Financial Times over in Germany made it 
clear that the deterioration in DHL's situation has actually 
accelerated since May.
    As to the failure for DHL to think and constructively deal 
above board, the facts are clear. We have made our effort and 
our commitment to finding a solution to their problems well 
known, but again they don't want to deal with us. They prefer 
to deal in secret with UPS.
    DHL's solution will ensure that the two companies, both of 
which were viable competitors when purchased by DHL, are put 
out of business.
    Mr. Chairman, there has to be more to this than meets the 
eye. After all, both ASTAR and ABX have met all performance 
targets set by DHL and provide 99 percent on-time performance.
    The pilots at both carriers, while reasonably compensated--
and you won't hear a union leader say this very often--make 
less than the pilots at UPS or FedEx. We are efficient, and we 
are safe, and we have been reliable, and that should go into 
the thinking here.
    The bottom line is that DHL's problem in North America is 
not the cost or the effectiveness of its air operations. Its 
problem is that it cannot compete with UPS and FedEx on the 
ground. They can't restructure their way out or call it 
something else other than that.
    What they need to do is work with their current suppliers 
and their employees to prevent customer flights away from their 
business.
    For all these reasons--I will summarize, Mr. Chairman--the 
transfer of DHL's lift to UPS requires, at the very least, 
careful scrutiny by this Committee, the Judiciary Committee and 
the Department of Justice. Further, as suggested by Chairman 
Conyers last week, this deal should be delayed, pending such 
scrutiny.
    And, given the stakes for workers and competition, any 
confidentiality restrictions entered into by the parties should 
be voided. Let's put it on the table. If DHL and UPS won't 
operate in the open, we ask you to step in and restructure 
their thinking.
    Thank you for your interest in this important matter, and 
we would be glad to answer any questions.
    Mr. Oberstar. Thank you, Captain Prater.
    As we began to put this hearing together and listen to the 
concerns expressed by the Members of the Ohio delegation and 
others affected by the transaction, I wasn't convinced there 
was a very solid case. But as the testimony has been submitted 
and as the testimony has unfolded, it appears to me there are 
some very serious antitrust implications. That is why we 
invited Mr. Simon, our next witness, to address these issues.
    Mr. Simon. Good afternoon, Mr. Chairman and Members of the 
Subcommittee.
    My name is Samuel Simon, and I am a private attorney in 
Philadelphia at the National Securities and Antitrust Bar. 
These are courses that I also teach at Rutgers Law School as an 
adjunct professor.
    I am here today speaking for the American Antitrust 
Institute which, as many of you know, is an independent 
research, education and advocacy organization founded in 1998 
that frequently comments on developments relating to antitrust 
laws and to competition policy in general.
    Our analysis and concerns relating to the proposed 
strategic alliance between DHL and UPS are set forth in detail 
in our written comments.
    In connection with my appearance before you today, I would 
like to stress the following crucial points:
    Let me take one second and talk about what antitrust law 
is. Antitrust law can be summarized very simply as dealing with 
the power of market participants to distort the competitive 
process. The Supreme Court has often described the antitrust 
laws as the Magna Carta of the free enterprise system.
    Now the single most important component of the antitrust 
laws is that competitors must compete.
    The converse of that is equally applicable and equally 
opposite. Competitors must not agree not to compete. The less 
competition in the market, the less price and service quality 
customers receive.
    Now the air express package delivery market, in effect, has 
only three competitors: DHL, UPS and FedEx. Because of this 
lack of significant competition, this tight little grouping can 
easily lead to cartel behavior in the best of times. By cartel, 
I mean simply a small group of competitors acting as a single 
unified entity.
    The strategic alliance that has been talked about this 
afternoon would mean that DHL uses UPS's air transport. This 
means that DHL would have a large part of its costs somewhere 
perhaps around 60 percent, controlled by its direct competitor, 
UPS.
    Now we can postulate two scenarios:
    Number one, DHL ultimately intends to exit the market. 
Under this case, the strategic alliance reduces DHL's ability 
to set its own competitive retail price because DHL would have 
no ability, none, to reduce pricing on its air linkage 
component, again about 60 percent of its total costs.
    The strategic alliance simultaneously increases--
increases--UPS's ability to charge itself increasingly lower 
internal prices for its own air transport costs. This, by 
definition, would permit UPS to undercut DHL in its retail 
pricing until DHL has to exit the marketplace. Once that 
happens, you have an effective duopoly.
    Under either version, reduction or increase or some 
synergistic combination of both, two of three competitors would 
have essentially agreed to cease competing against each other. 
And, as Mr. Hammes discussed a few minutes ago, there is always 
the possibility of a service squeeze, not just a price squeeze.
    Now let's take the other scenario, DHL intends to remain in 
the market. Under these circumstances, DHL will benefit from 
the higher prices in the market because it is far easier for 
two rivals to tacitly collude on prices than three rivals.
    Mr. Mullen, a few moments ago, said, well, this only 
substitutes one vendor for another.
    Respectfully, I suggest to you, Mr. Chairman and the 
Committee Members, that this is categorically contrary to the 
United States antitrust laws. It is the exact opposite to what 
the antitrust laws say. You cannot substitute one competitor 
for another.
    Now what are legal remedies?
    DHL, if it is dissatisfied with what is going on, can bring 
a breach of contract suit against UPS. But you know they build 
court houses, and in the courts of law there is often great 
difficulty in showing an actual contractual breach, and the 
harm that DHL is talking about may be impossible to measure or 
to quantify.
    The other possibility we see is that DHL brings an 
antitrust suit against UPS. This is even more cumbersome and 
more enervating. Moreover, UPS is not a monopoly in the fact it 
doesn't even have 50 percent of the market share. So a Federal 
judge is likely to toss any such suit right from the beginning, 
saying there is no monopolization and there is no attempt to 
monopolize.
    So, in our opinion, the best approach would be for the 
Federal Trade Commission, for the Federal Trade Commission to 
seek an injunction against this deal going forward under 
Section 5 of the Federal Trade Commission Act, charging unfair 
methods of competition.
    And, let me quite clear. The unfair method of competition 
would be an allegation that the strategic alliance constitutes 
what is called a facilitating practice, making it easier, 
making it simpler for firms in an oligopoly to coordinate their 
prices.
    Now, if the Federal Trade Commission won't do it, perhaps 
the Ohio State Attorney General's Office can do it, but that 
would be our thought as to where this matter should be 
proceeding.
    This concludes the oral portion of our testimony, and I 
respectfully refer you to our written submission for a detailed 
discussion and an explanation of matters from our perspective.
    Thank you, Mr. Chairman, for permitting me to testify on 
behalf of the American Antitrust Institute and for your time 
and attention this afternoon.
    Mr. Oberstar. Thank you very much.
    Your entire testimony and the testimony of all the 
witnesses will appear in full in the record.
    We have had several statements about the effect of this 
transaction to be to reduce competition.
    Let me ask you, Mr. Simon, supposing DHL waited to the 
point of bankruptcy. No longer could they continue their 
operation. The next step is bankruptcy, and they seek the 
protection of bankruptcy court, and then they disappear from 
the marketplace, say, Chapter 7, liquidation bankruptcy.
    Would that have changed the market effective of the 
situation?
    Mr. Simon. It would certainly change the litigation 
posture. If you are talking, sir, Section 7 and not Section 11, 
the reorganization, once a company files for bankruptcy, 
Section 362(A), the Bankruptcy Act, prohibits it from being 
sued or from suing. So the judicial approach would no longer be 
applicable.
    Mr. Oberstar. But would it change the market structure?
    That is their business then could be picked up by anybody 
else. It would leave then only two major competitors in the 
market place.
    Mr. Simon. That is right. It would become an effective 
duopoly.
    There is a number of witnesses who said, Mr. Chairman, 
there are pretty high entry barriers here. The average Joe 
Schmoe simply can't go in and start this business because you 
have an enormous amount of work to do on the land linkage side 
and the air linkage side, enormous sunk costs and a great deal 
of effort.
    So you would have an effective duopoly if they went 
bankrupt, did not reorganize and eventually disappeared.
    Mr. Oberstar. Since this is not a classic case of 
acquisition or merger but a contractual relationship, to rise 
to the level of antitrust concern, does the air transportation 
portion of the delivery have to rise to a level or percent of 
the cost of package delivery to quality as violation of 
antitrust?
    Mr. Simon. Well, I would answer that your question really, 
sir, has two parts.
    There is no acquisition of assets. So the standard classic 
tool for stopping this sort of things in their incipiency, 
Section 7 of the Clayton Act, simply does not apply.
    The other part of your question, I would say that there is 
no threshold formulation because injunctions are often designed 
to stop impending antitrust conduct from occurring shortly 
before the time that they are going to incur.
    If I own a house and somebody is going to run a bulldozer 
through it wrongly, I can get a court injunction stopping them 
from doing so before the bulldozer rips out my house.
    So I would suggest to you that my personal opinion, 
personally, you don't need any particular threshold of dollars 
or percentage in order to seek an injunction from the 
appropriate governmental agency, which I would suggest to you 
is much more likely to be the Federal Trade Commission which 
more and more has shown itself independent from, as someone 
said earlier today, a somnolent Department of Justice.
    Mr. Oberstar. Yes, that was my comment. I think we can 
apply the same term to the Federal Trade Commission.
    [Laughter.]
    Mr. Oberstar. Mr. Mullen, earlier, the Lieutenant Governor 
of Ohio said, we were never given the opportunity to offer good 
faith alternatives.
    What alternatives could the State offer that would dissuade 
DHL from this transaction or make it attractive for DHL to 
remain independent and without a contractual arrangement with 
UPS?
    Mr. Mullen. Mr. Chairman, we would have liked nothing more 
than to find a solution that kept the status quo of Wilmington 
and the people affected by these changes. We spoke to numerous 
parties.
    I, personally, spent a lot of time in the U.S. and 
elsewhere, speaking to as many parties as I could to try to 
find a solution to our situation. I have spoken to competitors. 
I have spoken to private equity players. I have spoken to third 
parties.
    Now, several people are saying, well, we would have liked 
the time to discuss and we can find alternatives, et cetera.
    With the greatest of respect, we had discussions with those 
people at the time. We had discussions with the two major 
airline subcontractors at the time, and we were not able to 
reach any agreement.
    We facilitated an offer from ASTAR for ABX and $7.75 a 
share. I point out I think the share price today is 95 cents or 
something. We were prepared to back that, to allow the two 
airlines to come together to make, as others have said, 
substantial savings.
    But that was rejected at the time for reasons you will 
obviously have to ask them. It was rejected, and they weren't 
even willing to discuss.
    So we then moved on, and we have found another solution 
that is a very solid solution to the problem that we have.
    Now, obviously, I can understand people's angst and 
disappointment about it. But to come back now and say, if only 
we had time or if only we had allowed to have this discussion 
or that discussion, we did speak to every party that we could 
see could offer any sort of solution.
    Now, in fairness to the Lieutenant Governor, we did not go 
to the government of Ohio because we simply felt that it was 
unrealistic to expect that taxpayers' money would be used to 
subsidize private company losses of this magnitude.
    If our problem had been $20 million or $50 million, I am 
sure that we might have been able to find something. But a $1.3 
billion problem every year, year in, year out, we felt was 
beyond a credible expectation that taxpayers' money would be 
used for that. So we did not, in all fairness, discuss with 
them, but we did discuss at length with all the other parties.
    Mr. Oberstar. Thank you very much, Mr. Mullen.
    I now yield to the distinguished gentleman from Ohio, our 
very keen legal analyst on this Committee.
    Mr. LaTourette. Well, I don't know about that, but thank 
you, Mr. Chairman.
    For the members of the panel, I chatted with the Chairman 
that because there are seven of you I don't want anybody to be 
neglected. He has indicated that if time permits, we may come 
around again. So, if I don't get to you now, it is not because 
I don't like you. I will get back to you.
    I want to begin, Mr. Hete, with you on Mr. Mullen's last 
point.
    A couple of people, and I know the Lieutenant Governor said 
it. Maybe somebody else talked about this attempt by ASTAR to 
make an offer to purchase ABX. Mr. Mullen just said $7.75 a 
share. First of all, is that accurate?
    Did ASTAR offer to buy ABX at $7.75 a share?
    Mr. Hete. It was not an offer. It was an indication of 
interest at $7.75.
    Mr. LaTourette. Okay. ABX is a publicly traded company, is 
it not?
    Mr. Hete. That is correct.
    Mr. LaTourette. And you trade on NASDAQ?
    Mr. Hete. Yes.
    Mr. LaTourette. Did you know when that interest was made, 
when they made that intention?
    Mr. Hete. Yes. It actually occurred June 19th of 2007. I 
received a call from John Dasburg, the CEO of ASTAR, and this 
was basically a week after DHL had made their investment in 
ASTAR, acquiring 49 percent of the ownership and 24.9 percent 
of the voting shares of ASTAR.
    I received a call from John Dasburg that said he wanted to 
start a discussion in regards to the potential acquisition of 
ABX.
    I have to digress a little bit because the initial attempt 
to put the two air carriers together was initiated by ABX back 
in the fourth quarter of 2006. We had approached John Dasburg 
and asked if he would be interested in having ABX acquire ASTAR 
to consolidate the two airlines under ABX.
    We spent probably four or five months working on that deal, 
and the offer that we put on the table was rejected by ASTAR.
    So about three months went by when ASTAR turned the tables 
and said, we would like to acquire ABX. The actual indication 
of interest occurred on June 26th when John Dasburg went public 
with that indication of interest which was a little bit 
surprising because he and I had set a private meeting for a 
couple of days after that, June 28th, to have a discussion 
about the viability of that potential acquisition.
    So, you see, we viewed it as a potential hostile takeover. 
We employed the services of Goldman Sachs to assist us in the 
analysis of the ASTAR indication.
    As a result of the analysis looking at the potential 
synergies that would be gained by DHL who, as Mr. Mullen 
already testified, they would be funding that acquisition. 
Based on the synergies that would be gained by DHL, we did not 
feel and advised ASTAR Cargo that the offer or the indication 
of $7.75 did not represent adequate value for our shareholders.
    The following day, ASTAR said, well, they will pursue other 
alternatives then, and that was the end of any discussions.
    Mr. LaTourette. Do you know on that date in June what ABX 
stock was trading at?
    Mr. Hete. At the time they made the indication of interest 
at $7.75, the $7.75 was about a 15 percent premium to the 
average price for ABX in the previous 30 days and it was about 
a 6 percent premium over what the price was on the date that 
ASTAR had made the announcement that DHL had made the 
investment in them. So it wasn't much of a premium compared to 
what the market price was prior to that indication.
    Mr. LaTourette. But since that time, the fortunes at least 
of the stock price have declined. The last date that I have is 
May the 12th, 2008, and I have ABX stock trading at $2.44.
    Mr. Hete. No. Today, it is actually less than a dollar. It 
is 90-some cents.
    Mr. LaTourette. Mr. Mullen, to you just a question on 
behalf of the folks in Wilmington. You all own the Wilmington 
Air Park, and regardless of what happens here it is my 
understanding that that ownership presents an obstacle to the 
efforts by the community to move ahead with redevelopment 
proposals if this is the ultimate decision.
    The question is can you offer us some insight relative from 
your perspective as to your plans to relinquish the facility as 
part of a settlement with Wilmington and Clinton County?
    Mr. Mullen. Yes. We have continually maintained from the 
outset that as and when this transaction is concluded, we would 
very willingly sit down with the community, with the State and 
discuss the future of the Air Park, including the possible 
donation of the Air Park to the community.AFTER 6:00 PM
    Mr. LaTourette. Okay. To you, Mr. Mullen and to you, Mr. 
Wallace, well, this one is just to you, Mr. Mullen.
    I have been trying to think of the movie--and sadly the 
only movie that comes to my mind is Tommy Boy and I know that 
is not it--where they invite the big guys to town and they have 
the big party and the brass bands playing and everything else.
    The Mayor here, you know was in Leipzig, he claims.
    First of all, I would ask you if his testimony was not 
accurate, that there were meetings in February and April. Then 
he is over in Leipzig to see the grand opening of this new 
thing, and then on May the 28th you sort of said: Oh, we are 
restructuring. Although we didn't know it at the time, it is 
where we are today
    Can you just from a company's perspective, just like when I 
was talking to Mr. Hete about not taking 7.75, what happened?
    How did you go from welcoming the Mayor to Leipzig to I 
can't think of the word that I can use on the record but sort 
of not being so welcoming?
    [Laughter.]
    Mr. LaTourette. What happened?
    Mr. Mullen. Well, firstly, I would like to say that 
everybody involved, from employees to the pilots to the Mayor 
to the State, I mean we have had wonderful support throughout. 
There are no criticisms of any form from us. This is purely 
economics, I am afraid.
    But in that particular instances, there were several 
references to meetings I think in Ohio where people made 
various statements about our ongoing future, et cetera. At that 
time, those individuals did not know of the decisions being 
discussed at a board level about the future of our U.S. 
business. So they acted in good faith.
    Mr. LaTourette. Well, let me just be clear, and I will let 
you finish the answer because that is an answer.
    So you don't dispute that the Mayor and our Governor were 
on the telephone with people at your company who said: Don't 
worry about it. We are in for the long haul. We are staying 
there. We have great employment.
    The problem, as I understood your answer, is that the 
people who were having those conversations didn't know that 
other things were going on within the company. They weren't in 
a position to know.
    Mr. Mullen. Obviously, a decision like this is an extremely 
sensitive decision for all the people involved. We are a 
publicly quoted company, a stock market quoted company. So, 
obviously, the sensitivity is huge.
    We kept a fairly tight circle of those people involved. So 
I am not sure of every single conversation or who said what to 
whom, but certainly on the DHL side the people talking at that 
time were not aware.
    Mr. LaTourette. Okay. I thank you for that.
    Now to Mr. Mullen and Mr. Wallace. And, Mr. Wallace, let me 
just say that this is my 14th year in the Congress. I don't 
know if UPS has a bigger defender when it came to postal 
reform, when it came to your dust-up with FedEx. I think you 
are a great company that has great employees, and you do a 
great job.
    But I have been handed a sheet, and I don't know who. I 
think Mr. Hammes was talking about how somebody from UPS came 
in to pitch ASTAR on switching to UPS.
    I have been handed a little card that apparently I don't 
know if it is handed out to your drivers or not. Are you 
familiar with this?
    Mr. Wallace. I am not familiar with that.
    Mr. LaTourette. Okay. I would ask the staff to make a copy 
of it and provide it to you. I don't want to sandbag you, Mr. 
Wallace.
    But I think it answers the professor's concern. It doesn't 
demonstrate to me that you are rolling over and not wanting to 
compete with DHL. It indicates something else.
    Let me ask, before I ask you about that, to this MOU, the 
memorandum of understanding. I think that in these cases and 
where I would take our Lieutenant Governor to task is I think 
it is boilerplate for a memorandum of understanding to say that 
you are not going to discuss what it is you are discussing as 
you try and finalize a deal.
    I also think it is boilerplate that you don't talk to other 
people and competitors when you are in serious negotiations. I 
don't think there is anything sinister about that.
    But having said that, I think that the other witnesses have 
indicated to us that DHL's answer now is, well, we can't talk 
to you because of the MOU that we have with UPS.
    Maybe the professor can chime in on the antitrust or the 
Federal Trade Commission implications of this.
    I would tell you that what is the matter with DHL receiving 
100 different offers because at the end of the day if it is 
going to come down to?
    I would think the answer would be what Mr. Mullen is trying 
to say here today, and that is it is the only thing we could 
do, but I don't know that you can say that unless you have 
listened to everybody.
    I have to tell you, I have been in this business 20 years. 
When I want to steer something to my friends, I invite 100 
people. And guess what, my friend still wins, but I have 
listened to 100 different people.
    [Laughter.]
    Mr. LaTourette. The question I have is I think your 
company, which is a wonderful company, and I said in my opening 
statement that I know why you are doing this. You have excess 
capacity at Louisville.
    So sadly, Captains, for the people who are talking about 
job transfers, I don't think there are going to be job 
transfers because you have excess capacity and this is a boon 
to your business. I get why you are doing it.
    But what is the danger when 10,000 or 12,000 people are 
losing their jobs in southwest Ohio? Let the Lieutenant 
Governor come in and pitch Mr. Mullen. Let whoever come in and 
pitch Mr. Mullen--say, here is the package and what do you 
think?
    Do you think we can get there, Mr. Wallace?
    Mr. Wallace. Well, I can't speak for DHL in that regard.
    First of all, thanks for the compliments regarding UPS. I 
thank you for that.
    Mr. LaTourette. Oh, you are a great company.
    Mr. Wallace. I can't speak for DHL.
    Our position on this proposed agreement is to pursue it 
vigorously, to get the agreement done as quickly as possible. 
We believe it is in the best interest of UPS. We believe it is 
in the best interest of competition and good for our people and 
good for our future.
    The provisions that we have with DHL in regards to the 
referenced exclusivity discussion that was made earlier, we 
believe these are typical commercial provisions, and it remains 
in our best interest at UPS to stay focused on completing the 
transaction and keeping those in place.
    We have invested resources as part of this negotiating 
process and time, and we believe it is in our best interest to 
continue to maintain that relationship.
    Mr. LaTourette. And I get it. That is why I called it 
boilerplate. I think your shareholders would probably shoot you 
if you didn't have this in the agreement.
    I guess what I am asking is in light of this isn't just a 
swap of something where nobody is affected. I mean you are 
going to turn a town, not you, but this deal will turn a town 
into a ghost town.
    I just would ask for you to go back to the lawyers and see 
if you can permit in just that section, not to talk about the 
details of your deal, but just that section of the MOU that 
would let DHL receive Lee Fisher to come in and offer a million 
dollars or whatever he wants to do or this person comes in, 
that you consider that.
    I bet that your lawyers, if they hooked up with Professor 
Simon over here, might say, you know what, that puts you in a 
better posture when they come flying at you with antitrust and 
anticompetitive provisions. So I would ask you to consider 
that.
    Now do you have this little card that I was talking about?
    Mr. Wallace. Yes.
    Mr. LaTourette. Okay. On the issue, I guess I just want to 
express disappointment because this clearly--well, first of 
all, have you ever seen it before?
    Mr. Wallace. No.
    Mr. LaTourette. Okay. It has been represented to me that 
this is, and I don't know if the guy that came to pay the call 
on ASTAR had this card, but it looks like it is titled Turning 
DHL Restructuring Into UPS Opportunity.
    It looks to me like it is a document that is given to UPS 
employees when they are calling on customers. To me, if this 
was just a deal to help DHL out, I mean I think that this card 
instructs people making customer calls to tell them to dump DHL 
because of potential rate fluctuations, pickup and delivery 
time issues, single carrier responsibilities and customer 
service.
    So I really think that that blows the professor's argument 
that you are not still competing with DHL out of the water. But 
it looks to me like with one hand you are making a deal to do 
the air side of DHL's business, and on the other side you are 
trying to kill them.
    Mr. Wallace. Yes, I think that this is an example of likely 
some of our local people, who are always trying to compete and 
grow our business, doing that. This is not something that is 
sanctioned by us at the higher level.
    But I do think it is an example of the fact that we are 
competitors, and our people continue to attempt to gain 
business wherever they see the opportunity to do so.
    Mr. LaTourette. Fine. I think you are exactly right. I 
don't think this is a competitive business thing. I think you 
want to club these guys like a baby seal and get them out of 
the business, which makes me wonder why they are giving you 
their air business, but I will leave that as it may.
    I yield back, and maybe we can come back again, and I thank 
you, Mr. Space.
    Mr. Space. [Presiding.] Thank you, Mr. LaTourette.
    Now I would like to follow that same line if I might.
    Mr. Mullen, in your testimony, one of the first things you 
emphasized was that this was not a merger. Rather, you 
indicated this was simply an act of replacing two separate 
independent contractors with one.
    Apart from the concerns that Professor Simon has registered 
regarding the very propriety of that conduct, I just beg to 
differ with you. I think this is something far greater than 
simply replacing two independent contractors with another 
independent contractor.
    We are dealing with replacing two independent contractors, 
that are not competitors and with whom DHL has had a long and 
intimate and storied history, with a direct competitor who this 
documentation clearly reveals is involved in a very intense 
competitive race. That, to me, speaks loudly and causes me some 
concern over the fact that you have dismissed almost out of 
hand.
    The agreement that forms the basis of all of this, the 
transactional agreement, the thing that is not a merger, I am 
not quite sure what it is. My understanding is it is a 10-year 
contract with UPS under which your company will pay UPS about a 
billion dollars a year. Is that correct?
    I know it is a very general statement. Is that a correct 
assertion?
    Mr. Mullen. That is correct in broad terms.
    I must stress, though, one of the great attractions of this 
solution. We would much rather be successful in the United 
States and not have to do a deal with anybody. That would be 
our first choice, of course.
    We compete vigorously in 220 countries in the globe, and we 
have a big problem in this Country. We need to find a solution, 
which is what has led to this.
    But one of the key aspects of this arrangement for us is 
that it is not just a price issue. There are two other major 
factors.
    One is that it takes a fixed cost that we have today of 
aviation and turns it into a variable one.
    One of the problems of this market has been declining now 
since 1998. We look back at the volumes of Airborne before we 
acquired it. Their air volumes were declining before we even 
bought it, and the market has continued to decline since that 
time. We have less volumes today than we had in 2000 as an 
industry.
    Whatever structure wherein we place ourselves, even were to 
adopt one of these other solutions, we would still have a fixed 
cost.
    Mr. Space. I understand.
    Mr. Mullen. If volume continues to fall, we can't reduce 
the cost. In this proposal with UPS, we can. So that billion, 
if our volume drops, comes down.
    Mr. Space. Sure. The reasons as to why you have lost so 
much volume share in four or five years are matters that are 
probably outside the ambit of this hearing and aren't directly 
related.
    But my question is this: You have entered into an agreement 
with a competitor to essentially provide a significant 
percentage of market share, and I am curious as to what 
consideration was flowing in the other direction. What did you 
get out of the deal?
    Mr. Mullen. We are not giving up any market share. We are 
contracting one piece of our operation, the flying of 
airplanes, to another company. It has nothing to do with market 
share.
    Mr. Space. Right. Well, you are giving up the air cargo 
portion of your business to one of your most serious 
competitors or your biggest competitor.
    Mr. Mullen. We are giving up air carriage between key 
cities, yes.
    Mr. Space. Right. For that, was there any consideration 
flowing in your direction apart from just getting this 
nightmare that is causing a loss of money at epic proportions 
off of your hands?
    Mr. Mullen. We get three things back in return: The first 
is we save a considerable amount of money.
    The second is we take a fixed cost and turn it into a 
variable.
    The third is we have some 100 plus aging aircraft in the 
United States, all of which will have to be replaced in due 
course with a huge capital expenditure requirement ahead of us 
in a business where we are already losing billions, that we are 
facing further investment to maintain those air fleets, further 
investment to maintain the hub, and we can replace that with an 
outsource contract to UPS where we do not have to meet any of 
that further capital expenditure.
    So there are three aspects: saves us money, turns a cost 
variable and eliminates a very significant billions of dollars 
of additional cap ex.
    Mr. Space. You heard the testimony of Professor Simon. Are 
you at all concerned about the implications of now essentially 
being at the mercy of a competitor who appears to be gaining in 
strength and has a stronger position on the market than you?
    Mr. Mullen. Obviously, as I said, we would much rather not 
have had to make any arrangements with anybody.
    That said, we don't feel that we are at the mercy of UPS. 
We spend a lot of time, what is still ongoing at the moment, in 
the negotiations to protect ourselves as fully as we possibly 
can from any such threat.
    Mr. Space. Now we have heard some testimony from some of 
the other gentlemen at the table that would seem to indicate 
that they have attempted to present concessions and a package 
that would have cost about $1.1 billion as opposed to $1 
billion per year you are paying with UPS. Do you refute that?
    Mr. Mullen. Yes. We have not seen this final proposal.
    What has happened is, yes, there has been a backwards and 
forwards between two subcontractors over which we do not have 
direct control.
    I take it on good faith from what Mr. Hete says that he 
maybe first approached ASTAR. Then ASTAR approached him. Then 
subsequently in March, we had another meeting where they 
proposed to take over ASTAR again or first eliminate ASTAR, the 
same deal back in reverse.
    But at the end of it all, our $5 million a day is still 
taking over, and they have not reached agreement between them, 
and we had to take other action.
    Mr. Space. The confidentiality agreement that has been 
discussed at length during this hearing today, is that 
something that you felt prohibited you from entering into 
discussions with ABX or ASTAR regarding these proposed 
concessions?
    Mr. Mullen. We have had, let me repeat myself, extensive 
discussions with both ABX and ASTAR. We do not see any solution 
that solves our problem in the United States.
    Subsequent to that, we have now entered into a transaction 
that we believe will help, and that includes the normal 
exclusivity provisions that go with any contract like that once 
you get into the final stages of negotiation. So right now, 
yes, we are bound by that, but we have already in our view 
exhausted the discussions that we have had with the other two 
companies concerned.
    Mr. Space. Where are you in terms of the agreement with 
UPS? What stage of negotiations are you in?
    Have you got a signed, sealed and delivered contract or are 
you continuing to negotiate?
    Mr. Mullen. We are continuing to negotiate final terms and 
conditions of that contract.
    Mr. Space. Mr. Wallace, the question was raised earlier by 
one of the gentlemen concerning a lack of any testimony 
concerning the number of jobs that may be created as a part of 
all this transaction at UPS. Do you have any assessments that 
you can offer us with respect to that?
    Mr. Wallace. We are still in negotiations. So it is very 
difficult to estimate the number of jobs that could be created 
or even the type of jobs that could be created at this point, 
although generally an increase in our volume in our system, in 
our network does give us the opportunity to create new jobs. 
Just at this point, I can't give you an estimate on that number 
of jobs.
    Mr. Space. Okay. That is all the questions I have.
    At this point, I would recognize the gentlelady from Ohio, 
Jean Schmidt.
    Mrs. Schmidt. Thank you, Congressman Space.
    I have so many questions and so little time. I may put them 
in writing and ask the gentlemen at the table to answer them.
    But before I begin, one of the things that was stated by 
Mr. Mullen, he compared this to the U.S. Postal Service. That 
is an unfair comparison because the U.S. Postal Service is a 
government monopoly, and books on this sort of subject will say 
that you really can't use the Postal Service when you are 
talking about a free market because it is not a free market for 
reasons I could go into for a long time.
    The second thing that I have a problem with your testimony 
is that you are pretty some subjective remarks into it when you 
say that you have looked at every option we think is available, 
but I am not sure that you have looked at every option that is 
available.
    The third is that you haven't seen the final proposal from 
the players in Wilmington, but in actuality you are not willing 
to see their final proposal.
    So I have some problems with your testimony, and I have to 
be really honest with you with it.
    Mr. Wallace, I don't blame you for going full force on 
this. I think this is a great deal for you, and I have seen 
that card. Before I even saw that card, I kind of figured that 
your sales force was going to be out there trying to undercut 
the competition.
    I did door to door sales a long, long time ago. I know what 
it is like. It is a cut-throat business, and I applaud your 
folks for doing that.
    But it concerns me about what is going to happen with DHL, 
and the thing that really concerns me is I really think we are 
creating a duopoly here.
    Beyond that, I do have some questions that I would like to 
ask you, Mr. Mullen. There are a lot of other assumptions that 
you have made in your testimony. One of those is that you are 
assuming that when you have this contract with at UPS, that at 
the time it is concluded, that you are going to continue to be 
able to opt in or out at your will, I believe.
    I haven't seen your contract. But if I were you, that is 
the kind of contract I would want, an opt in or opt out on your 
terms.
    But UPS is going to have to have that same agreement, that 
after 10 years there is going to be an opt in or an opt out 
with them because what if they can no longer carry and they can 
only carry their goods.
    So what is your fallback position if after 10 years UPS 
pulls the rug out from under you?
    Mr. Mullen. Yes, you are absolutely right in presuming that 
is part of the negotiations at the moment. Both sides need a 
considerable amount of warning towards the end of that contract 
as to what the next step is. Is it renewed or do we go our 
separate ways again?
    We are building provisions of ample warning, two years or 
more out, to allow were we not to continue to ask to put 
alternative lift back in place.
    Mrs. Schmidt. A follow-up to that, we have heard a great 
deal of testimony from just virtually everybody on this panel 
and the folks before that the barriers that are in place right 
now, if you don't get a fallback position, a guarantee for the 
next 100 years with UPS, if they shut the door on you, you are 
really going to be out of business because it is going to be 
very difficult for you to find another player in the market and 
especially in 10 years when we don't even know where this 
market is going to be.
    Mr. Mullen. We don't think so, no.
    We believe that we can build in enough security that eight 
years or more down the track from today, were that to be the 
case for some reason we don't renew. I guess we would hope that 
we would renew, but if we were not able to we are confident 
that we will be able to put alternative arrangements in place 
on time.
    Mrs. Schmidt. Another question for you, sir, I understand 
that DHL also owns 49 percent of Polar Air Cargo and has an 
agreement with Polar for air services in and out of the United 
States. Can we expect DHL to try to get out of that contract 
and switch volume to UPS as well? Is that part of your deal?
    Mr. Mullen. No, that is not part of any deal with UPS.
    Mrs. Schmidt. A follow-up, are you going to continue 
working with Polar Air Cargo or are we going to sit here and 
have another hearing when you want to switch gears out of Polar 
Air Cargo? I think we have a right here to know that.
    Mr. Mullen. At this stage, we have no intention of changing 
the relationship that we have with Polar Air Cargo.
    Mrs. Schmidt. Okay. Another question for you, sir, I 
understand that cost of doing business is a very sensitive 
subject. When you can own most of your resources, generally, 
you can control most of your costs, but you are going to take 
60 percent of your business and give it to your competitor.
    So when your competitor has to raise their costs, what is 
your reaction going to be?
    Mr. Mullen. Well, firstly, it is not 60 percent. It is sort 
of in the 25 to 30 percent area.
    But, secondly, the contract will build in price protection. 
So there is only CPI type increases. UPS is not able just to 
raise its costs at will. We have certainty of our cost position 
for the duration of the contract.
    Mrs. Schmidt. Okay. Another question for you, sir, folks 
have been coming through my door, as you can tell, and telling 
me how this operation works and that you have this bar code 
situation that is put on the packages that shows where the 
logistics of the packages are going to go, what the price was 
paid for the package because some of these folks have computer-
generated software that they can actually put the packages at 
their own business and not have to go to you to pay for the 
packages up front.
    But in that capacity, when it goes onto the airplane, 
before it gets onto the airplane, there is a scanner that 
actually relooks at those to make sure that everything is 
correct, including the price point of it. It appears that you 
are going to have to take that function and give it to Mr. 
Wallace because you are no longer going to be able to be in 
control of that package.
    What are you going to do to stop UPS from getting that 
sensitive information and, in addition to the card that I have 
also seen, having their sales force go right out and undercut 
DHL?
    Mr. Mullen. With respect, this keeps getting repeated, but 
it is just a falsehood. We are not going to make pricing 
information available to UPS.
    All the data that they will receive is sufficient data to 
be able to move it from Airport A to Airport B. Yes, they will 
know the customer name. They will know where it was picked up, 
and they will know where it is delivered to.
    But they know that now. Our sales force, as you can see, 
are in the street every day. They know which our accounts are. 
So that won't change, but they will not get access to any data 
that gives them competitive advantage with that information.
    Mrs. Schmidt. A follow-up, so they won't have any 
opportunity to know any of your costs involved, either hard, 
soft or whatever in this arrangement?
    Mr. Mullen. Well, they will know what the cost is because 
they will be charging us the cost, but they will not have 
access to any of the rest of our cost base or any pricing 
information with that customer.
    Mrs. Schmidt. And, sir, with that cost, they are going to 
know what the cost is. You are going to know what their cost is 
to you. You don't think that that is going to build you into a 
disadvantage because they are going to be charging more than it 
is going to cost them to move their own goods?
    I mean that just make sense. If I am using a taxi to get 
across town instead of using my own car to get across town, it 
costs me more to get across town.
    If I am using UPS to carry my goods across the United 
States, it is going to cost me more because they are going to 
charge me just as a taxi charges me to sit in the back seat of 
the car. They are going to charge me more than what the base 
cost would be.
    That is the part that I am not understanding, and I know 
you are going to come back and say, but your overhead is so 
much larger and therefore you are going to cut that cost. I am 
not sure that really works. I think school systems are seeing 
that in renting buses versus owning their own buses.
    So I have real problems with how. I am concerned how you 
are going to create an opportunity into the future to remain 
competitive with UPS and FedEx.
    Sir, what I don't want to have happen is a duopoly because 
nobody wins in a duopoly. This is beyond the cost to Wilmington 
and devastating that town and the almost 1,000 jobs that 
devastate my district because my district is impacted as well.
    This is beyond that. This is what is it going to do to the 
moms and pops across the United States that are trying to make 
ends meet now and want to have a package delivered to their son 
or daughter across the ocean or across the United States and 
suddenly they see that price continue to go up and up and up.
    Mr. Space. The gentlelady's time is expired.
    At this time, the Chair recognizes the gentlelady from 
Hawaii, Ms. Hirono.
    Ms. Hirono. Thank you, Mr. Chairman.
    Mr. Mullen, you said that one of the pluses of this 
arrangement would be that you would turn a fixed cost into a 
variable. Can you explain to me what is the fixed cost just so 
I am very clear?
    Mr. Mullen. Yes, indeed, Congresswoman. That ties actually 
exactly into the discussion I was just having with 
Congresswoman Schmidt.
    When we fly our own aircraft, those aircraft fly every day 
whether we have 1 package on them or whether we have 1,000 
packages on them, and the cost is pretty well the same.
    Ms. Hirono. Okay.
    Mr. Mullen. Obviously, you know in a falling volume 
environment, that continually increases the impact to us.
    In a variable cost situation, if we pay UPS X dollars per 
package, if we don't have the package, we don't have the cost.
    Ms. Hirono. But right now, you are paying ABX and ASTAR for 
that portion of your business. So that, you consider a fixed 
cost?
    Mr. Mullen. Yes, because we pay them for the full cost of 
flying that airplane whether we put any packages in them or 
not.
    Ms. Hirono. But with the arrangement that you are going to 
have with UPS, it is dependent on the number of packages. That 
is what you are saying?
    Mr. Mullen. Yes. It is basically a per piece charge.
    Ms. Hirono. I appreciate your position that you said that 
you have exhausted all of your discussions with ASTAR and ABX, 
but clearly the fact that they are here testifying as well as 
the State of Ohio, they do not believe that the discussions are 
exhausted.
    I can only suggest that having heard all the testimony, 
sitting here, that I hope that you will enter into discussions 
with them because they obviously don't agree with you that they 
have exhausted all possibilities. Also, the State of Ohio has a 
tremendous interest in this.
    Mr. Simon, you noted that you thought that this agreement, 
on its face, raised certain antitrust concerns, and your 
suggestion is that an injunction be pursued. Now it is not that 
easy to get an injunction, and were an injunction to be pursued 
I would expect that DHL and UPS would raise some kind of 
irreparable harm argument.
    Would you say that based on what you say is the facial 
appearance of this agreement, that an injunctive action would 
prevail?
    Mr. Simon. Well, I would answer the question this way, 
Congresswoman, when one seeks an injunction, the first thing 
that happens is if you can prove your case you can get what is 
called a preliminary injunction halting the arrangement for a 
reasonably short period of time until the parties can gather 
their data and their evidence and their testimony and present a 
full panoply of witnesses and evidence to the tribunal, a 
commission or a court, whatever tribunal is hearing it.
    At that time, the ordinary standards of full, permanent 
injunctive relief have to be satisfied, which are not so easy 
to get but which depend on a case by case basis, applying the 
standard law of what injunctive relief is to the facts as 
developed in an expedited discovery program.
    So I would not feel comfortable being put in the position 
of saying could the full, permanent injunction prevail, but a 
temporary hold entered by a tribunal or a competent court would 
give the parties time to gather the facts, data and evidence 
that they need to make a full presentation and a full 
adjudication before a neutral fact finder. That is why court 
houses are built.
    Ms. Hirono. So, based on what you already know about the 
circumstances of the situation, you feel, you believe that a 
temporary injunction could be obtained?
    Mr. Simon. By a government agency?
    Ms. Hirono. Yes.
    Mr. Simon. Absolutely, yes. I would add two points to that 
very briefly if I might.
    We have heard a number of very avuncular homilies today 
such as such and such may completely dissipate a certain 
argument. But the core of this hearing is what happens when one 
competitor agrees not to compete with another competitor, and 
no turning around and no pleasant talk can alleviate that.
    Companies acquire competitors all the time. They purchase 
competitors all the time, and they do it in secrecy. There is a 
nice cloak of darkness there.
    But when one competitor agrees to take an essential 
facility that it needs to keep in business and give it over to 
another competitor in an oligopoly situation where there are 
only three competitors to begin with, it raises some very 
significant antitrust concerns as a matter of substantive 
jurisprudence going back to the year 1890.
    Ms. Hirono. You are saying that this horizontal collusion 
situation that could be set up, it is not just on the basis of 
price because Mr. Mullen mentioned that it is not as though UPS 
can totally control the prices. They have to do it within a 
certain limited range, perhaps CPI indexes.
    So does that assuage some concerns you have, antitrust 
concerns you have about the horizontal collusion?
    Mr. Simon. No. With great respect, it does not because if 
there is anything that is prohibited in the antitrust laws, it 
is a flat-out prohibition against competitors agreeing not to 
compete head-on with each other at all facets and aspects of 
their business.
    If you say, well, we are going to adjust at this percentage 
or that percentage and with a contractual arrangement, that 
doesn't answer the question that has been a substantive part of 
American jurisprudence since the year dot, and that is 
competitors have to go all out and compete against each other.
    If this were another carrier, not UPS, there would be far 
fewer concerns. But even putting aside the service squeeze 
concerns that Mr. Hammes discussed, the price concerns in a 
tightly integrated, little marketplace--only three essential 
carriers now with a strong possibility that it might whittle 
down to two--is what raises the concerns of the Antitrust 
Institute and my personal concerns.
    Ms. Hirono. I think it is important, what you are pointing 
out, because although Mr. Mullen says this is a solid solution, 
how solid can it be if it raises all kinds of antitrust and 
competitive concerns?
    Mr. Simon. But look, we are a neutral agency. We don't take 
positions to help or hurt one party or another, and we have 
substantial concerns that there are serious antitrust problems 
here.
    If I could add one very quick point, a lot of talk has been 
mentioned about losing stratospheric, catastrophic amounts of 
money. When you lose money in an organization, you have to 
juxtapose the revenues you are getting in against the costs 
that you are incurring.
    Now continental systems of accountancy may and probably do 
allocate costs differently across the spectrum than American 
systems. So I would suggest that people here take a good hard 
look at which system of accountancy is being used.
    I am not a CPA, but I have litigated dozens and dozens of 
these cases across the Country.
    Which system of cost allocation is being used and is that 
allocation appropriate and proper under the laws that govern 
the conduct in our Country?
    Ms. Hirono. Mr. Mullen and Mr. Wallace, I have to assume 
that you have talked with your lawyers extensively about the 
antitrust issues. So all I can say is that based on the 
testimony that we have heard, that those are very, very serious 
concerns that should definitely concern you as you move forward 
with further discussions regarding this agreement.
    That is not a question. That is a statement.
    Mr. Mullen. Indeed, Congresswoman, we have taken extensive 
antitrust advice from some very highly qualified, a range of 
highly qualified antitrust lawyers, and our advice is 
different.
    Ms. Hirono. Thank you, Mr. Chairman.
    Mr. Space. The Chair now recognizes the gentleman from New 
York, Mr. Kuhl.
    Mr. Kuhl. Thank you, Mr. Chairman.
    It is a very interesting conversation that we have heard 
all day, but I am still a little bit confused about some of the 
issues. One of the issues has to do with the actual negotiation 
between Mr. Hete, your group and certainly Mr. Hammes.
    Nobody has really given you the opportunity to kind of, I 
think, give your viewpoint as to how these discussions have 
either been just neglected. I am talking about the discussion 
that you had offered to Mr. Mullen and certainly his group.
    I would be interested in your perspective, and I am not 
trying to get to an issue of fault. I just want to get to what 
a number of my colleagues have mentioned, and that is there 
seems to be one side an inconclusive determination as to 
whether or not the negotiations from your side of it have 
concluded or whether they have been concluded because of some 
agreement between UPS and Mr. Mullen's organization.
    So I would just give you a couple of minutes, and I don't 
want you to take all my time because I have a couple other 
questions I would like to address to Mr. Mullen.
    If you could, gentlemen, just kind of tell me from your 
perspective actually where the negotiations fell apart if they 
did. I am also interested in the last offer that you put 
together as to how that actually equates with the offer for 
cost savings that Mr. Mullen is looking to actually be able to 
have his business survive and be successful.
    Mr. Hete. If I would, Congressman, I think after the ASTAR 
indication of interest in which we said it wasn't sufficient 
and they determined to take an alternative course, from that 
point forward, the ABX team had put together numerous proposals 
up to and including the one that I had presented to Mr. Mullen 
in Bonn, Germany, on March 31st.
    October 31st of 2007, we presented to them some proposals 
to get to a single carrier.
    We did that again in February of 2008. We presented them 
another set of alternatives that would get them to a single 
carrier.
    Now the single carrier concept was one that should have 
been initiated right from the get-go with the merger between 
Airborne and DHL, and unfortunately it didn't start off that 
way. I first proposed that opportunity to Mr. Mullen back in 
January of 2005 to get to a single carrier, and ABX would have 
been the surviving carrier at that point.
    We spent approximately 15 months and probably spent eight 
to twelve million dollars in terms of putting aircraft back in 
service in order to be able to facilitate that move towards a 
single carrier. Unfortunately, after 15 months of work, DHL 
elected not to go for that option. Of course, by that point in 
time, we are in the second quarter of 2006.
    So we fast forward into 2007 or late 2006. We attempted to 
acquire ASTAR. That offer was rejected by ASTAR.
    ASTAR came back in 2007 and attempted to acquire ABX, and 
then we went through those various options in October of 2007 
and February of 2008.
    With the presentation we gave to Mr. Mullen on March 31st 
of 2008, it was quite a detailed presentation. As I mentioned 
earlier in my testimony, we presented on the 31st of March, and 
on May 28th we got the word from DHL that they were going to 
transition that piece of business to UPS.
    Not once during that roughly two-month period was there any 
inquiries, questions, suggestions or recommendations in regard 
to that March 31st proposal. So, essentially, it sat there to 
the best of our knowledge.
    We do good work at ABX, but I am not sure we are quite that 
good that someone wouldn't have had a few questions or possible 
tweaks. I think the key element there is that the presentation 
we gave to them protected the network that they had in place.
    It was implied by Captain Ross earlier, things like 
Congressman Oberstar's, Chairman Oberstar's packages to him in 
some of his offices still would have been on an overnight basis 
as opposed to taking two, three, four or five days.
    The last proposal that we initiated, once we heard about 
the potential deal between UPS and DHL, we got within roughly 
$100 million of the $1 billion that they said they would be 
paying UPS. At that point in time, we had presented that to Ken 
Allen, the CEO of DHL U.S., to take to the folks in Germany 
which he said he would do, but then the word came back that 
they weren't in a position where they could review that 
proposal in total.
    The difference between that and the March 31st proposal, 
and it was a couple hundred million dollars less I believe, was 
that we cranked into that wage and benefit cuts for employees, 
for example, a reduction in the network coverage somewhat, 
trying to figure out exactly what markets DHL was going to pull 
back from because the less markets you service via air the 
lower your cost is going to be. But we have never had one 
single discussion in regards to that alternative proposal.
    Mr. Kuhl. Okay. Thank you.
    Mr. Mullen, I would like to just kind of understand your 
restructuring agreement if you would. I thought I heard you say 
in your initial testimony that you have been facing, at least 
in the last year, roughly $1.3 billion in losses in your 
operation in the United States. Was that number correct or did 
I misunderstand you?
    Mr. Mullen. No. That number is correct. That is our 
estimate for this year. It hasn't been as high as that.
    It was still a huge amount, around $900 million last year. 
This year has been exacerbated by customer losses from all of 
the speculation and media coverage and other interest in what 
we are doing.
    Mr. Kuhl. Now does that mean that with the restructuring, 
that you are actually cutting your costs by a billion dollars 
or am I confusing numbers here, so that you still will be 
operating in a deficit of about $300 million?
    Mr. Mullen. That is correct.
    Mr. Kuhl. So you plan to move forward with a company 
reorganization, immediately facing a significant loss in 
revenue.
    Mr. Mullen. Yes. We are prepared to pay a price for 
maintaining our business in the United States. Three hundred 
million is still a very large sum of money, and obviously we 
hope ultimately to eradicate that altogether.
    But the immediate objectives over the next two and a half 
years of this program will be to get the loss down from the 1.3 
of this year to around 300 which is at least manageable in the 
interim.
    Mr. Kuhl. Did you ever look at the offer that came from Mr. 
Hete relative to his last offer that was, as he said, close to 
$100 million difference?
    I am just wondering. If you are still looking at a $300 
million loss on an annual basis, what is the difference between 
$300 million and $400 million if you plan to balance it out 
over the next several years?
    Mr. Mullen. I do have to beg to differ with Mr. Hete. That 
proposal of March 31st was extensively analyzed. I have two 
documented detailed meetings between his teams and our teams 
going through that proposal.
    By this stage we had the UPS alternative. We actually 
delayed our negotiations with UPS in order to give full time to 
study that opportunity.
    As Mr. Hete said, it saved some $250 million was the 
proposal, which was a lot of money. But it was not sufficient 
together with the other factors that I pointed out of capital 
expenditure avoidance and variability of costs, and it was 
considerably less in actual savings. For those reasons, we 
declined to go that way.
    Mr. Kuhl. Mr. Chairman, if I might, I just have one further 
area.
    I am also interested in what I heard from my colleagues 
from Ohio about the tremendous devastation if this whole 
proposal goes through as to the impact from a personal 
standpoint, from a human side standpoint.
    I heard just very briefly in the testimony I heard today 
very little consideration about the employees that are going to 
lose their jobs. Can you tell me what you are going to do?
    Are there going to be, if the proposal goes through, 
severance pay packages? Are there going to be retirement pay 
packages kept intact?
    Are there going to be all the kinds of things when you are 
looking at seven, eight, nine, ten, twelve thousand people who 
are going to be terminated?
    It is a human suffering of really dramatic kinds of 
proportions. It is not the kind of thing that we are used to 
seeing when you see transfers of operations, and I am just 
curious as to what.
    I know that you will probably set some form of a program in 
place to find new jobs, but how about for those people who 
don't have new jobs?
    They are in a position. Maybe they are like I am at 65. 
They don't want to retire. They are still healthy and things 
like that, but at the same point they don't have the economic 
wherewithal to retire, and they are going to have a very 
difficult time relocating. Have you thought about that?
    Have you started to put packages together for those 
employees?
    Mr. Mullen. Of course, Congressman. You know this is an 
extremely difficult thing. I am an employee too.
    Mr. Kuhl. But Mr. Mullen, you are going to have a job after 
this. This is several thousand people who are not going to have 
a job. You are not looking at termination like they are.
    Mr. Mullen. Of course.
    Mr. Kuhl. So you have a little different perspective. You 
are looking at a $300 million loss and carrying that forward.
    Mr. Mullen. Indeed.
    Mr. Kuhl. These people don't have a dollar to carry 
forward.
    Mr. Mullen. Indeed, but I would not wish it to be suggested 
or intimated that we do not care about the human side of it. We 
do very much.
    As I put in my written testimony and also in my opening 
verbal statement, we are going well beyond what we have 
benchmarked as a standard in these sort of circumstances and 
well beyond what our contractual and legal obligations are.
    Mr. Kuhl. Can you quantify that for me so I understand?
    Mr. Mullen. Yes. We are putting forward a package of $260 
million. Our contractual and legal obligation is $35 million. 
So the other 225, we are voluntarily contributing for exactly 
the reasons that you say. We are extremely mindful of the 
impact that this has on the community.
    And I would add, as I said earlier, that the majority of 
that is actually not even going to DHL employees. It is going 
to the employees of subcontractors and others who are impacted 
by it, for whom we have no contractual obligation to make that 
payment. Our subcontractor companies have that obligation.
    Mr. Kuhl. If I was a pilot for one of these subcontractors 
and looking at having my job terminated, what would I be 
looking at under that package?
    Mr. Mullen. Every single person employed by ourselves or 
employed by one of the subcontractors who is impacted by this 
is entitled to some of that severance entitlement. Now it 
obviously varies between part-time and full-time and pilots, et 
cetera. I couldn't give you an individual amount per person, 
but every single person is covered by that, what we believe is 
an extremely generous settlement.
    Mr. Kuhl. And insurance covers for any period of time?
    Mr. Mullen. Yes, health care benefits and similar factors.
    Mr. Kuhl. Retirement benefits of any sort?
    Mr. Mullen. I would have to come back to you, sir, with the 
specific details on each of those.
    Mr. Kuhl. Could you do that because I would really be 
interested in that?
    Mr. Mullen. Yes, very happy to do that.
    Mr. Kuhl. Okay. Fine.
    Thank you, Mr. Chairman. I yield back.
    Mr. Oberstar. [Presiding.] The gentleman's line of inquiry 
is one of great importance to all those who are directly 
affected by this proposed transaction. I think they would all 
rather have their jobs rather than their benefits.
    Mr. LaTourette, a second round of questions.
    Mr. LaTourette. Thank you, Mr. Chairman.
    Mr. Mullen, I asked Mr. Hete about his stock, and now I am 
going to ask you about yours.
    You testified last week that the decision was based upon 
the best interests of your stockholders which is, of course, a 
company's fiduciary responsibility. Since the May 28th 
announcement, how has your stock price reacted to that 
announcement?
    Mr. Mullen. Our stock price has been I can't say exactly 
from that announcement because we have had so much turmoil in 
financial markets and some other major transactions that our 
company has done, including selling the bank which has been a 
huge overhang in the stock. But what I can say is in line with 
all the other transports, the major transport stocks, we are 
materially down from where we were six or nine months ago.
    Mr. LaTourette. All right. Let me just close the loop on 
this offer to Mr. Hete and ABX. If ASTAR had been successful in 
acquiring ABX for $7.75 a share, is it your opinion we would be 
here anyway?
    Mr. Mullen. That is a very difficult question, but I think 
it is likely not, no. I think that would have been a solution 
at the time.
    Mr. LaTourette. And likely not because you would have 
achieved the savings that you are hoping your deal with UPS is 
now going to achieve for the company?
    Mr. Mullen. No. We would not have saved the savings that we 
are now going to save. But at that time, of course, we didn't 
know about the UPS opportunity. It wasn't there on the table, 
and we would have had to make a business judgment at the time.
    I would also say that our business has deteriorated sharply 
in the last year because of the ongoing speculation as to the 
future, publicity, media, political inquiry and others which is 
now exacerbating the problem that we already had.
    Mr. LaTourette. To both you and to Mr. Wallace, the 
announcement on May 28th was the announcement that you are 
going to work with UPS on domestic shipping and sorting of your 
packages.
    When did the UPS opportunity present itself and when did 
your two companies begin discussions?
    Mr. Mullen. The first contact was on February the 13th, 
from memory, when I met with my opposite number in New York.
    Mr. LaTourette. Was that February the 13th of 2008?
    Mr. Mullen. Yes, correct.
    Mr. LaTourette. Did you initiate the contact or did UPS?
    Mr. Mullen. No. The contact came from UPS through a phone 
call to our Chief Financial Officer, and then I followed up 
with a call back which led to a meeting on the 13th.
    Mr. LaTourette. Following the meeting on February the 13th, 
well, that meeting, I assume that was: Are you interested? Yes, 
I am interested.
    So when did it get down to discussions?
    Mr. Mullen. Well, we signed a confidentiality agreement at 
that meeting to start exchanging data, and from there on it 
started to gather pace as it became clearly of interest to both 
sides to go further.
    Mr. LaTourette. Obviously, the exchange of data is 
important. When you looked at their stuff, they looked at your 
stuff, when do you think, if you can give me just an 
approximate time frame that you all sat down and started to 
talk turkey?
    Mr. Mullen. Well, we really started from that meeting. 
Obviously, as we got further and further into the operational 
capabilities, UPS, I can't speak for them. I am sure Mr. 
Wallace would.
    They had to work out whether they could move the volume, 
what sort of operational changes they would need to make. We 
had to do the same on our side. Gradually, the working groups 
were formed to develop the process and the proposal into 
something concrete.
    Mr. LaTourette. Let me ask you this. Have you ever entered 
another confidentiality? The memorandum of understanding that 
we have been talking about here for the last couple of hours, 
is that the confidentiality agreement we are talking about?
    Mr. Mullen. No. Well, there are lots of documents being 
talked about.
    We signed a basic confidentiality agreement at the 
beginning. We ended up signing, effectively, a letter of intent 
or memorandum of understanding which was what we announced on 
May the 28th as a result of all of those discussions
    Mr. LaTourette. The confidentiality agreement that you 
signed, that was entered into on February the 13th, one, I 
assume that it prevented you from talking about the details of 
your discussions. Did it also prevent you from talking to 
people like the State of Ohio or anybody else that wanted to 
present alternative offers to you?
    Mr. Mullen. No. That only came into place with the letter 
on intent on May the 28th.
    Mr. LaTourette. I don't know if it was in your testimony or 
whether I got it some place else, but I have a note that 
according to DHL the integration of the Cincinnati hub into 
Wilmington did not go well, resulting in customer service 
issues and lost contracts. Is that DHL's position and, if so, 
could you describe what happened?
    Mr. Mullen. Yes. We had the original DHL business in the 
United States had a hub in Cincinnati. When Airborne was 
acquired, we then ended up with a second hub being the one in 
Wilmington, and we had to make a decision to consolidate into 
one or the other location.
    After a lot of discussion, it was decided to do that in 
Wilmington. We then went through a long period of significant 
capital investment where we upgraded the facilities.
    Then finally in September, we moved the business from 
Cincinnati across which was a very, very major move. I think we 
had some 180 massive trucks carrying all the equipment, and we 
literally had to switch off on a Friday and start on a Monday 
with everything integrated in one location.
    It was a very difficult period. I would pay tribute to Mr. 
Hete and his team, and everybody worked long, long, long hours, 
night and day to make that thing a success, and we did. We 
eventually got on top of it.
    But it was like any move of that size. It was a massive 
logistical exercise, and it took some time to get it right. 
During that period, of course, we suffered service delays which 
affected our customers.
    Mr. LaTourette. Mr. Hete, did you work for Airborne 
Express?
    Mr. Hete. Yes. I have always worked for ABX Air, the 
subsidiary, but it was a wholly owned subsidiary of Airborne 
Express prior to the sale to DHL.
    Mr. LaTourette. Again, my notes say with the lone exception 
of 2001, Airborne Express was profitable for the entire time it 
was in business prior to the acquisition of DHL. Is that 
accurate?
    Mr. Hete. That is correct.
    Mr. LaTourette. Can you tell me what business practices you 
changed after the acquisition which caused DHL to lose $1.3 
billion?
    Mr. Hete. Well, I certainly can't attest to all of the 
business practices that changed, but those that did that 
impacted ABX, for example, were things like the ground 
business, the traditional UPS stronghold.
    For example, we had 11 Airborne/ABX. We had 11 regional 
facilities that we had in place in order to cover the areas of 
the Country that we thought we could make money off by 
servicing a limited scope, not matching every zip code across 
the U.S. that UPS services.
    In 2004, DHL expanded that network by 7 additional 
facilities and pretty much did it all in the fourth quarter. Of 
course, the cost of expanding a network comes immediately, and 
then you are hoping that the revenue will follow soon in order 
to support those costs. I think that was one key element was 
rapid expansion of the ground network.
    In addition to that, one other key change was that 
throughout its lifetime Airborne always focused on trying to 
wring out all the nickels of cost that they could, especially 
when you talk about the fixed costs, as Mr. Mullen referred to 
earlier, in terms of an air network because it is a fixed cost.
    So if that airplane is flying with one package on it or a 
thousand packages on it, the cost is roughly the same. There is 
a little bit more fuel burned when you are carrying extra 
weight.
    When you are servicing things like a deferred product or 
something that would normally move via truck, from the Airborne 
perspective, we always focused on maximizing the sunk costs of 
the air network as opposed to adding an incremental truck.
    DHL did a radical shift in that they wanted to cleanse the 
air operation of any potential ground shipments, and so what 
that precipitated was a marked increase in trucking costs to 
support that ground network.
    I think those are probably the two key elements.
    The other piece was that from a fleet perspective the ABX 
fleet, for the most part, consisted of two-engine, two-man 
cockpit aircraft. They, well, we have the backbone of the fleet 
is a 767.
    We have heard a lot of comments about an aging fleet, but 
the 767 in the ABX fleet, the predominance of which service the 
DHL network, is the same type of aircraft that is a key part of 
the UPS network. It may not be the 300 series. It is a smaller 
series. It is a dash 200. But essentially it is just about as 
fuel efficient as anything that UPS will have of comparable 
size in its network.
    The balance of the fleet consisted of the DC-9 which is 
probably the smallest aircraft out of the combined fleets 
between ABX and ASTAR. But the advantage it had is it is a two-
engine aircraft, of course, at a point in time when you have 
fuel prices between three and four dollars a gallon.
    If you have 1 more engine back there, it is costing you 
probably $1,500 to $2,000 an hour for every hour of flight that 
you fly, having a 3-engine aircraft like a 727 versus a 2-
engine like a DC-9.
    The primary focus for that in the DHL network is that they 
want to focus on the standard industry cargo container, what is 
referred to as the A container. The aircraft has a large cargo 
door.
    The Airborne system was unique in that it was built around 
the small package, and so the DC-9 fleet was primarily operated 
with its own unique container system that went through the 
passenger door.
    Now you could carry a chair, for example, in one of the C 
containers as part of the legacy Airborne network, but if you 
wanted to carry something the size of this table you would have 
to have the standard industry A container. So going to that 
type aircraft was focused on a three-engine aircraft because 
you want the accessibility of that larger container size versus 
a DC-9 which doesn't have that and only two engines.
    You are going to have a cost increase. Unless you can fill 
up that airframe to offset that additional cost, you are just 
basically pouring more money out the tail pipe.
    Mr. LaTourette. I thank you for that.
    One of the problems that I had with the United State Postal 
Service, and I concede Mrs. Schmidt's observation it is a 
governmental entity.
    But one of the, I think, legitimate criticisms that I think 
people had with the sole-source contract that was given to 
Federal Express was the fact that the Postal Service was paying 
for the airplane whether there was 1 package on it or 150 
packages on it, and that didn't seem to be a good use of the 
Post Office's money.
    Mr. Mullen, my last question, I am going to give you a 
shot, I guess. Well, my last question for you, and I do have a 
question for the professor.
    I have heard you say you lost $1.3 billion and you are 
losing $5 million a day. Most companies sort of break out when 
they are losing money and say: Okay, this division is doing 
okay. This one is not doing okay.
    One, is Mr. Hete's observation correct that some of the 
loss you have suffered is because of capital expenditures to 
ramp up that revenues didn't catch up, one?
    Two, did Airborne Express/ABX, your subcontractor, go from 
profitable? In other words, did you lose money on the air side 
here with ABX or were you losing money on the ground side, 
capital expenditures and other things?
    Did, all of a sudden, this fleet that had profitably 
performed all of a sudden become a drain on your system?
    Mr. Mullen. Yes. The answer is a complicated one, of 
course. There is no one single reason as to why DHL is in this 
situation.
    We started with too sub-scale and either at best break 
even, if not loss-making, businesses. We had an existing DHL 
business that was loss-making, and Airborne, with the greatest 
respect, was very close to not being able to compete any 
further in the United States.
    It was in the segment of the market that has been 
declining, in the small package area. It didn't have a ground 
network. We had to compete with a bundled product offerings of 
UPS and later FedEx, and it was very under-invested.
    So we took a major strategic decision that would combine 
these two businesses. We would invest in a ground network, and 
we would try to compete head for head with Federal Express and 
UPS. Obviously, now with hindsight, we realize that we haven't 
been successful in doing that which is why we are all sitting 
here today.
    Airborne had a low quality service and therefore lower 
pricing. So, today, we do not command the same level of pricing 
with all of that legacy book of business as our competitors do. 
It was also very oriented towards major customers who always 
demand very, very low pricing.
    The lack of DHL brand strength meant that we had a very 
small share of the full tariff small shipper because when they 
think of a name for shipping in the United States, they don't 
think DHL. They think Federal Express or UPS first.
    So there are many, many factors. Basically, we don't have 
enough revenue, and we too high costs, and we don't have the 
volume to be able to get the productivity on the costs that 
obviously an organization like UPS will do.
    A UPS driver, virtually, I am paraphrasing your business. A 
UPS driver will stop at Number one, Number Three and Number 
Five down one side of the street and the same in reverse.
    Our lack of volume means that we have a driver stopping 
here on this street and then going two blocks over there, and 
we just don't have the productivity that our major competitors 
do.
    Mr. LaTourette. I asked before about if Mr. Hete's 
operation had accepted the $7.75 for the stock offer, then 
maybe we wouldn't be here.
    Let me ask you this. You own, you being DHL own 49 percent 
of ASTAR, the stock of ASTAR. People have indicated to me that 
the reason you only own 49 percent is we have a rule against 
foreign ownership of airlines, but I assume you are aware that 
the Bush Administration had offered up new regulations that 
would have permitted that in some situations.
    Was DHL waiting or hoping that the rules would change 
relative to the ownership of airlines and, if they had and DHL 
was able to become the majority of ASTAR, would we be here 
today? I mean was that part of your plan?
    Mr. Mullen. Well, we have always hoped that foreign 
ownership rules would be restricted because we think it would 
be good for the business, for industry and for the consumer in 
the end. However, we never worked towards a belief that that 
was going to happen. So we have always had to run our business 
on the assumption that would not be the case.
    Mr. LaTourette. Thank you for your indulgence, Mr. 
Chairman.
    Professor, in the dozens and dozens of cases that you have 
litigated, are you on both sides of those or are you always 
advocating a problem?
    Mr. Simon. I would say approximately two-thirds to three-
quarters of my work over the many years I have been doing this 
has been plaintiff side, and the remainder, about 30 percent, 
has been strictly defense work. So the answer in one word is 
yes.
    Mr. LaTourette. Okay. Perfect. You gave me more than one 
word.
    Mr. Simon. Sir, if I could add one quick point.
    Mr. LaTourette. Whatever you want.
    Mr. Simon. My apologies. You said earlier that you believe 
that corporations have fiduciary duties to shareholders.
    Mr. LaTourette. Right.
    Mr. Simon. There is a very substantial body of law that 
says that corporations owe duty to shareholders which are not 
fiduciary in nature. They are not fiduciary duties at all. They 
are simply duties imposed by Federal law and occasionally by 
State law. They don't rise to the level of a fiduciary 
obligation.
    Mr. LaTourette. I got you. I wasn't attempting to be 
exclusive. I was trying to indicate that they had that 
responsibility as one of their many responsibilities.
    Mr. Simon. Right, but not up to a fiduciary nature which is 
the strongest duty possible in the law. I don't mean to sound 
like Dr. Pedagogic at all. I just picked up on the point that 
you made.
    Mr. LaTourette. I had a lot of professors like you in law 
school.
    [Laughter.]
    Mr. LaTourette. But let me see. When I first looked at this 
and Congressman Turner came and so forth and so on and your 
whole discussion about price squeezing and so forth and so on, 
I thought I heard you say because UPS doesn't have the lion's 
share of the market it is not a monopoly. Some of that price 
squeezing analysis sort of falls by the wayside.
    This isn't a great antitrust case. This is a better 
restraint of trade case perhaps.
    Mr. Simon. I agree with that. The bottom line is yes, 
because unless you are in a monopoly position or threatening to 
get a monopoly position, then your customer who is also a 
competitor can simply go somewhere else.
    Mr. LaTourette. Right.
    Mr. Simon. But if you are in a monopoly position, that is 
where the classic price squeeze comes along.
    So, yes, I would say it is more likely to be a restraint of 
trade case, an unfair trade practice as a facilitating practice 
permitting the very few companies in a small, tight, little 
oligopoly to facilitate the possibility of collusion or price 
fixing.
    Mr. LaTourette. Right. So if you were retained and were 
advising people to believe that they were aggrieved by this 
situation, you would recommend some petition to the Federal 
Trade Commission.
    Mr. Simon. Or the Attorney General of Ohio if they have the 
statutory or common law obligation or responsibility to do 
that, yes.
    Mr. LaTourette. I thank you for those answers.
    Mr. Wallace, again, nobody knows how a case would turn out. 
I am sure you all have wonderful lawyers that are as gifted as 
Professor Simon.
    Just sitting here at 10,000 feet, giving the people the 
opportunity that are about to lose their livelihood, the chance 
to just make a presentation, I don't think costs anybody 
anything. I would hope that you would think about that and chat 
with your lawyers.
    So, thanks so much.
    Mr. Oberstar. I thank the gentleman for his very thoughtful 
and persistent questioning and opening up some avenues of 
thought.
    Mrs. Schmidt, do you have any further questions?
    Mrs. Schmidt. Thank you, Mr. Chairman. I want to shift 
gears to Professor Simon.
    You have heard a lot of dialogue today. You also talked 
about and you brought up a point that I didn't even consider, 
that different countries look at the bottom line in a different 
way. I think that is what you were trying to say.
    So you are not always comparing apples to apples when you 
look at the bottom line cost, say, of doing business in Europe 
versus doing business in the United States. But we have an 
obligation in the United States to only look at it from our 
bottom line, and I think that is where trade agreements across 
the ocean get us into trouble sometimes.
    Could you please elaborate a little bit on that for me?
    I really want to understand why DHL would look at this as a 
good deal when I feel that we are going to be either, in a few 
years, talking about the fact that we have a collapse and now 
we have a duopoly, that we only have two players in the system.
    Mr. Simon. Sure. Now look, I am not a CPA, Congresswoman, 
and I haven't been trained to be an accountant, but I have 
litigated enough cases to know that when you have a loss 
situation or a profit situation, you get that bottom number 
only by juxtaposing all your costs against all your revenues.
    The way you allocate costs, particularly when an operation 
has multiple components--ground, air, ground intermediary 
points--can vary widely from one accounting system to another, 
particularly from the United States accounting system to 
systems that are more commonly employed in foreign countries.
    Where you allocate the costs can go an enormously long way 
to determining whether you are at a major loss situation, a 
small loss situation or an actual profit situation.
    That would be more or less the extent of how I can help 
you. The rest, you would need CPAs highly competent in the 
field of allocating costs and where they go on the different 
lines of a company's balance sheet to determine whether a 
profit really was a loss or whether a loss really was a profit.
    Mrs. Schmidt. Okay. I have one last question, and this is 
for both Mr. Mullen and Mr. Wallace.
    You have heard Congressman LaTourette say, can we just open 
it up and allow these folks in Wilmington to give it their best 
shot?
    I am asking you, would you please let the folks from 
Wilmington give it their best shot and, Mr. Wallace, would you 
agree to let that happen?
    We are talking about a lot of lives here and a lot of jobs, 
and there is a human component. Not everything in a bean 
counter can be about the beans. It has to be about the folks 
behind the beans.
    I am just asking you as one of those people that has to 
worry about, in my past life, making ends meet. I am just 
asking both of you if you would be willing to let these folks, 
with a sincere heart, and the State of Ohio helping them give 
it our best shot?
    Mr. Wallace. Well, I think I have already responded to that 
question.
    I just want to once again emphasize the fact that, first of 
all, from a UPS perspective we are always concerned about job 
loss. Also, part of our responsibility is to protect our 
current employees and grow our business to provide job security 
for those employees.
    In terms of consideration, we will certainly have that 
discussion within our organization and be able to respond.
    But at this point, we feel strongly that the transaction 
and the proposed transaction negotiations should be allowed to 
move forward. We have been open with the Department of Justice, 
keeping it informed of the status of our transaction.
    We believe that it is in the best interest of our 
organization and competition in general to allow us to move 
forward, but we will have further discussions on it.
    Mrs. Schmidt. Before Mr. Mullen answers, look, I get why 
you don't want to open the discussions. This is a great deal 
for UPS, and if I were you and I held the ball, as Lieutenant 
Governor Lee Fisher said, I wouldn't want to give that ball up.
    But I am just asking you to put a human face on that ball 
because there are between eight and ten thousand folks that are 
going to be in serious problems.
    When you look at where this region is in Ohio, this is not 
a place where growth occurs naturally. It has to really be 
cultivated, and it is just so hard to get a job once a job is 
lost. I am just asking you to put a human face on it.
    Mr. Mullen, what about you? Are you going to take one for 
the Ohio team and let negotiations reoccur with Mr. Hete and 
Mr. Hammes and Captain Ross? I am just asking you.
    Mr. Mullen. Could I just very quickly answer the first part 
of your question as well, just respond on that?
    We are a publicly traded company. Accounts are audited by 
PricewaterhouseCoopers. We follow the International Accounting 
Standard or IFRS which is also followed by many American 
corporations, and the U.S. is actually moving in the future to 
that standard as well.
    I would love to think there was some magical bookkeeping 
change that would eliminate our $1.3 billion and turn it into a 
profit. I am afraid I don't think that exists.
    To answer your other point, I just echo what my colleague 
says here. We are bound by that agreement. It is a legally 
binding agreement, but certainly we will discuss it with them, 
and we will get back to you.
    Mrs. Schmidt. Thank you. Just because it is a legally 
binding agreement, you know you always have a chance to change 
agreements. That is the great thing about the United States.
    Thank you.
    Mr. Oberstar. I thank the gentlewoman for inquiry and the 
witness for his response.
    I ask unanimous consent to include in the record the 
statement of Congressman Robert Latta. Without objection, so 
ordered.
    Captain Ross. Mr. Chairman?
    Mr. Oberstar. Yes.
    Captain Ross. Sorry to interrupt you. I know it is getting 
late. I would just like to address a couple things before we 
finish, given the broad scope of the Committee if I have a 
chance.
    Mr. Oberstar. We are not concluded yet.
    Captain Ross and Captain Prater, in your analysis and you 
have great resources. Especially ALPA has staff analysis and 
resources to review these and other agreements that you have 
testified on over the years.
    Where do you think the failure occurred? Let's call it that 
or the loss of market share. On the air side or on the ground 
side of the DHL equation?
    Captain Ross. Sir, I think on the air side, we lost a lot.
    When we first started, when DHL came and made the move to 
Wilmington, they had run an outstanding ad campaign. It was a 
great ad campaign. Everyone loved it, and they picked up a 
large portion of new customers.
    During that sort change, when bringing the entire sort from 
Cincinnati up to Wilmington overnight, our on-time performance 
dropped from over 99 percent down to 70 percent, and it took 
months to recover that. We lost a large portion of those 
customers.
    The new customers were all gone, and then a large chunk--I 
think it was 25 to 27 percent--of the current book was gone 
following the Wilmington event as we will call it. I think a 
large chunk came out of that one move right there.
    Mr. Oberstar. And on the ground side, do you think there 
were shortcomings there?
    Captain Ross. Sir, I can't really address that. I am not 
that familiar with the ground. So I am not sure if Captain 
Prater is.
    Captain Prater. Obviously, not as much because we track the 
air side quite a bit, but it does come down to the fact that 
these companies, both companies, were operating well until the 
takeover by Deutsche Post.
    What happened then, I don't think they need any more 
ownership rules when they can kill a company. With just owning 
49 percent of it and 24.9 percent control, having a member 
sitting on the board of directors, and yet they can still kill 
these two U.S. competitors, clearing the way for the duopoly 
that we have talked about.
    We have heard many, many reports that maybe management 
should be looking at itself for the way they have tried to run 
the business since taking it over.
    We fly the airplanes, and we deliver a good product, both 
my members and Captain Ross' members and yet all to naught. We 
can't make up for management decisions to destroy a business so 
that they can then give it away to another customer, in this 
case, UPS.
    Mr. Oberstar. Well, I concur about the foreign ownership 
issue, and I think that is kind of a red herring here.
    You heard the Lieutenant Governor earlier say, we were 
never given an opportunity to offer good faith alternatives 
were his words.
    What good faith alternatives do you think could be 
presented at this point to save DHL from losing the billion 
dollars a year that they are losing?
    Captain Prater. Well, in negotiations, we indicated our 
support for a combination of ASTAR and ABX so that there would 
be efficiencies there.
    Obviously, we don't control the management of those two 
companies, but in both day to day labor negotiations, our 
contract negotiations, we indicated our full support for it a 
year ago. We have continued to indicate that we are more than 
willing to try to make that work so that there would be an 
efficiency, and it would result in the continuation of a third 
strong carrier in this Country.
    What we have to realize is that there are two points: DHL 
is losing customers every day since they have announced this 
business plan because their customers aren't willing to pay DHL 
for UPS service.
    The second one is I have heard lots and lots of different 
numbers. The numbers that we have seen are the transfer of air 
operations to UPS will save DHL some two, maybe three hundred 
million dollars a year. That is not going to make up for their 
stated $1.3 billion or $900 million annual loss. So some of 
these numbers are not just adding it up.
    And with the revenue that DHL is losing by proposing this 
transaction, they are not going to be any better off. They are 
just going to trash two airlines.
    Captain Ross. Mr. Chairman, also, on the loss of $1.3 
billion, understand that this company made 3.2 billion Euros 
last year, 3.8 billion Euros the year before. The reason that 
Mr. Mullen and DHL are willing to absorb a $300 million loss 
per year in the United States is because they are making all 
that revenue in Asia shipping to the United States, the revenue 
in Europe shipping to the United States.
    So what is lost in this number of $1.3 billion is how much 
revenue they are making around the world because they support 
the U.S. network. That is why they are willing to take a $300 
million.
    I support Captain Prater. We are talking about a $300 
million difference, and I think Mr. Mullen has testified to the 
same.
    We have never shut the door in working with ASTAR. We are 
willing to work together with UPS, to give them the flexibility 
they need. I'm sorry. UPS, where did that come from?
    With DHL to give them the flexibility they need. We don't 
shut the doors. We like flying for DHL.
    Airborne Express was a great company, a lot of niche stuff. 
DHL could be a great company. Our doors are open for talk, sir.
    Mr. Oberstar. There are significant differences between the 
DHL service and the UPS service, correct?
    That was spelled out in earlier testimony, the type of 
service that DHL offers and that of UPS. By combining the two, 
you lose essentially what DHL offers in the marketplace.
    Captain Ross. Yes, sir. Part of Airborne Express, we had a 
lot of neat little stuff we do.
    There is a company called Lab Corp in Kansas City, 
Missouri. They do drug testing, urine testing. We have a 
separate airplane that flies there every morning by 4:30 in the 
morning to get that lab test. Those lab tests, they can be out 
by noon that day.
    There is a cancer treatment company in Nashville, 
Tennessee. The life of the drug they create is 24 hours. We 
take a separate aircraft as late as we can out of that city to 
accommodate those.
    It is that little thing that was neat with Airborne 
Express. It was neat with ABX Air. It is neat with DHL.
    That now DHL is going to hand that off to UPS, UPS is not 
going to put an airplane where we ask them to put it. We are 
going to get space on UPS's aircraft.
    That is why the market suffers like that. You lose the 
niche ability that comes with DHL, that came with the Airborne 
Express before. That is the fun part of the flying, when you 
are doing something special like that.
    Captain Prater. As well as we will lose another civilian 
craft service provider to the military, with ASTAR being put 
out of business, one less supplier/vendor airline for our 
military.
    Mr. Oberstar. That is a very significant factor. Thank you 
for that.
    Captain Ross. Sir, in a 50 metric ton line haul, there are 
34 aircraft between these two airlines, actually 17 aircraft 
apiece, that are at risk for losing CRAF.
    Another point I wanted to bring up and I am sorry I 
interrupted before, we have to look at what if our brothers at 
UPS go out on strike or our ground delivery people at UPS go 
out on strike. You effectively shut down two of the three 
competitors in the overnight market.
    I mean there are a lot of outside and small things. It is 
craft.
    What if there is a strike? What does that do to the 
Nation's economy to shut down two of the three overnight 
providers? I think it is things like that this Committee needs 
to look at, sir.
    Mr. Oberstar. Should this go forward, you would have FedEx 
with 43 percent of the market. If you simply add the numbers, 
you would have UPS with 40.5 percent market share and a little 
bit left over for the U.S. Postal Service. That is not a 
healthy competitive market in the deregulated era of aviation 
trade.
    Mr. Simon, does it make a difference in consideration of 
restraint of trade whether the problem is on the air side or 
the ground side?
    Mr. Simon. Actually, no. As a matter of pure analysis under 
the antitrust laws, if you and I are competitors and I give 
away a portion of my business to you and say, please do it for 
me, when our soul goal in life is to compete with each other, 
it doesn't make a difference which aspect of my business I have 
asked you to assume.
    It can be air. It can be ground. It can be intermediate 
steps, handling, for examples, sorting. It doesn't make any 
difference from an antitrust perspective.
    And if I could add one sentence to an answer I gave earlier 
to Congressman LaTourette, I tried to make it very plain and I 
want to do so now.
    When you spoke about unfair methods of competition, the 
concept would be an injunction action under Section 5 of the 
Federal Trade Commission Act which prohibits unfair methods of 
competition.
    This particular unfair method of competition, as a classic 
antitrust restraint, it is a classic facilitating practice that 
permits two direct competitors in a tight, little oligopoly to 
collude to facilitate price increases.
    Mr. Oberstar. Thank you very much. I want to thank all of 
the panelists for their presentation.
    Having listened to this testimony all through the afternoon 
and read over much of it previously, I think there is a prima 
facie case made for restraint of trade, and I think the 
Committee in consultation with the Minority and Majority should 
consider a formal referral to the Federal Trade Commission for 
action.
    Mr. LaTourette, what do you think?
    Mr. LaTourette. Thank you.
    Mr. Oberstar. With that, the Committee stands adjourned.
    [Whereupon, at 7:23 p.m., the Committee was adjourned.]
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