[Senate Hearing 110-1228]
[From the U.S. Government Publishing Office]




                                                       S. Hrg. 110-1228
 
                   THE STATE OF THE AIRLINE INDUSTRY
                      AND THE POTENTIAL IMPACT OF
                        A DELTA/NORTHWEST MERGER
=======================================================================



                                HEARING

                               before the

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

                                 OF THE

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 7, 2008

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska Vice Chairman
    Virginia                         JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts         KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            GORDON H. SMITH, Oregon
BILL NELSON, Florida                 JOHN ENSIGN, Nevada
MARIA CANTWELL, Washington           JOHN E. SUNUNU, New Hampshire
FRANK R. LAUTENBERG, New Jersey      JIM DeMINT, South Carolina
MARK PRYOR, Arkansas                 DAVID VITTER, Louisiana
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi
AMY KLOBUCHAR, Minnesota
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
   Christine D. Kurth, Republican Staff Director and General Counsel
                  Paul Nagle, Republican Chief Counsel
                                 ------                                

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

JOHN D. ROCKEFELLER IV, West         KAY BAILEY HUTCHISON, Texas, 
    Virginia, Chairman                   Ranking
JOHN F. KERRY, Massachusetts         JOHN McCAIN, Arizona
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            GORDON H. SMITH, Oregon
BILL NELSON, Florida                 JOHN ENSIGN, Nevada
MARIA CANTWELL, Washington           JOHN E. SUNUNU, New Hampshire
FRANK R. LAUTENBERG, New Jersey      JIM DeMINT, South Carolina
MARK PRYOR, Arkansas                 DAVID VITTER, Louisiana
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi
AMY KLOBUCHAR, Minnesota
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 7, 2008......................................     1
Statement of Senator Cantwell....................................    66
Statement of Senator Dorgan......................................    59
Statement of Senator Hutchison...................................     3
    Prepared statement...........................................     3
Statement of Senator Klobuchar...................................     9
Statement of Senator Lautenberg..................................     4
    Prepared statement...........................................     4
Statement of Senator Rockefeller.................................     1
    Prepared statement...........................................     2
Statement of Senator Snowe.......................................    64
Statement of Senator Thune.......................................    72

                               Witnesses

Anderson, Richard H., CEO, Delta Air Lines, Inc..................    22
    Prepared statement...........................................    24
Cooper, Dr. Mark, Director of Research, Consumer Federation of 
  America on behalf of the Consumer Federation of America and 
  Consumers Union................................................    48
    Prepared statement...........................................    50
Friend, Patricia A., International President, Association of 
  Flight Attendants--CWA, AFL-CIO................................    33
    Prepared statement...........................................    35
Isakson, Hon. Johnny, U.S. Senator from Georgia..................     1
Murphy, Jr., Patrick V., Partner, Gerchick-Murphy Associates, LLC     5
    Prepared statement...........................................     7
Neidl, Ray, Analyst, Calyon Securities Inc.......................    29
    Prepared statement...........................................    31
Roach, Jr., Robert, General Vice President, International 
  Association of Machinists and Aerospace Workers................    42
    Prepared statement...........................................    44
Steenland, Douglas M., CEO, Northwest Air Lines, Inc.............     9
    Prepared statement...........................................    11

                                Appendix

Aircraft Mechanics Fraternal Association, prepared statement.....    82
Detroit Regional Chamber, prepared statement.....................    88
Memphis Regional Chamber and the Memphis/Shelby County Airport 
  Authority, prepared statement..................................    86
Minnesota Parties, prepared statement............................    84
Moak, Captain Lee, Chairman, Delta Air Lines Master Executive 
  Council, Air Line Pilots Association, International, prepared 
  statement......................................................    79
Response to written questions submitted by Hon. Amy Klobuchar to:
    Richard H. Anderson..........................................   102
    Patricia A. Friend...........................................   105
    Patrick V. Murphy, Jr........................................    92
    Ray Neidl....................................................   104
    Douglas M. Steenland.........................................    97
Response to written questions submitted by Hon. Mark Pryor to:
    Richard H. Anderson..........................................    98
    Patricia A. Friend...........................................   104
    Patrick V. Murphy, Jr........................................    90
    Ray Neidl....................................................   103
    Douglas M. Steenland.........................................    92
Stevens, Hon. Ted, U.S. Senator from Alaska, prepared statement..    79


                   THE STATE OF THE AIRLINE INDUSTRY

                      AND THE POTENTIAL IMPACT OF

                        A DELTA/NORTHWEST MERGER

                              ----------                              


                         WEDNESDAY, MAY 7, 2008

                               U.S. Senate,
  Subcommittee on Aviation Operations, Safety, and 
                                          Security,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m. in 
room SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Subcommittee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. This hearing will come to order. We 
have a very large crowd and two of us at the table, but, that 
is overwhelmed by the presence of Senator Isakson at the 
witness table. Mr. Isakson is not going to make a statement. He 
is going to make an introduction. He is my good friend, and I 
welcome whatever he wishes to say.

               STATEMENT OF HON. JOHNNY ISAKSON, 
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. I thank you very much, Mr. Chairman.
    About 16 months ago, you gave me the privilege of coming to 
this Committee room and introducing the then-CEO of Delta Air 
Lines, Jerry Grinstein, which I was very proud to do. Delta was 
in--had been in difficult straits and was going through 
difficult times, and I was honored and privileged to be here to 
introduce him to this Committee because with all the 
difficulties they had, they were fighting to preserve the 
pension plan of their loyal rank-and-file employees.
    As a man who owned a business, one who appreciated the 
value of my assets, which were my people, I was very proud to 
represent him that day and introduce him. I also had the 
occasion during then to meet Mr. Steenland as well with 
Northwest, who also had equally the same commitment to their 
employees and their workers.
    Today, it is my privilege to introduce the new CEO of Delta 
Air Lines who replaced Jerry Grinstein. His name is Richard 
Anderson. He has 20 years experience in the aviation business 
with both Northwest and Continental. And before coming to Delta 
in 2007, he left United Healthcare as one of the leaders in 
that great company.
    And I know he shares the same commitment that Jerry 
Grinstein did for the people of Delta, and I am here to speak 
on behalf of them, welcome him to this Committee, thank the 
Committee for offering him the chance to testify, and tell you 
just how proud I am of Delta Air Lines and all of her people.
    Senator Rockefeller. We are 12-14 at home, are we not, 
Senator?
    Senator Isakson. We are having a little trouble. John 
Smoltz hurt his arm, and Glavine is getting old.
    Senator Rockefeller. The Senator is out of order.
    Senator Isakson. But Chipper Jones is hitting .435. So we 
are doing all right.
    [Laughter.]
    Senator Isakson. Thank you, Mr. Chairman.
    Senator Rockefeller. Thank you, sir.
    I am going to waive my statement because we have a very 
full panel, and this is a very crowded day. We are going to be 
working here very late.
    And next to me, Senator Hutchison, who is my Vice Chair, 
has to leave at 3 p.m., and she wants to just stay a couple of 
minutes.
    Then we are going to have the full panel come and begin the 
testimony, and then we will start the questions.
    [The prepared statement of Senator Rockefeller follows:]

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia
    Over the last 5 years, the commercial airline industry has 
undergone a brutal restructuring that cost hundreds of thousands of 
airline employees their jobs and their pensions, eliminated and or 
reduced service to countless small and rural communities, and changed 
the very nature of the industry.
    Just last year, we thought the commercial airline industry had 
rebounded sufficiently and had undertaken enough structural reforms to 
weather the next economic downturn. We were wrong.
    The impact of the rising cost of oil barrel threatens the very 
viability of every airline in this country. Six carriers have already 
been pushed into bankruptcy and more teeter on the edge of financial 
collapse.
    I know that many of my colleagues will want to focus exclusively on 
the pending merger between Delta Air Lines and Northwest Airlines. But, 
I do not want us to miss the primary point of this hearing--the 
financial health of the U.S. aviation industry.
    I spoke at great length last week on this issue. A healthy airline 
industry is critical to our entire economic future. And, frankly, too 
few of us seem not to care. We are losing our global leadership in 
aviation--from aerospace research, to air traffic control system 
development, to market share. U.S. airlines are fast becoming second 
tier carriers in the global marketplace.
    Over the last 2 years, I have heard a lot of airline CEOs tell me 
that they believe the airlines must consolidate to achieve long-term 
financial viability.
    I am not unilaterally opposed to consolidation, as I understand 
that some consolidation may be necessary to make sure the United States 
has a financially stable commercial aviation industry.
    Although consolidation may be necessary to make sure we have a 
healthy airline industry, I am not convinced that consolidation is 
sufficient to solve the long-term challenges of the airlines.
    Our hearing today will allow us to examine the current financial 
state of the industry, the steps that the industry and policymakers 
must take to achieve financial stability in the industry, and the 
potential impact another round of industry consolidation would have on 
the industry and the communities and consumers they serve.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Well, thank you very much, Mr. Chairman.
    Senator Rockefeller. And I beg my colleagues' forbearance 
on that authoritarian act on my part, but I really am anxious 
to get on with this hearing, we have a large group to hear.
    Senator Hutchison. I appreciate that, and I will not read 
my entire statement. I would like to put it in the record.
    [The prepared statement of Senator Hutchison follows:]

  Prepared Statement of Hon. Kay Bailey Hutchison, U.S. Senator from 
                                 Texas
    Thank you, Chairman Rockefeller, for holding the hearing today. I 
would also like to welcome our panel of witnesses, including the CEOs 
of Delta and Northwest.
    As I mentioned to the CEOs when I met with them last week, I don't 
like the current trend of mergers and consolidation in the industry. 
While I don't intend to block or impede the process--that is not the 
role of Congress--I do have concerns about the downstream effects of 
major consolidation.
    I believe the promotion of competition and an emphasis on consumer 
and passenger concerns should be heavily considered. A bigger airline 
doesn't always mean a better airline, and the creation of monopolistic 
hubs will do little to improve consumer choice.
    However, as economic conditions become more uncertain in the short-
term, it is important we review the economy's impact on the aviation 
sector. Also, airlines such as Delta and Northwest are competing in the 
world market in many places against bigger airlines with lower fuel 
costs because of the low dollar exchange and sometimes government 
subsidies.
    Since the year 2000, the U.S. airline industry has gone through its 
most fundamental restructuring since Congress deregulated the industry 
in the late 1970s. We all know so well the horrific impacts of the 9/11 
terrorist attacks, but several other variables have led to where the 
industry finds itself today, notably, record high fuel prices.
    In addition, the advent of the Internet has made customers much 
savvier and overall industry trends like aggressive low-cost carriers, 
international agreement expansion, and bankruptcy restructuring have 
had significant impacts on the face of the industry.
    I am hopeful we can have a discussion today about not only domestic 
competition and challenges, but also global competitiveness and what 
lies ahead for the industry. It is important we understand the future 
marketplace in order to make informed policy decisions.
    Thank you, Chairman Rockefeller, I look forward to the testimony.

    Senator Hutchison. But the bottom line is I appreciate that 
you are calling the hearing. I know the public wants to hear 
all of the points about this potential merger. I have been 
privileged, really, to meet with both CEOs, and I appreciate 
their coming to talk to me.
    In the main, I don't like the idea of mergers because I 
think the more competition we have, the better it will be for 
our consumers. However, having said that, I don't think it is 
the role of Congress to step in and actually try to impart our 
policies on these airlines, at least not as it refers to 
mergers.
    And second, I realize that there are foreign carriers with 
whom these carriers and others compete, that the foreign 
carriers have much lower prices of gasoline because of the 
dollar differential, and that some of them are subsidized by 
their governments. And therefore, I do understand what I am 
told about the need for a bigger consortia to be able to 
compete with other foreign big airlines.
    So I am anxious to hear and read your testimony, but just 
as a policy for me, I'd like to have more American airlines 
competing with each other and giving the consumer the best 
service and price. So with that, let me say thank you for 
calling the hearing, and I will submit the rest of my statement 
for the record.
    Senator Rockefeller. I thank the Honorable Senator from 
Texas, who I think wanted to say more. And so, I appreciate her 
forbearance.
    If Mr. Patrick Murphy, Principal, Gerchick-Murphy 
Associates, would you come forward along with Mr. Richard 
Anderson, CEO of Delta Air Lines; Mr. Doug Steenland, CEO of 
Northwest Airlines; Ray Neidl of Calyon Securities; Ms. 
Patricia Friend, President of the Association of Flight 
Attendants; Mr. Robert Roach, International Association of 
Machinists; and Mr. Mark Cooper, Consumer Federation of 
America. If you could all come forward.
    Again, I apologize for the amplitude of people and the lack 
of space.

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Mr. Chairman, before any of our 
witnesses testify, I want to ask that a full statement of mine 
be included in the record as if it was given. And I commend 
you, Mr. Chairman, for holding this hearing. A very important 
decision is about to be made, we want to make sure that we wind 
up with a net improvement for the traveling public and express 
our concern for the employees that will be affected by the 
proposed merger.
    Senator Rockefeller. I thank the Senator, and I put his 
statement in the record.
    [The prepared statement of Senator Lautenberg follows:]

            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey
    Mr. Chairman,

    Each day, two million travelers depend on safe and reliable travel 
options, including passenger rail, cars and trucks, and airplanes. Our 
economy depends on the airline industry--and so do thousands of hard-
working pilots, flight attendants, air traffic controllers, and other 
employees. The airline industry was on its way to earning a healthy 
profit this year, but skyrocketing oil prices have turned their profits 
into losses.
    And with intense competition and record fuel costs, some airlines 
are looking to merge to keep their business strong. As a former 
businessman, I understand that merging is often appealing for a company 
and its employees, especially in tough economic times. But through the 
merger process, airlines must not neglect their customers. After all, 
it's the customers that are keeping these airline companies in the sky.
    Passengers deserve quality customer service. Yet from ticketing and 
baggage problems to flight cancellations, it seems that customer 
service has been left at the gate. To address these issues, we have 
provided money this year to increase enforcement of airline consumer 
rights. Airline companies cannot mistreat travelers without 
consequences. We must also pass a passenger bill of rights. Travelers 
deserve it.
    Passengers are not the only ones with rights. Employees have 
rights, too. Airline employees have made many sacrifices since 9/11 to 
keep this industry in the air, and airlines must treat their workers 
with respect. That's why some of my colleagues and I sent a letter to 
these CEO's asking that they respect employee rights throughout the 
merger process.
    Lastly, there is more the Federal Government can be doing to help 
both travelers and this industry. 2007 was one of the worst years on 
record for flight delays: more than one in four flights was late. And 
flights into Newark Liberty International Airport were among the most 
delayed in the Nation.
    Mr. Chairman, I regret to say that the Bush Administration's short-
sighted policies in overseeing airline scheduling practices, as well as 
planning for the future of the air traffic control system, have helped 
create the situation we are in. Air traffic controllers are being 
overworked and understaffed, and not enough has been done to reduce 
dangerous and unnecessary safety risks on our runways and in aircraft 
inspections.
    The Administration is not focused on the needs of the flying 
public, and just yesterday we were blocked on the Senate floor from 
moving forward on a critical FAA modernization bill.
    Despite these challenges, I look forward to working with my 
colleagues on this Subcommittee to continue our efforts to oversee the 
problems at the FAA and improve our aviation system as we move forward.
    Thank you, Mr. Chairman.

    Senator Rockefeller. And so, Mr. Patrick Murphy, you have 
the least comfortable seat.

 STATEMENT OF PATRICK V. MURPHY, JR., PARTNER, GERCHICK-MURPHY 
                        ASSOCIATES, LLC

    Mr. Murphy. Thank you, Mr. Chairman and Ranking Member 
Hutchison and Senator Lautenberg. Thank you for allowing me to 
testify today.
    I would like to take my few moments to discuss the results 
of studies which I and my colleagues, Randy Bennett and Jack 
Schmidt, have done on airline competition. We believe the 
analysis we have done is the most comprehensive review of 
competition that has been done since September 11, 2001.
    Our fundamental finding is that the U.S. domestic airline 
industry is more competitive than at any time in history. The 
key to this increased competition is the emergence of two 
distinct business models--network carriers and low-cost 
carriers. Each of these two business models plays a vital role 
in serving the public, and neither model alone could serve the 
Nation's needs.
    Today's unprecedented level of competitiveness is the 
consequence of a sharp change in the industry economics that 
can be traced to the year 2000. In late 2000, almost a full 
year before 9/11, the industry's fortunes changed radically. 
The airlines suffered the largest drop in profits ever recorded 
at that time. At the same time, the network carriers' costs 
were escalating rapidly, while at the very same moment their 
unit revenues were plummeting.
    This dramatic swing coincided with the dot-com collapse, 
new fare transparency for consumers because of the Internet, 
and accelerating growth of low-cost carriers. This 
unprecedented change in the industry's fortunes started a 6-
year string of losses that--for the network carriers stretched 
from 2001 to 2006 and totaled over $30 billion in red ink. At 
the same time, the newer and faster-growing low-cost carriers 
were profitable every single year.
    The low-cost carriers have grown in size and in market 
share and in numbers. Between 2000 and 2006, they grew 73 
percent. At the same time, the network carriers and their 
regional partners cut capacity 13 percent. This is a remarkable 
development. The legacy airlines have shrunk not only in 
relative terms, but in absolute terms. And they shrunk again in 
2007, and they will shrink again in 2008.
    By 2006, the low-cost carriers accounted for 30 percent of 
all passengers in this country. Perhaps most importantly, the 
LCCs now compete in markets that account for three quarters of 
all U.S. passengers. This is an absolutely key development. 
This means that U.S. travelers benefit by head-to-head 
competition with low-cost carriers on three quarters of their 
journeys whether they fly on the low-cost carriers or not.
    Meanwhile, the network carriers have faced a sharp decline 
in revenue derived from high-end fares. Until 2000, the network 
carriers were able to segment their traffic into higher-end 
fare buckets. That resulted in much of their revenue coming 
from higher-paying passengers. That market segmentation 
strategy has now collapsed. The network airlines have 
permanently lost a $12 billion annual revenue stream, and it is 
not coming back.
    As for fares, inflation-adjusted fares in 2006 were 20 
percent lower than in either 1995 or 2000. Also, the practice 
of charging higher fares for local passengers dominated hub 
city airports has largely been eliminated. The dominant 
carriers at most large connecting hubs no longer can charge 
fare premiums.
    On the cost side, we were very surprised to learn that even 
after all the massive cuts made by labor and management, 
network carriers still have significantly higher costs than 
low-cost carriers. The cost cap between network and low-cost 
carriers remains where it was in 1999 at between 40 and 50 
percent.
    In response to this unrelenting low-cost competition, 
network carriers have focused on their core strength, their 
large connecting networks. They bundle traffic from all sizes 
of markets onto connecting flights at their hubs. Low-cost 
carriers, on the other hand, continue to expand. But they 
stress large and medium-sized domestic markets over smaller 
communities.
    The legacy carriers have pressed their network advantage 
largely in the international market, where there is little low-
cost competition. They have shifted away from intense head-to-
head domestic battles for market share.
    The network carriers also face little low-cost competition 
on flights to small U.S. cities. This explains the network 
carriers' continued focus on serving smaller markets with their 
regional partners. Network airlines serve more than 300 of the 
Nation's 334 non-hub airports. Low-cost carriers are almost 
nonexistent at small communities. Consequently, smaller cities 
rely almost exclusively on network carriers, and it is fair to 
state that network carriers and small communities are now co-
dependent on each other.
    Conclusion, the network carriers returned to a modest 
profit in 2007. However, they are once again bleeding red ink. 
Their long-term prospects remain uncertain as they continue to 
lose domestic market share and as foreign competitors grow in 
size and strength. The network carriers are stuck in a 
competitive vise between domestic pressure and emerging 
international pressure.
    For now, the network carriers are finding the international 
sector friendly, but that could change. Meanwhile, the low-cost 
carriers are scaling back their aggressive growth, but they are 
still gaining market share.
    As for the American public, fares and service levels are at 
a very competitive level, although fuel costs are now reversing 
the long-term decline in fare levels.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Murphy follows:]

        Prepared Statement of Patrick V. Murphy, Jr., Partner, 
                    Gerchick-Murphy Associates, LLC
    Chairman Rockefeller, Ranking Member Hutchinson and Members of the 
Subcommittee, thank you for the privilege of appearing before you 
today. My name is Patrick Murphy and I am an aviation consultant with 
over 36 years of aviation economic experience both inside and outside 
of government.
    I would like to present the results of a study on domestic airline 
competition that was completed last year by myself and two colleagues, 
Randy Bennett and Jack Schmidt. We are now updating that analysis. We 
believe our study entitled, ``A Competitive Analysis of An Industry in 
Transition'' is the most comprehensive review of the state of airline 
competition that has been performed since the tragic events of 
September 11, 2001.
    We have presented the results of our findings in a series of 
separate meetings with numerous organizations. Among the groups we have 
briefed are: DOT (twice), DOJ Antitrust Division, DOS, FAA, GAO, ATA, 
NACA, AAAE, ACI, House Aviation staff and Senate Aviation staff.
    All three of us who prepared the study are former long-term 
government aviation officials. We therefore prepared our study using 
data and analytical techniques that we used while in the Federal 
Government. We believe our results are objective, and the various 
government agencies we have briefed seemed to agree.
    Our fundamental finding is that the U.S. domestic airline industry 
is today more competitive than at any time since 1995, the start of our 
study period, and almost certainly more competitive than at any time in 
history. The key to this increased competition is the emergence and 
evolution since airline deregulation 30 years ago of two distinct 
business models--network carriers (also known as the six legacy 
airlines) and low-cost carriers (LCC's such as AirTran, Frontier, 
JetBlue, Southwest and Spirit). Each of these two business models plays 
a vital role in serving the public. Both business models are key to 
providing a comprehensive and affordable air transport system, and 
neither business model alone could serve the Nation's needs.
    Today's unprecedented level of competitiveness is the consequence 
of a sharp change in industry economics that can be traced to 2000. 
Between 1993 and early 2000 the airlines earned record profits. However 
in late 2000, almost a full year before 9/11, industry fortunes changed 
radically the airlines suffered the largest drop in profits ever 
recorded. This loss was largely attributable to the network airlines, 
whose costs were escalating rapidly while at the same moment their unit 
revenues were plummeting. This dramatic swing coincided with the 
dot.com collapse, new fare transparency for consumers because of the 
internet, accelerating growth of the LCC's, a new-found customer 
resistance to high fares, and new more costly labor agreements.
    This unprecedented change in the industry's fortunes started a 6-
year string of record losses for the network carriers that stretched 
from the beginning of 2001 to 2006, and totaled over $30 billion in red 
ink. At the same time, the newer and faster growing LCC's were 
profitable every single year. This was in stark contrast to the six-
year period ended in 2000, when most LCCs struggled for survival while 
the network airlines recorded record profits.
    The LCC's have grown in size, in market share, and in numbers. They 
have entered into both longer distance and lower density markets. Since 
2000 the LCC's grew 73 percent. At the same time the network carriers 
and their regional partners cut domestic capacity 13 percent. This is a 
remarkable development. The legacy airlines shrunk, not only in 
relative terms, but in absolute terms. They have continued to reduce 
domestic capacity and are expected to further reduce capacity in 2008. 
By 2006 LCC's accounted for 30 percent of all passengers. Perhaps most 
importantly, LCC's compete in markets that account for \3/4\ of all 
U.S. passengers. This is an absolutely key development. This means U.S. 
travelers benefit by head-to-head LCC price competition on \3/4\ of 
their journeys, whether they fly on an LCC or not.
    When looked at by city-pairs, which is the matrix most frequently 
used as the ``relevant market'' in antitrust reviews, the number of 
competitors in city-pair markets has grown since 1995, and this healthy 
trend accelerated in 2000.
    Meanwhile the network carriers that 10 years ago dictated the terms 
of domestic competition have faced a sharp decline in revenues due 
mainly to greatly diminished demand for higher fares. Until 2000 the 
network carriers were able to ``segment'' traffic into higher end 
``fare buckets'' that resulted in much of their revenue coming from 
higher paying passengers. That market segmentation strategy has 
collapsed. Competition from low cost carriers that stress low fares and 
consumer resistance to paying high fares means that the network 
airlines have permanently lost a $12 billion annual revenue stream. 
Market segmentation has even been substantially reduced in markets 
where LCC's do not compete. The loss of market segmentation alone could 
account for the legacy carriers' enormous losses through 2006.
    Inflation adjusted fares in 2006 were 20 percent lower than in 
either 1995 or 2000. Even without adjusting for inflation, fares 
dropped from 1995 and from 2000. For example, non-adjusted fares in 
2006 were just about 10 percent lower than 2000. Also, the practice of 
charging higher fares for local passengers at hub city airports has 
largely been eliminated. The dominant carriers at most large connecting 
hub cities no longer can charge ``fare premiums''. There are still a 
very small number of hubs with significantly higher fares for local 
passengers, but that practice has almost been eliminated by ever 
expanding competition.
    On the cost side, we were surprised to learn that even after the 
massive cost cuts made by labor and management, including a series of 
painful bankruptcies, network carriers still have significantly higher 
costs than LCC's. The cost gap between network and low cost carriers 
remains about where it was in 1999 at between 40 percent and 50 
percent. We have found no evidence of the ``cost convergence'' theory 
that many had anticipated whereby network and LCC carriers would evolve 
toward each other's cost levels.
    In response to this unrelenting lower cost competition, network 
carriers have devised new strategies. They have focused on their core 
strength--their large connecting networks. They bundle traffic from all 
sizes of markets, both domestic and international, onto connecting 
flights at their hubs. LCC's, on the other hand, continue to expand but 
they stress large and medium sized domestic markets over smaller 
markets.
    The legacy carriers have pressed their network advantage largely in 
the international market. They have shifted away from intense head-to-
head domestic battles for market share with LCC's. They have found the 
international sector to be more profitable. New foreign services not 
only build profitable international traffic but they also build 
domestic traffic that connects through hubs onto international flights. 
Since 2000, the domestic portion of international flights has grown 20 
percent for the network carriers, or $2.4 billion per year in added 
domestic revenues.
    Just as the network carriers face little LCC competition on 
international routes, they also face little or no LCC competition on 
flights to small, non-hub cities. This explains the network carriers' 
continued focus on serving smaller markets with their regional 
partners. Network airlines serve more than 300 of the Nation's 334 non-
hub airports. LCC's are almost non-existent at these communities as 
they serve only 38. Consequently, smaller cities rely almost 
exclusively on the network carriers. Network carriers now derive over 
11 percent of their revenues from their small markets, and this share 
is growing. It is fair to state that the network airlines and small 
communities have become codependent on each other.
Conclusion
    The network carriers returned to very modest profitability in 2007. 
However, they are again losing money and their long-term prospects 
remain uncertain as they continue to lose domestic market share; and as 
foreign competitors grow in size and strength. To some extent the 
network carriers are stuck in a competitive vise between intense 
domestic pressure and emerging international pressure. For now the 
network carriers are finding the international sector friendly, but 
that could change.
    Meanwhile the LCC's that have enjoyed significant growth and profit 
opportunities at home are scaling back their aggressive growth, but are 
still gaining market share. The LCC's are now the dominant force in the 
domestic industry, and they are the drivers of both growth and price. 
For them the key to success is to prudently manage their growth and not 
expand beyond their managerial capability.
    As for the American public, fares and service levels are at very 
competitive levels, although fuel costs are now reversing the long-term 
decline in fare levels.
    Mr. Chairman, this concludes my statement. I would be honored to 
answer any questions that you or Members of the Subcommittee may have.

    Senator Rockefeller. Thank you very much, sir.
    Senator Klobuchar will now introduce Mr. Richard Anderson, 
Chief Executive Officer of Delta Air Lines.
    Senator Klobuchar. Actually, Mr. Chairman, I am going to 
introduce the head of Northwest Airlines.
    Senator Rockefeller. Yes. That is true.
    [Laughter.]
    Senator Rockefeller. I was offering you a multiplicity of 
opportunities.
    Senator Klobuchar. That is OK. One is enough.
    Senator Rockefeller. So then we will just do Mr. Richard 
Anderson without introduction.
    Senator Klobuchar. Do you want me to wait until Mr. 
Steenland?
    Senator Rockefeller. No, you go ahead.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. I just wanted to welcome Mr. Steenland, 
the head of Northwest Airlines, but also all of the employees 
that are here from Northwest Airlines.
    Northwest Airlines, as you know, was founded in Minnesota, 
in 1926 to carry mail for the U.S. Post Office and began the 
first mail service between Minneapolis and Chicago. During 
World War II, it joined the war effort by flying military 
personnel and equipment to Alaska. And after the war, it was 
designated by the Federal Government as the United States main 
carrier over the North Pacific.
    And I would also add that I am not just saying this for 
nostalgia, but to describe the important role Northwest 
Airlines has played in our state and continues to play in the 
economy of Minnesota. We are ranked number 9 nationally for 
headquarters of Fortune 500 corporations and home to major 
research university facilities.
    Northwest provides nearly 12,000 high-skilled jobs in my 
home state, including trade in mechanics, pilots, flight 
attendants, and the many workers who support its airports and 
headquarters. And I welcome Mr. Steenland today.
    Senator Rockefeller. All right. Mr. Steenland, you better 
go ahead.

            STATEMENT OF DOUGLAS M. STEENLAND, CEO, 
                   NORTHWEST AIR LINES, INC.

    Mr. Steenland. All right. I will.
    Senator Rockefeller. My order of introduction is not the 
same as the order which is at the table, which caused me to 
embarrass myself more than Senator Klobuchar.
    Mr. Steenland. Thank you, Chairman Rockefeller. Thank you, 
Senators.
    I am Doug Steenland, Chief Executive Officer of Northwest. 
I appreciate the opportunity to appear here this afternoon and 
explain the benefits of the recently announced merger between 
Northwest and Delta and, most importantly, the fact that this 
merger will not lessen competition.
    I would like to acknowledge and thank Senator Klobuchar. 
Obviously, we are very proud to be the hub airline of 
Minneapolis/St. Paul, and we look forward to continuing to be 
the region's most important air carrier, major employer, and a 
good corporate citizen after the merger is completed.
    The U.S. airline industry is at a crossroads, creating two 
choices for Northwest. One is to continue on the road now 
traveled as a standalone airline, being whipsawed by rising oil 
prices and I would note that oil closed yesterday at $122 a 
barrel, which will cost Northwest over $1.5 billion more this 
year than last year in fuel facing competition from discount 
carriers that have now captured one-third of the U.S. domestic 
market, and heightened international competition from large, 
well-funded foreign airlines that have been allowed to 
consolidate and are increasing service to the United States 
under Open Skies agreements.
    The other choice is to merge with Delta to create a 
stronger single airline better able to face these challenges. 
By combining the complementary end-to-end networks of two great 
airlines, we will achieve substantial benefits and build a more 
comprehensive and global network.
    Most importantly, the merged airline will be more 
financially resilient and stable, better positioned to meet 
customers' needs, better able to meet competition at home and 
abroad, and better able to provide secure jobs and benefits.
    In this merger, importantly, no hubs will be closed. I 
would like to just emphasize that for a second. In the United 
States, Northwest hubs in Minneapolis/St. Paul, Detroit, and 
Memphis will remain in full operation. In recognition of the 
service we provide and the value we create and the commitments 
we have made, we have received strong civic support in 
Michigan, Memphis, and in Minneapolis/St. Paul.
    The merger will create over a billion dollars in annual 
benefits that will help the merged carrier withstand volatile 
fuel prices and cyclical downturns. All of these benefits will 
be achieved without harming competition. The existing domestic 
and international routes of Northwest and Delta are 
complementary. So the two carriers compete only to a minimum 
extent today.
    Let us start with international markets. The question with 
competition internationally has been asked and answered already 
by the U.S. Government. Recently, the United States Department 
of Transportation tentatively granted antitrust immunity to 
Northwest, Delta, Air France, and KLM and, in doing so, found 
that there would be no reduction in competition over the 
transatlantic from the combination of Delta and Northwest. 
Northwest doesn't serve Latin America, a Delta stronghold, and 
Delta has only minimal service to Asia, which, as Senator 
Klobuchar pointed out, Northwest has served well since 1947.
    Domestically, Northwest routes are focused on the upper 
Midwest while Delta is strong in the South, in the East, and 
the Mountain West. A very important fact to remember from 
today's hearing on competition is that of the 800 domestic 
nonstop routes that Northwest and Delta today collectively fly, 
there are only 12 overlapped nonstop city pair markets. And on 
the vast majority of those 12, there exists robust competition.
    The domestic airline industry, as Mr. Murphy pointed out, 
has undergone a competitive sea change over the past several 
years. Low-cost carriers have grown at an average annual rate 
of 11 percent since 2000. Southwest is the largest domestic 
airline in the United States and carries more domestic 
passengers than any other airline. And that will continue to be 
the case after this merger.
    With this merger, we have achieved our goal of crafting a 
transaction that achieves a significant value for all of our 
stakeholders, and we have done so without impacting 
competition.
    Thanks very much.
    [The prepared statement of Mr. Steenland follows:]

           Prepared Statement of Douglas M. Steenland, CEO, 
                       Northwest Air Lines, Inc.
Introduction
    I am Doug Steenland, the Chief Executive Officer of Northwest 
Airlines. I appreciate the opportunity to appear here today to explain 
the benefits of the recently announced merger between Northwest 
Airlines and Delta Air Lines.
    The U.S. airline industry is at a crossroads, creating two choices 
for Northwest. One choice is to continue on the road now traveled: 
being whipsawed by the high price of oil; facing nationwide competition 
from discount carriers while unable unilaterally to achieve the cost 
and revenue synergies that the merger will produce; and struggling to 
remain competitive in the face of heightened competition from large, 
well-funded foreign airlines that are increasing service to the United 
States following implementation of Open Skies agreements that have 
liberalized aviation markets around the world.
    The other choice is to merge with Delta to create a single global 
network by combining the complementary end-to-end networks of two great 
airlines. By achieving substantial cost savings and building a more 
comprehensive and balanced network, the combined company will be more 
financially resilient, better positioned to satisfy customers' demands, 
and better able to meet the challenges of the future at home and 
abroad.
    From the outset, we have promised that we would consider a 
transaction only if it benefits all of our key stakeholders. We are 
confident that we have met this objective. Our customers and the 
communities we serve will benefit because this is a merger of addition, 
not subtraction. Combining the end-to-end networks of two great 
airlines means that Delta/Northwest will serve more U.S. communities 
and connect to more worldwide destinations than any global airline. Our 
passengers will benefit from direct service from the United States to 
all of the world's major business centers in Asia, Latin America, 
Europe, Africa, and North America. Because the networks of the carriers 
are complementary, no hubs will be closed. Delta and Northwest are 
committed to maintaining service to all points on the combined network 
In fact, in an environment of rising oil prices, the new carrier will 
be able to capitalize on combined traffic flows to preserve some routes 
that otherwise might have been cut as economically unsustainable.
    All stakeholders, and our employees in particular, will benefit 
from the improved financial resiliency and better competitive 
positioning of the combined carrier. The merger will create over $1 
billion in annual synergies that will help the new carrier withstand 
volatile fuel prices and cyclical downturns. The proposed combination 
also will allow us better to use Northwest's valuable Pacific 
franchise, better develop both carriers' domestic hubs, and better 
match the right planes with the right routes. Northwest has already 
integrated many aspects of its technology with Delta through the 
SkyTeam alliance, paving the way for a smooth integration process.
    All of these benefits will be achieved without a substantial 
lessening of competition. The existing domestic and international route 
networks of Northwest and Delta are complementary, so the two carriers 
compete only to a minimal extent today. Of the more than 800 domestic 
non-stop routes that NW and DL collectively fly, there are only 12 non-
stop city-pair overlaps. The vast majority of these non-stop overlaps 
enjoy substantial competition from other carriers, and all consumers 
will benefit from the significant cost savings that the transaction 
will create.
    We did not come easily to the decision to merge with Delta. 
Northwest is proud of its long and distinguished history as a stand-
alone carrier, and the company has made Herculean efforts in recent 
years to preserve its ability to continue operating independently. As 
you know, Northwest filed for Chapter 11 protection in September 2005. 
As part of the Chapter 11 reorganization process, employees at every 
level of the organization made substantial sacrifices to insure that 
Northwest could emerge successfully from bankruptcy. We saw the success 
of this reorganization effort in 2007 when Northwest earned $760 
million in profit, $125 million of which went to our employees as 
profit sharing and incentive payments. Yet, with fuel prices at record 
highs and amidst an economic slowdown, we remain financially 
challenged. The bottom line is that we have achieved our goal of 
crafting a transaction that creates significant value for all 
stakeholders. The combined company will be more stable and better 
positioned to meet the challenges of the future, both at home and 
abroad.
    Small communities are among those that stand to gain the most from 
the merger. This merger is particularly beneficial for states such as 
West Virginia and Minnesota that have a large number of small 
communities that need better access to the global marketplace. In many 
such cities, only one carrier currently provides service. But each 
carrier individually lacks the ability to provide customers the full 
range of international destinations. Consequently, a passenger in 
Hibbing, MN wanting to visit Panama--or a Huntington, WV passenger with 
business in Nagoya--would have to travel on two different carriers to 
reach the desired destination. After the merger, passengers flying 
these itineraries will benefit from seamless service on a single 
carrier. Together, we can provide better service to all customers 
across a broad, worldwide network, and these benefits will be delivered 
with no hub or station closings.
    The testimony proceeds as follows: Section I of the testimony 
discusses why the merger of Delta and Northwest is procompetitive and 
consistent with regulatory requirements. The domestic airline market 
today is highly fragmented and will remain so post-merger. Furthermore, 
because this merger will combine complementary end-to-end networks, it 
will result in only 12 domestic non-stop overlaps, none of which will 
cause competitive problems. In addition, the merger presents no 
international competitive issues. Section I also examines how 
competition in the airline industry has been transformed since 2000. 
Low-cost carriers have changed the industry, and technology has created 
a transparency revolution that enables customers to compare airline 
fares quickly and easily. These factors will assure that a combination 
between Delta and Northwest will not reduce competition or harm 
consumers.
    Section II of the testimony discusses market conditions in the 
airline industry, particularly the effect on network carriers of the 
dramatic increase in oil prices, the slowdown in the economy, the Open 
Skies treaty, and the consolidation of foreign flag carriers. These 
conditions require that Delta and Northwest respond proactively, and 
the merger accomplishes that goal.
    Section III of the testimony explains how the Delta/Northwest 
merger benefits U.S. customers. The combined carrier will offer access 
to more worldwide destinations, accelerate investments to enhance the 
flying experience, and create the world's largest frequent flyer 
program. Section II also discusses how Delta and Northwest are uniquely 
positioned for a smooth integration process given their past 
coordination as part of the SkyTeam alliance.
    Finally, Section IV explains how the combined carrier will continue 
to deliver exceptional service to U.S. communities by bringing 
increased single-carrier connectivity to smaller communities across the 
Nation. In addition, this section discusses our commitment to 
maintaining all current hubs.
I. This Merger Is Procompetitive and Consistent with Regulatory 
        Requirements
    The domestic airline market is highly fragmented and there is 
little overlap between the networks of Delta and Northwest, proving 
that a merger of the two carriers will not substantially lessen 
competition. The fundamental characteristics of the airline business 
will continue to constrain any hypothetical anticompetitive effects of 
the merger. Most notably, low-cost carriers have achieved rapid growth 
in this decade, changing the competitive dynamics of the industry. In 
addition, new Internet search tools have created a transparency 
revolution in airline fares to enable customers to access low fares 
easily. Finally, customers will benefit from enhanced competition in 
the industry as the combined company becomes a stronger airline, better 
able to compete with discount carriers and growing international 
airlines that are now serving more markets in the United States.
The Domestic Airline Market Is Highly Fragmented
    The domestic airline market is not concentrated; no airline 
currently has greater than a 20 percent domestic passenger share. Even 
post-merger, a combined Delta/Northwest would capture less than 20 
percent of the domestic passenger share, and Southwest would continue 
to have the highest domestic passenger share. (See Figure 1).
Figure 1: Domestic Passenger Share (3rd Quarter 2007)


There Is Very Little Domestic Overlap Between Delta's and Northwest's 
        Networks
    There is very little overlap between the route systems of Delta and 
Northwest. Delta has a strong presence in the East and Mountain West, 
whereas Northwest's domestic route network is focused in the Midwest. 
As Figure 2 demonstrates, Delta and Northwest operate very different 
domestic route structures.

Figure 2: Delta and Northwest Carry Distinct Passenger Bases


    The domestic overlap between the two airlines that exists is 
minimal and raises no competitive concerns. Because Delta and Northwest 
have complementary networks, the two carriers provide overlapping non-
stop service on only 12 of the more than 800 domestic non-stop city-
pairs that they collectively fly.

               Table 1.--Delta/Northwest Non-stop Overlaps
------------------------------------------------------------------------
                                 Other Competitors (non-stop competitors
             Route                             in italics)
------------------------------------------------------------------------
Atlanta-Detroit                  AirTran offers 8 daily non-stop round
                                  trips and has a 32% share
------------------------------------------------------------------------
Atlanta-Memphis                  AirTran offers 5 daily non-stop round
                                  trips and has a 36% share, with one-
                                  year growth of 9%
------------------------------------------------------------------------
Atlanta-Minneapolis              AirTran offers 4 daily non-stop round
                                  trips and has a 22% share, with one-
                                  year growth of 10%
------------------------------------------------------------------------
Cincinnati-Minneapolis/St. Paul  American and United offer connecting
                                  service; Midwest and AirTran both
                                  serve Dayton (only 57 miles from
                                  downtown Cincinnati) and Minneapolis
------------------------------------------------------------------------
Cincinnati-Detroit               Competitors offer connecting service
                                  through Chicago and Cleveland; AirTran
                                  already serves both Detroit and Dayton
                                  (only 57 miles from downtown
                                  Cincinnati), and Southwest already
                                  serves Detroit; driving is an option,
                                  as the trip takes little more than 4
                                  hours by car; non-stop entry can
                                  easily occur on this route with gate
                                  availability at both airports
------------------------------------------------------------------------
Detroit-New York                 American, Continental, Spirit
------------------------------------------------------------------------
Detroit-Salt Lake City \1\       American, Frontier, Southwest, United,
                                  and U.S. Airways offer connecting
                                  service with a collective share of 40%
------------------------------------------------------------------------
Honolulu-Los Angeles             United, American, Continental, and
                                  Hawaiian
------------------------------------------------------------------------
Indianapolis-New York            Continental and US Airways
------------------------------------------------------------------------
Los Angeles-Las Vegas            United, American, Southwest, U.S.
                                  Airways, and JetBlue
------------------------------------------------------------------------
Minneapolis/St. Paul-New York    Continental and SunCountry
 \2\
------------------------------------------------------------------------
Minneapolis/St. Paul-Salt Lake   American, Frontier, United, and U.S.
 City                             Airways offer connecting service;
                                  Southwest and JetBlue serve SLC and
                                  AirTran serves MSP
------------------------------------------------------------------------
Notes: \1\ Northwest will launch service on Detroit-Salt Lake City in
  June 2008; \2\ Delta will launch non-stop service on New York-
  Minneapolis in June 2008.

    As Table 1 demonstrates, Northwest and Delta currently face 
significant competition from other non-stop and connecting competitors 
on most of these routes. In addition, other factors lessen potential 
antitrust concerns. Both discount carriers and legacy carriers can 
easily enter routes and provide competing service, and nearby airports 
provide competitive alternatives. Moreover, relatively few passengers 
travel on these non-stop routes; overall, passengers will derive 
benefits from the merger far greater than any potential competitive 
concerns raised by these few overlaps.
Delta/Northwest Presents No International Competitive Issues
    Finally, in the international markets, there are no significant 
competitive concerns. In fact, the U.S. Department of Transportation, 
in tentatively approving the joint application from Air France, 
Alitalia, Czech, Delta KLM, and Northwest for authority to operate an 
immunized alliance in transatlantic markets, found no basis to deny the 
request on competition grounds. In issuing its Show Cause Order on 
April 9, 2008, the Department stated ``that the proposed alliance will 
not substantially reduce or eliminate competition, provided that 
transatlantic markets remain governed by a regional open skies 
agreement that promotes new entry regardless of national borders.'' The 
Department further noted, ``We see no basis upon which the Joint 
Applicants could, as a result of this transaction, impose and sustain 
supra competitive prices or reduce service levels below competitive 
levels.'' (U.S. Department of Transportation, Show Cause Order, Docket 
OST-2007-28644, Apr. 9, 2008, at 13.)
    Indeed, on an operating carrier basis, New York-Amsterdam is the 
only international non-stop overlap, and recently granted antitrust 
immunity permits Northwest and Delta to coordinate their service on 
this route even in the absence of a merger. Post-merger, the global 
aviation marketplace will remain intensely competitive; no global 
carrier--including Delta/Northwest--will have more than a 7 percent 
share of available seat miles.
Figure 3: No Significant Concerns in International Markets


    The combination of Delta and Northwest increases competition in all 
international regions. The combined carrier will have a broader network 
closer in scope and depth to that which foreign flag carriers already 
possess, as well as a significant presence in all key international 
business markets, making it a stronger competitor against the foreign 
flag airlines.
This Merger Should be Evaluated on its Own Merit
    Each merger needs to be evaluated on its own merits. Delta/
Northwest is a procompetitive combination and that fact remains true 
regardless of what else may happen down the road with respect to 
industry consolidation. Our merger illustrates the fact that 
consolidation can result in more cost-efficient carriers with lower 
unit costs and greater financial stability. To the extent that any 
further consolidation involves an end-to-end combination like ours and 
is not predicated on hub closures or ``rationalization,'' it could 
enhance competition in the industry. In contrast, a merger of carriers 
with overlapping networks would raise competitive concerns that do not 
arise in the Delta/Northwest transaction. The competitive impacts of 
each individual major carrier combination are vastly different--and it 
does not follow that if the Department of Justice approved one 
combination that it should, or would, necessarily approve others. The 
Department of Justice will evaluate the competitive effects of each 
merger on its own merits and has the authority either to block any 
merger that would harm consumers or to fashion remedies to address 
specific competitive concerns.
Competition in the Airline Industry Has Been Transformed Since 2000
    Since 2000, low-cost carriers (LCCs) have grown at a rate of more 
than 10 percent annually. Southwest Airlines, an LCC, now carries the 
largest number of domestic passengers. At the same time, Internet 
pricing engines and online travel agencies have created unprecedented 
price transparency, enabling passengers easily to find the lowest fares 
for a given itinerary. Compounding this phenomenon, LCC advertising has 
conditioned passengers to expect ultra-low fares.
Low-Cost Carriers Have Changed the Industry
    In July 2005, the General Accounting Office reported that ``[t]he 
low cost carriers are really the price setters and have transformed the 
competitive environment in the airline industry.'' LCCs are strong 
competitors and have experienced explosive growth. Since 2000, LCC 
weekly departures and the number of cities served by LCCs have 
increased by 60 percent. (See Figure 4.)
Figure 4: The Rapid Growth of LCCs


    LCCs have grown at an average annual rate of 11 percent since 2000 
and in 2007 carried one-third of domestic passengers. The rapid growth 
of low-cost carriers domestically has created new competition that 
offsets historical regulatory concerns. Furthermore, LCCs are 
increasingly targeting business passengers: ``Faced with slowing growth 
and higher costs, discount carriers like Southwest and JetBlue Airways 
Corp. are making a new push for business travelers, adding flights in 
heavily traveled business routes and even quietly offering companies 
special deals.'' (``Discount Airlines Woo Business Set,'' Wall Street 
Journal, February 19, 2008.). Led by Southwest, LCCs will continue 
exerting pricing pressure on legacy carriers.
    Over the past several years, the major LCCs have been more 
financially stable than their legacy peers. Indeed, Southwest is the 
only domestic airline whose corporate debt is rated as ``investment 
grade'' by Standard and Poors, a fact that speaks both to the financial 
challenges facing the domestic airline industry generally and to the 
viability of the large LCCs. During the last decade, substantial 
discount carrier growth has resulted in a more competitive and 
fragmented industry. Today, LCCs serve all major cities, including all 
legacy carrier hubs, and are expanding into smaller cities.
    Southwest Airlines has continued to experience dramatic growth over 
the past several years. Since 2000, Southwest has grown at an average 
annual rate of 9 percent. Today, Southwest carries more domestic 
passengers than any other airline. Southwest also has been the most 
successful domestic airline at hedging against rising fuel prices and 
will continue to benefit from its 70 percent fuel hedge for 2008, and 
its 55 percent fuel hedge for 2009.
    Southwest and other LCCs also command significant market share as a 
result of recent competitive successes:

   Southwest: continues to have the strongest balance sheet in 
        the industry, with a business model built on growth and 
        expansion; added new non-stop service on 23 routes in 2007; 
        initiated service at San Francisco International and now offers 
        25 daily non-stop flights to four cities and connecting flights 
        to 49 other destinations.

   JetBlue: added new non-stop service on 24 routes in 2007; 
        experienced a 15 percent increase in passengers; and received a 
        $300 million cash infusion from Lufthansa.

   AirTran: set record traffic levels in 2007, and enjoyed 
        increased load factors and enplanements; added new non-stop 
        service on 35 routes; ordered 15 new Boeing 737s; has added 
        four new domestic destinations since May 2007.

    As Figure 5 shows, LCCs have accomplished this dramatic growth 
during the same period in which legacy carriers have shrunk.
Figure 5: Year-over-year Change in Domestic Scheduled ASMs


    LCCs will continue to provide pricing discipline across the board. 
Entry in this business is wide open. There are plenty of airport gates 
available, and airplane manufacturers have always been ready to finance 
airplane deliveries.
    In recent weeks, some smaller LCCs have gone out of business and 
Frontier Airlines recently filed for Chapter 11 protection. 
Nonetheless, competition from the large LCCs remains strong. In an 
April 11, 2008 report, Credit Suisse rated AirTran, JetBlue, and 
Southwest as ``outperform.''
Technology Has Created a Transparency Revolution
    Over the past several years, online sites such as Orbitz, Expedia, 
and Travelocity have been created to enable customers to compare 
airline offerings directly. (See Figure 6, depicting flight options 
from Cincinnati to Detroit as listed on Orbitz.com). These tools have 
provided enormous benefits to consumers and have increased the price-
competitiveness of the airline industry. In fact, there are few 
businesses in which there is as much pricing transparency.
Figure 6: Orbitz.com Search Screen


    A consumer can log on to the Internet and, at the push of a button, 
review choices available across a wide variety of carriers. That same 
customer easily can sort those choices to find the lowest available 
fare and view extraordinarily competitive prices for both non-stop and 
connecting flights. For example, the Orbitz.com screen in Figure 6 
displays competing one-stop connections on U.S. Airways, Continental, 
United Airlines, and American for the Cincinnati-Detroit route.
    Over the last several years, online travel sites have developed 
advanced search functions such as flexible-date airfare searching and 
route-specific e-mail fare alerts. Furthermore, sites such as Expedia, 
Orbitz, Travelocity, and numerous others provide their advanced pricing 
information and functionality to customers free of charge. Even 
business travelers now seek discount fares and travel sites such as 
Expedia Corporate Travel and Travelocity Business have evolved to 
target business customers.
    In sum, customers have become far more sophisticated at comparing 
the offerings of competing carriers, and airline consumers have more 
tools at their disposal than do consumers in the vast majority of 
industries in the United States. As The Economist stated in June 2007, 
``[t]he web has made it possible for passengers to be their own travel 
agents by comparing fares and schedules and booking flights--and at 
prices much lower than a decade ago.'' (``Fear of Flying,'' The 
Economist, June 14, 2007.) As online technology continues to evolve, 
airfare transparency will continue to be enhanced.
II. Market Conditions Require Change in the Airline Industry
    Significant economic pressures from record fuel prices and intense 
competition, particularly from discount carriers and foreign airlines 
based in Europe, the Middle East, and Asia, have fundamentally changed 
the airline industry. This new environment has resulted in diminished 
profits, restructurings, more than 150,000 lost jobs, and financial 
losses of over $29 billion among U.S. network carriers since 2001.
Oil Prices Have Increased Dramatically And Continue to Rise
    Record fuel prices have fundamentally changed our economics, 
forcing airlines to cut routes and reduce capacity and jobs. Over the 
last 5 years, the price of oil has increased at an annualized rate of 
28 percent, now exceeding $115/barrel. (See Figure 7.) And the price of 
crude oil has risen by nearly 75 percent over the past 12 months alone. 
In addition, the crack spread for jet fuel has risen to $29.06 in April 
2008--the highest level ever, even compared to the post-Katrina crack 
spread spike.
Figure 7: Daily Oil Prices ($ per Barrel)


    Through the restructuring efforts of the past few years, Delta and 
Northwest have achieved the lowest mainline non-fuel cost of the full-
service network carriers. Restructuring required substantial sacrifices 
by our employees in terms of lost positions, reduced pay, and reduced 
benefits. Our employees have made those sacrifices to give Northwest a 
chance to survive and grow.
    Yet, given the rapid fuel increases over the past few years, we 
remain financially challenged. During the first quarter of 2008 alone, 
we spent $445 million more on fuel to operate virtually the same planes 
flying the same routes. We anticipate having to spend over $1.4 billion 
more for fuel this Fiscal Year than we did during the previous Fiscal 
Year due to price effects alone. And while it may seem that airlines 
are continuously raising fares to share these increased costs with 
consumers, the reality is that, thus far, consumers have covered 
significantly less than our incremental fuel cost increases. Today, 
fuel is the single highest expense of Delta and Northwest, 
significantly eroding the benefits of restructuring. Northwest recently 
reported a net first quarter 2008 loss of $191 million (excluding 
impairment charges and losses related to marking-to-market fuel 
contracts that settle in future periods) compared to a $73 million 
profit for the quarter last year. This difference represents a swing of 
$264 million from a year ago.
    Because Delta and Northwest have already gone through bankruptcy 
and dramatically lowered costs, both carriers face fewer opportunities 
for further cost-cutting on a stand-alone basis. For example, we have 
assured our employees that we will not ask them for any additional pay 
cuts. The significant synergies of this transaction enable Delta and 
Northwest to offset more effectively the dramatic increase in fuel 
costs in a way we could not achieve individually. In short, the 
combination of Delta and Northwest creates a company with a more 
resilient business model that can withstand volatile fuel prices more 
effectively than either could on a stand-alone basis.
Open Skies and Consolidation in the Global Market Have Substantially 
        Strengthened the Competitive Position of Foreign Flag Carriers
    Competition is growing from foreign airlines based in Europe, the 
Middle East, and Asia as Open Skies agreements and mergers are making 
foreign airlines stronger competitors. The Open Skies agreement between 
the United States and the European Union, effective last month, has 
expanded aviation markets around the world. Now any European or U.S. 
airline can fly between any city in the European Union and any city in 
the United States, giving European carriers greater access to U.S. 
markets. Open Skies increases competition between European carriers and 
highly fragmented U.S. legacy carriers. Foreign flag carriers have been 
able to invest in new aircraft and improved service offerings and 
amenities because they have not been confronted with the same economic 
challenges facing U.S. carriers and because they pay their fuel bills 
with stronger currencies.
    Delta/Northwest creates a global carrier with a first-rate 
international network, positioning the new carrier to compete 
effectively against foreign airlines. This international expansion 
could not be undertaken organically. Northwest could not establish a 
European and Latin American presence to rival Delta's without 
substantial fleet expenditures and the renegotiation of restrictive 
bilateral agreements in Latin America. A Delta/Northwest merger permits 
Northwest customers to access Delta's extensive European and Latin 
American networks in a cost-efficient way.
    Similarly, Delta could not unilaterally recreate Northwest's 
significant Asian presence because of restrictive bilateral agreements, 
slot constraints, and the need for substantial fleet expansions. 
Northwest and United, alone among U.S. carriers, possess grandfathered 
rights under the 1952 U.S.-Japan bilateral that afford extensive access 
to Japanese markets and the ability to connect passengers through Japan 
to other markets in Asia. A Delta/Northwest merger will allow Delta's 
customers to benefit from greater access to Northwest's three Japanese 
markets and eleven other Asia/Pacific markets.
    Combining the complementary international networks of Delta and 
Northwest creates the comprehensive global network that customers 
value. By consolidating, Delta and Northwest will be able to compete 
more vigorously and effectively with foreign competition.
III. Delta/Northwest: A Win for American Customers
    Combining Delta and Northwest will offer customers greater choice, 
more competitive fares, and a superior travel experience. The combined 
airline will provide convenient connections between more destinations 
in the United States and around the world than any other airline. As a 
stronger, more financially stable company, the combined airline will be 
more able to reinvest in upgrading its fleet and enhancing the services 
that make flying more convenient and enjoyable for customers.
The Combined Carrier Will Offer More Choices Worldwide Than Ever Before
    The combined carrier will offer a true global network. The new 
carrier will offer service to over 390 worldwide destinations in 67 
countries, including more than 140 small communities across America. 
Customers also will have access to 840 destinations in 162 countries 
through the SkyTeam Alliance.
    Combining the networks of Delta and Northwest also paves the way 
for new route offerings. For example, Northwest Airlines is the 
preeminent U.S. airline serving routes between the United States and 
Asia, particularly Japan. However, our Asian network would be better 
utilized if it were connected to a domestic network of larger scale. 
For example, several years ago, Northwest discontinued service from 
Tokyo to New York because we did not have enough of a presence in New 
York to sustain that route. Delta, in contrast, has a strong presence 
in New York. The combined passenger volume of the two carriers will 
support re-entering the non-stop JFK-Tokyo route.
Delta/Northwest Will Create the World's Largest Frequent Flyer Program
    The merger will create the world's largest frequent flyer program. 
Because customers will be able to fly to more destinations and enjoy 
enhanced schedule options, they will have more opportunities to earn 
and redeem frequent flyer miles. Members of the existing frequent flyer 
programs of both Delta and Northwest will keep their current mileage 
and customer status post-merger.
Delta and Northwest Are Uniquely Positioned for a Smooth Integration 
        Process
    Delta's and Northwest's complementary networks and common 
membership in the SkyTeam alliance will minimize the integration risk 
that has complicated some airline mergers. The carriers' frequent flyer 
programs, customer lounges, airline partner networks, and IT platforms 
already have been partially integrated through the SkyTeam alliance in 
which both Delta and Northwest participate. Thus, the carriers' 
previous investments in integration will allow for a more efficient and 
seamless integration process.
    Heightened cooperation scheduled to occur in the transatlantic will 
further enhance the integration process. Last month, the Department of 
Transportation preliminarily granted antitrust immunity for a four-way 
joint venture among Northwest, Delta, Air France, and KLM. The 
combination of Delta and Northwest will facilitate an accelerated 
implementation of this joint venture, creating significant benefits for 
consumers.
    We have already commenced a transition planning process to ensure a 
smooth integration. A task force has been established including senior 
leadership from all of the key operational departments of both 
companies. The task force has as its mandate to identify the best 
systems and best processes--so that immediately after closing we will 
be in a position to proceed with integrating the companies.
IV. Delta/Northwest Will Continue to Deliver Exceptional Service to 
        American Communities
    Because Delta and Northwest bring together complementary route 
networks with only minimal service overlaps, the combined company will 
preserve all of its hubs and serve more domestic and international 
destinations than any other airline. The new carrier will continue 
Delta's and Northwest's proud traditions of providing extensive service 
to small and rural destinations across the country. By combining, we 
will build on this decades-long history by providing small communities 
with service to hubs from which they will be able to directly connect 
to an even wider array of destinations on a single airline.
    In the first half of 2008 alone, record fuel prices have forced the 
industry to reduce by more than 1.6 million the number of seats 
available to passengers. By the end of the year, Delta will have cut 
capacity by 10 percent, and Northwest by 5 percent. The merger, by 
producing a stronger competitor, will make service cutbacks less likely 
than if Delta and Northwest were to remain separate.
The Combined Carrier Will Make Service to Smaller Communities More 
        Secure
    We take our commitment to serve customers in small communities very 
seriously. Together, Delta and Northwest will serve over 140 small 
communities, nearly double the amount of our next largest competitor.
    By aligning our network strengths, we can enhance service from 
small communities to new international destinations. Indeed, 48 
Northwest small communities will gain better access to 83 Delta 
international destinations. Post-merger, over 390 global destinations 
will be available on a single airline to each small community we serve, 
up from 250 on Northwest alone and 327 on Delta alone. Businesses in 
the upper Midwest will gain access to South America and expanded access 
to Europe, while businesses in the Southeast will gain better 
connectivity to Asian markets. Potential new economic development, 
trade, and tourism benefits from enhanced global access to and from 
cities and towns across the United States will arise due to the merged 
company's unprecedented international network.
    Furthermore, the cost savings achieved by the merger will enable 
the new carrier to continue serving routes that the stand-alone 
carriers would have had to cut. Thus, the merger creates a more stable 
and secure platform for service in an airline environment plagued by 
volatility. By combining, Delta and Northwest will make existing 
service to small communities more secure.
All Hubs Will Be Maintained
    The Delta/Northwest network formed by our seven geographically 
balanced U.S. hubs is the combined carrier's greatest asset. We have no 
intention of dismantling any hubs, and have committed to maintaining 
Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-
JFK, and Salt Lake City. These hubs do not exist because they were 
selected at random by an airline planner throwing darts at a map. They 
exist because there was a strong local market that justified the 
development of hub service, and an air carrier with the resources to 
develop it.
    Delta and Northwest made different--but sound--business decisions 
in developing hubs in the cities where they exist today. Furthermore, 
each hub has unique service points, which add value to the hub and to 
the network. (See Figure 8).
Figure 8: Unique Regional Service Points


    The merger provides the opportunity for Delta and Northwest to make 
better use of their hub infrastructure investments by generating 
additional traffic flows throughout the broader combined network. 
Because this is an end-to-end merger and because sound economics 
underlie our hub operations today, there is no need for hub closures.
Detroit (DTW)
    Detroit is Northwest's largest hub and will continue to serve as 
Delta's premier hub in the Great Lakes region with connections across 
the globe. The state-of-the-art McNamara terminal, combined with vast 
airside capacity, provides an efficient connecting complex that has won 
high acclaim with consumers. Detroit's northern tier geography (which 
is shared by Minneapolis) places it along the optimal great circle path 
for service from many U.S. cities to points in both Asia and Europe.
    Even though Detroit is a large hub with extensive service 
throughout the heartland region, Detroit has relatively few flights to 
the Southeastern United States, where Delta provides comprehensive 
network coverage, and Detroit has no service to South America, where 
Delta is a major player. Customers in Detroit, and especially the 
unique cities served in Detroit's large Midwest catchment area, will 
benefit from access to the Delta network. In terms of domestic ASM's, 
Northwest devotes 49 percent of its capacity to the North Central 
region, and just 17 percent to the Southeast. Conversely, Delta offers 
only 10 percent of its capacity in the North Central region, and 39 
percent in the Southeast. Combined, the respective hubs of Delta and 
Northwest form a better balanced nation-wide network.
Minneapolis/St. Paul (MSP)
    The added traffic from Delta's larger U.S. domestic network will 
help to strengthen and promote the development of Northwest's 
Minneapolis/St. Paul hub, including its international services. 
Northwest recently added non-stop service from MSP to London Heathrow 
and Paris. Delta is a major player in Europe, and the deepening 
partnership with our common SkyTeam partners Air France and KLM will 
contribute to the long-term success and development of non-stop 
international services from MSP. We are committed to retaining 
significant airline jobs, operations, and facilities in the Twin 
Cities, and the combined carrier will continue to be an important part 
of the Minneapolis/St. Paul community.
Memphis (MEM)
    Memphis will continue to play an important role for the combined 
carrier. Memphis is a smaller but efficient and well-performing hub. 
The demand for air travel to and from Memphis--which has sustained a 
major airline hub for more than three decades--is not going to 
disappear simply because there is a neighboring Delta hub 330 miles to 
the East at Atlanta (ATL). Northwest's Memphis hub has existed 
alongside Delta's Atlanta hub since its inception, and the merger is 
not cause for its elimination. By coordinating and optimizing schedules 
across the complementary multi-hub network, the new carrier can improve 
operating results and offer greater frequency and better routing 
choices for its customers. Memphis provides an important opportunity 
for future growth when economic circumstances permit. Even with its 
fifth runway, Atlanta is operating at capacity. Memphis is a flexible 
and less congested alternative hub.
Conclusion
    Northwest Airlines has carefully considered the effect of this 
transaction on our shareholders, our employees, our customers, and the 
communities we serve. We have concluded that the merger is a win for 
each of these stakeholders in our company. This merger is about paying 
employees fair wages, reinvesting in new products and services for 
customers, earning a return for shareholders who have committed their 
capital, and being a good corporate citizen. An unprofitable airline 
cannot do any of these things.
    The combination of Delta and Northwest will offer customers greater 
choice, competitive fares, and a superior travel experience. It will 
maintain all of Delta's and Northwest's hubs and serve more domestic 
and international destinations than any other airline, including 
service to more than 140 small communities in the United States.
    At this time, I would be pleased to answer any questions you may 
have.

    Senator Rockefeller. Thank you, Mr. Steenland, very much.
    Mr. Anderson, you have already been introduced, and we 
welcome your comments.

            STATEMENT OF RICHARD H. ANDERSON, CEO, 
                     DELTA AIR LINES, INC.

    Mr. Anderson. Thank you, Mr. Chairman and Senators of the 
Committee.
    I appreciate the opportunity to be here on behalf of the 
50,000 people of Delta Air Lines and the 60 or so Delta 
employees that are here with us today, including Captain Lee 
Moak, Chairman of the Airline Pilots Association and a Delta 
767 captain and, I might add, a Marine aviator, who is here in 
support and has given a statement to be included in the record.
    Also, we have included for the record submissions from over 
100 different entities in 27 different states representing 
entities in each of the communities that each of the Senators 
here today represent.
    Senator Rockefeller. All will be included.
    [The information previously referred to is retained in the 
Committee files.]
    Mr. Anderson. Thank you.
    This is really the opportunity for the U.S. airline 
industry to compete on a global basis. When you think about 
what is going on in the world today and where commerce is today 
with the various free trade agreements and all of the Open 
Skies agreements that have been signed, we really--it is not 
just about competition in the United States. It is about having 
strong U.S. airlines to compete around the world.
    When we look at the traffic in the United States today, the 
majority of the traffic carried to and from Asia, Europe, the 
Middle East, and Africa is carried on foreign-flag carriers. 
Only 5 percent of the wide body international orders worldwide 
are held by U.S. airlines. And most of those are held by these 
two airlines.
    So when you look at our competitive position versus 
foreign-flag airlines and the fact that so much of our commerce 
as a country depends upon our ability to compete 
internationally, it is very important that we have a strong, 
viable, competitive airline business, and this combination is 
about placing the U.S. airline industry at the front of 
international competition.
    When we look out at the other challenges that we face, in 
addition to global competition, you cannot ignore the effect 
that oil has on this business. Oil today is actually at $123 a 
barrel with crack spreads at $30. So the industry is paying on 
an unhedged basis over $150 a barrel for fuel, which represents 
40 cents of every dollar we collect.
    In order for us, for these two carriers to be able to do 
right by our employees, right by our shareholders, right by the 
communities we serve, we should be given the opportunity to act 
on our own. We aren't here asking you for aid or any other sort 
of support. We are here telling you that we want to combine 
these two great airlines so that we can be much stronger and 
much more durable so that we won't relive what has happened 
over the past 7 years, which is reduction of over 150,000 
employees and losses totaling $30 billion.
    The oil prices alone, when I testified last before the 
Senate 2 weeks ago, there had been five carriers that had 
entered Chapter 11. There are now six carriers that have 
entered Chapter 11. And what this really does for these two 
carriers, these are the two strongest carriers from a balance 
sheet perspective, a cost perspective among the network 
carriers.
    We have both been through reorganization. We have both 
scrubbed our fleets. We scrubbed our cost structure. We fixed 
our balance sheets. We have solid strategies, and the 
opportunity we have together by putting these two airlines 
together with little, if no overlap is to build a worldwide 
network that can compete on any basis with foreign-flag 
carriers.
    The merger, most importantly, provides more stability for 
our employees. When we look at what our standalone plans are 
versus what the combination creates, the combination creates 
over a billion dollars in value. The only true stability in 
this business for our employees is for us to have a winning 
strategy as an enterprise.
    So we had that in mind when we put this combination 
together. So we are not--this is end-to-end, so there are no 
hub closures. We have committed to no layoffs of frontline 
employees. We have set aside a significant amount of ownership, 
straight stock ownership for the employees on closing. We have 
seniority protection in the merger agreement. But more 
importantly, the Congress passed legislation supporting it, and 
our board of directors at Delta has adopted it as an 
enforceable policy.
    Small and large communities benefit. Hub and spoke carriers 
are built to serve small communities. We have invested hundreds 
of millions of dollars in the airplanes and the facilities and 
the schedules to provide that service. Discount carriers do not 
serve small communities.
    A stronger network carrier will do a better job serving 
small communities. We will create new service to over 3,000 
markets and over 6,000 new international markets. We appreciate 
the opportunity to be here today and look forward to answering 
your questions.
    Thank you.
    [The prepared statement of Mr. Anderson follows:]

 Prepared Statement of Richard H. Anderson, CEO, Delta Air Lines, Inc.
Introduction
    Mr. Chairman and members of the Subcommittee, I want to thank you 
for providing me with the opportunity to address the Subcommittee about 
a topic that is critical to the future of every employee of Delta Air 
Lines, and Northwest Airlines. On April 14, we announced the merger of 
Delta and Northwest; a transaction that will create America's premiere 
global airline. This transaction comes at a unique and important time 
in the history of the airline industry and our two companies. The world 
is changing rapidly; business is conducted across all parts of the 
globe and people around the world have unprecedented freedom and 
opportunity to travel abroad. The question facing the domestic airline 
industry is whether we will have companies with the global network and 
financial stability to compete in this new world against foreign 
carriers. Make no mistake about it; we face formidable competitors from 
overseas. Today foreign flag carriers carry more passengers to and from 
the U.S., Europe and Asia than U.S. flag carriers. They are frequently 
funded by their governments and benefit from regulatory policies that 
promote consolidation into a handful of strong competitors. The Open 
Skies agreements that recently have gone into effect offer domestic 
carriers excellent opportunities and daunting challenges as 
transatlantic competition will increase dramatically. The current order 
book for wide body Boeing and Airbus aircraft shows that U.S. carriers 
make up only about 5 percent of the buyers. We do not come here today 
looking for financial support, but we are looking for an opportunity to 
build a more financially stable U.S. airline with the global presence 
to compete with foreign carriers.


    Our ability to remain strong financially and to compete 
internationally is severely impacted by the unprecedented rise in the 
price of oil. Continued prices of $115-$120 per barrel of oil will 
result in bankruptcy for some carriers and deny even the most 
financially sound carriers of profitability. In the last few weeks 
alone we have seen five U.S. carriers go into bankruptcy directly as a 
result of fuel prices, with four of them shutting down completely. 
Passenger airlines reported first quarter results and the industry 
reported a $1.74 billion loss for the quarter compared to profits for 
the first quarter of 2007, with the swing almost exclusively the result 
of increased fuel costs. We have seen the impact of bankruptcies on 
airline employees and customers. Since 2001, U.S. network carriers have 
shed more than 150,000 jobs and lost more than $29 billion. The 
management of Delta and Northwest believe that this merger will create 
a financially stronger airline, with a broad and diversified global 
route network that will help it weather the impact of fuel prices and 
the volatility of the domestic and world economies.
The Delta-Northwest Combination Will Be a Strong, U.S. Based Global 
        Competitor
    The combination of Delta and Northwest will create a stronger 
company with route systems that complement each other and will provide 
an opportunity to offer travelers a global network that neither airline 
independently could offer. Northwest for decades has been America's 
premiere carrier to Asia; in fact it is the only U.S. carrier with a 
hub in Japan that provides a convenient point to connect to the most 
important destinations in Asia. As a result of restrictions in bi 
lateral agreements between the U.S. and Japan, there is little chance 
that Delta would ever be able to offer comparable service. Conversely, 
Delta has invested substantially in building the leading service to 
Europe, the Middle East and Africa from the U.S., as well as a strong 
presence in Latin America. It is virtually impossible for Northwest to 
devote the capital necessary to acquire the planes to build such a 
franchise. As I indicated, the recent Open Skies agreements will permit 
any U.S. or European Union carrier to fly between the U.S. and the 27 
EU member states. Already, British Airways, Virgin Atlantic and Ryanair 
have indicated that they will add or start new service between the U.S. 
and Europe, and Lufthansa is a growing presence in the U.S. The 
combined Delta/Northwest will generate approximately $ 1 billion a year 
in synergies and will have about $7 billion of liquidity together with 
the global route network that will allow us to compete in this new 
environment.
The Merger Has Been Structured to Provide Stability and Benefits for 
        Employees
    Delta has a uniquely cooperative relationship with its employees, 
and in planning this merger the impact on employees was uppermost in 
our minds. I have worked at many companies, in many different jobs, in 
both the public and private sectors and I have never seen an employer 
that respects and cares about its employees more than Delta Air Lines. 
Delta historically has had a culture that always tries to do what is 
best for its people. That is particularly important in view of the 
immense challenges that Delta and the rest of the airline industry have 
faced in recent years. Given these industry challenges, I believe it is 
even more important that we work collaboratively with all of our people 
so that we can fight and overcome them together. As we are beginning to 
see, companies and employees that fail to work together are at greater 
risk of failure. We believe it is important that any transaction we 
undertake will benefit the people of both companies, together with our 
customers and other stakeholders. We believe that if we take care of 
our people, they will take care of our customers, and we will all 
benefit.
    Here are just some examples of how this merger will benefit our 
people:

        a. We will set aside sufficient equity so that all employees 
        can have an unprecedented equity stake in the merged company.

        b. We will move all employees, over time, up to industry 
        standard pay and benefits.

        c. We will honor our commitment to all U.S.-based, frontline 
        employees to provide a process for the integration of seniority 
        in a fair and equitable manner.

        d. We will maintain the existing pension plans of both 
        companies, both for current employees and for those already 
        retired.

        e. We will maintain our top tier profit-sharing plan and 
        operational rewards program.

        f. We have assured our frontline people that there will not be 
        any involuntary furloughs as a consequence of the merger.

        g. And particularly important in view of the impact on our 
        industry of record fuel prices and economic uncertainty, we 
        will strengthen our airline financially and provide 
        opportunities for our people to benefit from our planned growth 
        and future success.

    With respect to whether there will be union representation in the 
various crafts or classes of employees after the merger of Delta and 
Northwest, we have pledged to respect our employees' preferences on 
that issue. The Railway Labor Act, as administered by the National 
Mediation Board, provides a time-tested process for determining 
employee choices regarding representation following an airline merger. 
We of course will respect that process and those choices. In the 
meantime, we have provided a written commitment to honor the existing 
Northwest collective bargaining agreements until any post-merger 
representation issues are resolved.
    Regarding seniority protection for the frontline employees of Delta 
and Northwest, Delta took the initiative last year when our Board of 
Directors adopted a policy to provide a process for fair and equitable 
seniority integration for employees of both companies in any Delta 
merger. We pledged to use the seniority integration provisions from the 
former Civil Aeronautics Board's ruling in the Allegheny-Mohawk merger. 
Delta and many other carriers have used the Allegheny-Mohawk provisions 
in prior mergers, and they are also provided for in many collective 
bargaining agreements in the industry. Last December, Congress passed 
legislation that required the use of the Allegheny-Mohawk seniority 
integration provisions in airline mergers. Delta successfully fought to 
assure that the law as passed protected all employees, whether union or 
non-union. We carried these principles through our negotiations with 
Northwest and have provisions in our merger agreement that provide for 
seniority protection.
Small Communities Will Benefit from the Merger
    I would like to address another issue that I know is very important 
to this Committee and our customers: service to small communities.
    Both Delta and Northwest are very proud of their long history of 
serving small communities. Northwest has often been the only way for 
people in small towns in the upper mid-west to connect with the rest of 
the country and the world. Similarly, Delta was founded in a small 
southern city and for years its focus was serving small southern 
communities. We know and understand the importance of air service to 
the economic health of these communities. The phenomenal growth of 
Atlanta and the southeast in general is directly related to the 
superior service offered from Hartsfield Jackson Airport in Atlanta, 
largely by Delta. We intend to continue with these traditions and to 
remain the airline providing the most service to small communities from 
strategically located hubs in Atlanta, Minneapolis, Detroit, New York, 
Memphis, Cincinnati and Salt Lake City. This is not just customer 
service, it is good business--we have committed publicly that we will 
not close any hub as a result of this merger. To keep these hubs 
profitable, we need the traffic from small communities around the 
country. A robust hub system is critical to the services desired by 
small communities. It is the most effective model to serve these 
communities since it allows us to use smaller aircraft to bring 
passengers from many small communities to the hub and offer broad 
connecting opportunities for these passengers. The combined Delta/
Northwest will serve over 140 small communities, nearly twice the 
number served by our next closest competitor. The merged airline will 
offer new service to nearly 3,000 domestic origin and destination 
markets and over 6,000 new international markets, greatly expanding the 
ability of customers from small communities to reach every part of the 
country and the world on one airline.
    As the economies of the world become linked more closely, we 
recognize the importance of air travel to the ability of small 
communities to compete and thrive in a world economy. This merger will 
open up a new range of options for our customers in small communities 
and it will bring them in closer contact with the rest of the world. 
For example, the combined Delta/Northwest will provide customers in 48 
small communities served by Northwest better access to 83 additional 
international destinations served by Delta today, while passengers in 
51 small communities served by Delta will gain greater access to 20 
Northwest international destinations.


    The combined airline will offer passengers over 390 global 
destinations on a single airline up from 250 on Northwest alone and 327 
on Delta alone. Customers in small towns in the south will be able to 
fly to Japan and much of Asia with one easy connection on the same 
airline. That is not the case today. Similarly, customers in the upper 
mid-west will have many more options to fly on one airline network to 
more destinations in Europe and Latin American than they do today. 
Since Delta and Northwest have focused their attention on different 
regions, there are few overlap routes and customers will gain the 
benefits of a larger combined network without any material reduction in 
services. However, providing service to any city, whether small or 
large, must make economic sense and the high cost of fuel for Delta and 
Northwest is far more likely to result in a reduction or elimination of 
service than this merger.
The Unprecedented Rise in the Price of Fuel Has Created Serious Risks 
        for the Airline Industry
    No discussion about the current state of the airline industry would 
be complete without mentioning the devastating impact of the 
unprecedented rise in the price of oil. Every day we read that the 
price of a barrel of oil has hit new records. Over the last 5 years we 
have experienced a 28 percent annualized increase in oil prices and in 
the last 12 months alone, the price of a barrel has nearly doubled. 
Most analysts do not foresee the price of a barrel of oil going below 
$100 any time in the near future. What is less widely publicized is the 
equally dramatic rise in the cost of jet fuel extracted from oil. Since 
2001, the cost of a gallon of jet fuel has increased over 500 percent 
and nearly doubled since December 2006.
    The airline industry is somewhat unique. When the price of oil 
rises and you go to fill your car up with gasoline, you pay more at the 
pump; there is little choice. In the airline industry, we are lucky if 
we can recover through fare increases even 50 percent of fuel price 
increases. The costs have to be made up somewhere else. Despite 
becoming more and more fuel efficient and obtaining more and more 
productivity from our employees and operations--Delta and Northwest 
have two of the lowest cost structures of the mainline carriers--the 
impact is dramatic. In 2003 fuel costs consumed 17 cents of every 
dollar of passenger revenue we received; in 2008 that number will be 
43 cents. Every $1 increase in the price of a barrel of oil costs Delta 
about $60 million. The increase from $110 to $115 per barrel in the 
last couple of weeks alone will cost Delta over $300 million on an 
annual basis. As a result, there are fewer dollars left to improve 
passenger amenities, acquire new aircraft and provide better 
compensation and benefits to employees. The employees in this industry 
have sacrificed time and time again. The dramatic rise in fuel costs 
has resulted in much of the cost savings our employees have generated 
through productivity and benefit losses being used to pay for fuel 
rather than to improve the product. In effect, it has eroded most of 
the sacrifices they have made to make their company viable and 
sustainable in the future. Merging Delta and Northwest will create a 
much more financially stable company with approximately $7 billion in 
liquidity and $1 billion in annual synergies. The combined airline will 
be able to withstand an 80 percent greater increase in fuel price than 
either airline standing alone, and still maintain profitability. This 
financial strength and flexibility, much greater than either airline 
standing alone, will provide additional resources to help weather this 
unprecedented fuel cost environment and a softening domestic market.


This Merger Will Be Beneficial to Customers
    I have already touched on some of the key benefits our customers 
can expect such as a significant expansion in the number of domestic 
and foreign locations that will be available from the merged airline. 
There will be other benefits such as a common frequent flyer program 
that will provide more opportunities to earn miles, more schedule 
options, and more efficient routes for connecting passengers as we 
optimize the combined hub structure. Of equal importance, the financial 
stability and flexibility of the combined carrier will allow us to re-
invest in our products such as planes, in-flight services and 
reservation systems. For example, we have publicly stated our intention 
to exercise options to purchase up to 20 new wide body jets between 
2010 and 2013 to upgrade our fleet for international flying.
    We are mindful of the difficulties in combining the complex 
operations of two airlines and that other airline mergers have 
encountered problems that have inconvenienced customers. Delta and 
Northwest are committed to making this merger seamless and trouble free 
for our passengers. Both Delta and Northwest are members of the SkyTeam 
alliance and have gained experience in working cooperatively on 
passenger service issues. Our frequent flyer programs, customer lounges 
and IT systems are already partially integrated. In addition, we will 
be able to build on the decades long partnership between Northwest and 
KLM (now a part of Air France) and the long standing relationship 
between Delta and Air France. All of these factors will help smooth the 
integration process for our customers.
The Merger Does Not Harm Competition
    Doug Steenland's written submission will deal extensively with the 
pro-competitive impact of this proposed merger and I will not repeat 
all of those points. I will simply say that these two airlines have 
complementary networks; Delta's domestic focus is in the east and 
mountain west while Northwest focuses on the upper mid-west. There are 
only twelve domestic nonstop overlapping markets. Even these nonstop 
overlaps do not cause competitive problems, as Doug's statement 
indicates. Similarly, on connecting route overlaps, potential 
competitive effects are mitigated by the presence of low cost carriers, 
the relatively small market shares of Delta and Northwest, the 
availability of alternative airports and the likelihood that legacy 
carriers will expand into these markets. In addition, the transaction 
will generate significant efficiencies through such factors as more 
efficient matching of aircraft to routes that will enable the combined 
carrier to be financially stable and to offer a better product to 
customers, such as a broad global network and enhanced airport 
presence.
Conclusion
    In closing, I would like to acknowledge the support we have 
received from Delta people throughout the company. It has been 3 weeks 
since we announced the merger. We have been traveling our system from 
Atlanta to Cincinnati to New York to Salt Lake City and I am happy to 
say that Delta people are very excited about what this means to them. I 
believe that Doug will report the same about Northwest's employees.
    Two weeks ago we had a meeting in Atlanta attended by almost 2000 
employees. Some of our people have traveled here today to show their 
support. Our people appreciate the fact that we are taking proactive 
steps to provide a more secure, financially stronger company in these 
times of increased foreign competition, record-setting fuel prices and 
a weakening economy. They do not want us standing still. We look 
forward to welcoming Northwest employees to join with their Delta 
counterparts to create and enjoy the benefits of being part of 
America's premier global airline.

    Senator Rockefeller. Thank you very much, Mr. Anderson.
    And now, Mr. Neidl, would you please give us your 
testimony?

               STATEMENT OF RAY NEIDL, ANALYST, 
                     CALYON SECURITIES INC.

    Mr. Neidl. I want to thank the Committee for inviting me to 
speak today.
    Senator Rockefeller. Could you pull that microphone a bit 
closer, please? Thank you.
    Mr. Neidl. OK. Is that better?
    I want to thank the Committee for inviting me here today. 
As a long-time student of the industry, I have great interest 
in the airlines, their cultures, and their history. But as a 
Wall Street stock and bond analyst, right now I am more 
concerned with the financial ability of the airlines.
    The industry is changing rapidly both in the U.S. and 
worldwide, and the industry is moving more and more toward 
globalization. We can see trans-border mergers happening 
already overseas, particularly in Europe. These carriers are 
becoming bigger and financially stronger and will give greater 
competition to the fragmented U.S. network carriers out there.
    Domestically, the network carriers continue to face more 
competition from startup carriers. To go back a decade, startup 
carriers was Southwest. Today, we have got a number of startup 
carriers, a few less than we had a few weeks ago, but we still 
have a number of startup carriers that are out there pricing 
the market and domestically probably have over a third of the 
market share now, offering very tough competition for network 
carriers.
    Now, looking at the industry since 9/11, airline management 
from across the board in the network sector, in my opinion, 
have done just about everything they can to cut nonfuel costs. 
I don't think they can do much more.
    The employees have given everything they can. They can't go 
to the employees any longer. They have revised their 
structures, and basically, they are trying to provide complete 
service on a shoestring type of budget. So there is not a lot 
more they can do, and they are facing these tremendously high 
fuel costs, which just a year ago nobody believed it would be 
this high.
    Exit barriers for those carriers are strong, though we are 
seeing a few of the smaller, less capitalized airlines exit 
right now. But the bankruptcy laws allow airlines to stay 
around almost forever. It took years for a very weak Pan Am and 
Eastern Airlines to finally shut the doors, and in the 
meantime, they were doing damage to the industry as they priced 
for cash flow.
    However, entry barriers remain pretty open. It seems like 
there is never a shortage of capital for people wanting to 
start airlines or people finding niches that they want to get 
in and grab a certain part of the market share from the big 
carriers. It is slowing down a little bit now with high fuel 
prices and a slowing economy. But that will change. Recessions 
come and go. And I am sure a whole host of new startup carriers 
will be coming into the market over the next couple of years.
    Now, excess capacity, we have that in the system right now 
with high fuel prices. They have led to weak operating margins 
on the part of the airlines and has weakened them. And with too 
many seats being offered, the airlines are not pricing to meet 
their costs, particularly an uncontrollable cost like runaway 
fuel costs.
    The industry--this industry is going to have to restructure 
one way or the other. It is either going to restructure through 
the guidance of politicians and regulators through mergers, 
orderly mergers, or the bankruptcy courts will take care of it. 
I believe that a number of carriers, the next time they go into 
bankruptcy, if they do, this will be for real.
    Airlines like Delta and Northwest have done everything they 
could in bankruptcy to restructure themselves. If they are 
forced to go in again, it will be for liquidation this time, 
and that will take care of excess seats in the market, but in a 
way that would be tough on their employees and tough on the 
marketplace.
    Industry consolidation, if properly overseen by the 
regulators, I think, would be a benefit to the employees, to 
the investors that supply capital to the industry, and to the 
traveling public. It would give them greater market mass. It 
will allow them to have greater ability to generate revenues, 
and most importantly, it will give them the ability to cut 
costs. Maybe a little bit more than some people would like to 
see, but it would provide the opportunity for elimination of 
duplicate services.
    Now, there is one major risk, in my opinion, with multiple 
mergers going on at the same time. If you look at the history, 
mergers have always proved to be messy, time consuming, and in 
many cases disruptive of services. If we have a number of 
mergers going on at the same time among major U.S. carriers, it 
could create, if it is not done properly, panic among the 
traveling public and you, the politicians, would hear about it 
very rapidly. So that is my main concern about big airline 
mergers, multiple ones happening at the same time.
    But bottom line and summary, the airlines are not meeting 
their cost of capital or their operating costs. Fuel, which is 
large and uncontrollable, is knocking out all of the hard-won 
cost cutting that has been done by the airlines, and I think an 
answer to that is to have sensible end-on-end type of mergers.
    Thank you.
    [The prepared statement of Mr. Neidl follows:]

    Prepared Statement of Ray Neidl, Analyst, Calyon Securities Inc.
USA Airlines
   The commercial aviation industry is becoming more global, 
        whereby larger and financially stronger players will eventually 
        dominate. This is already happening in the European Union (EU) 
        which is treating the area as one market enabling its airlines 
        to consolidate and become more efficient. The rapidly growing 
        Asian economies welcome outside investment to help support and 
        drive growth for their airlines.

   U.S. network airlines will find it tougher to compete in a 
        more global and efficiently run industry unless they are 
        allowed to gain market mass, obtain further cost efficiencies 
        and increase their ability to enhance revenue generation so 
        that they will attract capital investment. Although foreign 
        carriers are not able to compete in the U.S. domestic market, 
        network carriers are facing increasingly aggressive competition 
        from low-cost carriers in this sector, thereby effectively 
        squeezing network carriers from both sides.

   Mergers will not solve all of the industry problems. In 
        fact, airline mergers in the past have proved to be relatively 
        expensive and inefficient in the initial years. There is a 
        major risk that there could be widespread disruptions in 
        service if more than one merger is being implemented at the 
        same time.

   However, properly planned and implemented, especially with 
        the cooperation of the employees, mergers could produce 
        stronger and more competitive entities long-term. Stronger 
        airlines would not only be beneficial but are a necessity to 
        properly serve travelers and give job assurance to employees, 
        to say nothing of attracting strategic investors.

    The industry has done a commendable job in rationalizing capacity 
and reducing non-fuel costs since 9/11. Employees have contributed by 
easing work rules and accepting reduced compensation while airline 
managements have thoroughly reviewed their systems to increase 
efficiencies. More can be done but there are limitations. As oil prices 
exceed $110 a barrel, something has to be done to further rationalize 
the overall structure of the industry. Without a major rationalization 
of capacity, slim profit margins will disappear, which will make it 
difficult for U.S. network carriers to modernize their fleets to stay 
competitive with foreign airlines that have been rapidly upgrading 
their fleets with new technology-driven, cost-efficient aircraft. This 
will hurt U.S. network carriers in the long run and ultimately have a 
negative effect on aircraft manufacturers and their many suppliers 
across the U.S. and worldwide.
    As the industry moves toward globalization through trans-border 
mergers, foreign carriers will become tougher competitors for U.S. 
based network airlines. They are gaining market mass and are 
structuring themselves to gain in financial strength. Size in many 
cases also can mean stronger pricing ability since a broader scope of 
services can be offered in the international arena.
    Domestic markets are currently closed to these growing foreign 
giants but the U.S. network carriers are facing pressure in these 
markets from start-up low-cost airlines that have newer more efficient 
fleets, a lower wage cost structure and greater flexibility in 
adjusting their operations. They can cherry pick the best routes.
    Since 9/11, the U.S. network airlines have done a commendable job 
in restructuring themselves to be more competitive but in light of 
$110+ a barrel oil prices, future progress will now be limited. The 
workers have given all they can and though further restructuring can be 
done, all the easy fruit has been picked.
    With exit barriers high as a result of U.S. bankruptcy law and 
entry relatively easy through deregulation, the U.S. airline industry 
has reached the point where we have too many airlines offering too many 
seat miles where the costs cannot be recovered through pricing as the 
multitude of airlines fight for market share to preserve their systems 
and obtain a certain market mass and service footprint. Because of 
strict antitrust laws, airlines cannot coordinate operations or pricing 
even through their partnership agreements.
    Excess capacity and competition has led to weak operating margins 
and profitability even in the upper part of the economic cycle. With 
fuel costs skyrocketing, the industry is now due for a major fall again 
as we enter the down part of the cycle, whether it is this year or 
sometime further down the road. Weak profitability and balance sheets 
will lead to a crisis at some point.
    The industry will have to restructure one way or the other, either 
through the relatively organized regulatory oversight of mergers or in 
the more risky and disorganized guise of bankruptcy, which may lead to 
certain airlines having to liquidate. It probably would be better for 
all parties concerned, the consumer, employees and investors to go with 
the former rather than the latter.
    Industry consolidation that leads to larger carriers will not solve 
the industry problems by itself and mergers pose their own set of 
challenges and problems, particularly in the labor area. However, to 
remain competitive in an industry that is becoming more international 
and globalized, greater market mass and financial strength will be 
needed by the U.S. network airlines. Part of the market mass 
requirement is being met currently through worldwide alliances but that 
is not the same as the same airline being able to control the passenger 
for the whole trip.
    Besides greater market mass, the two other benefits of 
consolidation would be cost cutting and revenue enhancement. To cut 
costs, marginal operations and smaller expensive hub operations would 
have to be evaluated as to their viability which will have an affect on 
communities they currently serve. However, if service is justified, 
other airlines or niche carriers would move in if the hub was 
abandoned. If not economical to serve certain small communities but 
service was deemed essential, it would be up to public entities such as 
local, state or national government to subsidize the service and not 
the airlines and their investors. These situations should be rare, 
however, since a host of lower cost airlines could probably profitably 
service these areas. The other benefit would be revenue enhancement. 
The first thing that comes to mind is higher ticket prices if there are 
fewer competitors. Higher ticket prices are needed and justified. With 
over $110 a barrel oil, the consumer is not paying their way and 
airlines cannot continue to subsidize them. However, revenue 
enhancement would also include the additional revenues that larger 
carriers could generate through a greater scope of services offered.
    A major risk with multiple consolidations going on at the same time 
is that there could be widespread service problems initially as 
integration takes place. It has been demonstrated in past mergers that 
major service disruptions are possible, if not probable, in the initial 
stages of the complex integration process. If there were two major 
mergers taking place at the same time, the problem would be compounded 
over the Nation's commercial aviation system.
    Bottom line, as much as we do not want to hear this, airlines are 
not meeting their cost of capital or in fact their operating costs 
despite the major efforts by the carriers to control costs and increase 
efficiencies. Fuel, largely noncontrollable in the short-term, is 
knocking out hard-won benefits and at some point fresh capital going 
into money-losing propositions will dry up.
Conclusion
    There are major doubts if the industry can remain viable over the 
economic cycle with oil over $110 a barrel if there are not major 
structural changes. The industry in its current fragmented form cannot 
sustain profitability under these circumstances. Through consolidation, 
the industry will be in a better position to rationalize capacity, 
further cut costs and enhance revenues since they will better be able 
to price their product at economical levels to earn a return on 
capital. Without profits the industry will ultimately have to shrink. A 
more efficient industry will be beneficial not only to investors and 
attract capital but will give employees job security and ultimately be 
beneficial to customers since profitable airlines will better be able 
to serve the consumer.
Important Disclosures--Analyst Certification
    I, Ray Neidl, hereby certify that the views expressed in this 
research report accurately reflect my own personal views about the 
securities and/or the issuers and that no part of my compensation was, 
is, or will be directly or indirectly related to the specific 
recommendation or views contained in this research report. In addition, 
the analysts included herein attest that they were not in possession of 
any material, non-public information regarding the subject company at 
the time of publication of the report.

    Senator Rockefeller. Thank you, sir.
    And now, Ms. Patricia Friend, who is the International 
President, Association of Flight Attendants. We welcome you.

        STATEMENT OF PATRICIA A. FRIEND, INTERNATIONAL 
   PRESIDENT, ASSOCIATION OF FLIGHT ATTENDANTS--CWA, AFL-CIO

    Ms. Friend. Thank you very much, Chairman Rockefeller, and 
thank you for holding this very important hearing on our 
aviation industry.
    We believe that Congress must take a hard and very serious 
look at where this industry is headed and that we must begin a 
serious dialogue on forming a rational aviation policy for this 
country.
    As you witness this merger and reports of other mergers and 
the fact that in April, four airlines ceased operations in a 
two-week period, you must agree that our aviation industry is 
failing employees, consumers, and communities. This country has 
lacked a sound and rational aviation policy since deregulation.
    Prior to deregulation, the airline industry was nurtured 
and developed by Federal policy, crafted to ensure that the 
industry was stable and able to promote economic development. 
In the post deregulation environment, the industry was thrown 
into a massive, market-driven restructuring--hundreds of 
bankruptcies and defunct airlines, thousands of displaced and 
unemployed airline workers, the worst consumer rankings and on-
time performances in history, an outdated air traffic control 
system that cannot handle the demand.
    We have seen hundreds of communities across every single 
region of this country lose crucial air service, and we have 
heard the excuses repeatedly from the airline executives. They 
have blamed everything from the national economy to low-cost 
startup airlines and then to their favorite excuse, labor 
costs. It is interesting to me that the one thing that remains 
constant in this industry is the outrageous sums collected in 
pay and benefits by airline management, regardless of the 
economic performance of their carrier.
    Now some may interpret my comments today as a call for re-
regulation, but I am not convinced that is the answer. What I 
am saying is we need a serious national dialogue so that we can 
agree on a sound and rational aviation policy that works for 
everyone--employees, consumers, and communities. Everything 
should be on the table in this discussion, including the 
possibility of re-regulation or at least re-regulating part of 
the market.
    Our future, if something isn't done to develop a sound 
aviation policy, is not promising. The forces of globalization 
are now poised to bring sweeping changes to our industry. The 
Open Skies agreement between the United States and the European 
Union includes a provision for so-called second stage 
negotiations.
    If those second-stage negotiations result in a repeal of 
current foreign ownership restrictions, the U.S. aviation 
industry could be outsourced. This is a future that will lead 
to reduced jobs for U.S. citizens and will open the door for 
widespread outsourcing of aviation jobs, an idea already 
broached by Northwest management.
    The solution advanced by the industry today is for greater 
consolidation, but I am not sure that we should rush into 
supporting this call for greater consolidation without taking a 
very serious pause. We are standing at the edge of great change 
in this industry, and it is important that we begin the debate, 
discussion, and dialogue on what kind of national air system we 
want.
    I am very glad that this merger between Northwest and Delta 
has drawn significant attention. We should use it as an 
opportunity to begin that national discussion. Very troubling 
to us in this specific merger, this Northwest/Delta merger, is 
the serious jeopardy in which it places the collective 
bargaining rights of all of the Northwest employees who have 
fought for and won the legal right to have union 
representation.
    Virtually all of the employees at Northwest have chosen to 
join a union. Delta, on the other hand, has only one major 
workgroup that is unionized, its pilots. The nearly 14,000 
Delta flight attendants are now the closest to securing their 
future by forming a union through AFA-CWA. They are currently 
engaged in a representational election.
    These flight attendants are fighting against tremendous 
odds and against a company that is determined to do anything 
and everything possible to prevent their flight attendants from 
forming a union. Just since the NMB mailed its voting 
instructions to the Delta flight attendants on April 23, Delta 
management has flooded the flight attendant crew lounges with 
supervisors and wallpapered its facilities with anti-AFA 
posters, urging their flight attendants not to vote.
    No merger should be permitted to become a vehicle for union 
busting. These airline executives have seized the opportunity 
they see in this merger, not only a chance to prevent thousands 
of non-union employees from gaining a union, but a chance to 
eliminate the unions that already provide protection for their 
members at Northwest.
    These Delta executives have not been shy about their 
efforts to prevent the employees from forming unions. In fact, 
in a recent meeting with AFA-CWA Northwest leadership, 
Northwest management stated flatly that there would not be a 
seat at the table for the flight attendants in these merger 
discussions.
    He went on to say that the current Delta was a non-union 
company and that the new Delta had every intention of remaining 
a non-union company. Delta plans to defeat the union and to 
prevent the flight attendants from having or keeping the 
bargaining rights that are essential in the face of any merger.
    While much will be made over the coming months about the 
impact of this merger on consumers and communities, I urge you 
to remember the hundreds of thousands of airline employees 
across this country. Keep us in mind as you review this merger 
and the impact that it will have on our lives and our families. 
And please, don't let them destroy the one thing that we have 
protecting us--our unions.
    Thank you.
    [The prepared statement of Ms. Friend follows:]

  Prepared Statement of Patricia A. Friend, International President, 
             Association of Flight Attendants--CWA, AFL-CIO
    Thank you, Chairman Rockefeller, for holding this vital and timely 
hearing on the state of the airline industry and the proposed merger of 
Northwest and Delta Airlines. My name is Patricia Friend and I am the 
International President of the Association of Flight Attendants--CWA, 
AFL-CIO. AFA-CWA represents over 55,000 flight attendants at 20 U.S. 
airlines and is the largest union in the world representing flight 
attendants. We especially want to thank the Committee for inviting us 
to testify today and giving voice to views and concerns of the working 
women and men that have kept these our Nation's airlines flying during 
the good times . . . and through some very difficult times.
    As a front line employee that has worked in the airline industry 
for over 40 years, I have had a unique perspective on the cyclical yet 
dramatic changes that have reshaped the industry and impacted jobs. As 
the President of a union representing employees from a broad cross 
section of the industry from legacy carriers like United, U.S. Airways 
and Northwest; to low cost carriers like AirTran and Spirit; and to 
regional carriers like American Eagle, Mesa and Mesaba, I am here to 
testify that I believe we are at a major turning point in this 
industry. I and our members have seen the seismic changes brought on by 
deregulation and have born the brunt of bankruptcies that saw major and 
historic airlines like Pan Am, Eastern and TWA disappear forever. We 
braved through the tragic events of 9/11, reported for duty during the 
SARS panic and navigated through bankruptcies where corporate greed and 
judicial neglect battered our profession and sought to destroy good 
paying jobs with benefits. Mr. Chairman, the assault on the great 
American middle class was and is front and center in the airline 
industry.
    We now face record jet fuel prices and the forces of globalization 
that threaten to remake this industry into something that I, nor none 
of my early flying partners, could have foreseen when I first put on my 
uniform in 1966.
    I will not engage this Committee with a trip down memory lane and a 
recitation of exactly how much this industry has changed. As 
policymakers that have witnessed most of this change first hand and in 
many cases have played a role in the direction of this industry, you 
are as familiar with those changes as I am. But I can tell you that we 
are at point where it is absolutely vital that Congress must take a 
hard and serious look at where this industry is headed and begin a 
serious dialogue on forming a rational aviation policy for this 
country. Each and every one of you must ask yourselves what kind of 
aviation system do you envision for our country? As you witness this 
merger and reports of other mergers and the fact that four airlines 
ceased operations in a two-week period in April, you must agree that 
our aviation industry is failing employees, consumers and communities. 
You have the ability and responsibility to determine the course for the 
airline industry. This industry, under this administration, has been 
handed over to management teams--some with little to no airline 
experience--who have destroyed middle class jobs and created the 
quagmire we are in today.
    This country has lacked a sound and rational aviation policy since 
deregulation. Prior to deregulation, the airline industry was nurtured 
and developed by Federal policy crafted to ensure that the industry was 
stable and was able to promote economic development in communities it 
served. In the post-deregulation environment, the industry was thrown 
into a massive market driven restructuring. So what have the results 
been? Hundreds of bankruptcies and defunct airlines, thousands of 
displaced and unemployed airline workers and their families, the worst 
consumer rankings and on-time performance in history and a out-dated 
air traffic control system that cannot handle the demand. We have seen 
hundreds of communities across every single region of this country lose 
vital and crucial air service as airlines cut routes and scheduled 
service and move those assets to serve large communities along with 
every other airline. Despite the promises of deregulation, the industry 
still struggles to make a profit even when the price of a barrel of oil 
was half its current value. We've heard the excuses repeatedly from 
airline executives. They've blamed everything from the national 
economy, to low cost, startup airlines and to their favorite excuse--
labor costs. It's interesting to me, that the one thing that has 
remained constant in the industry is the outrageous sums collected in 
pay and benefits by airline management regardless of the economic 
performance of their carrier. Corporate greed is the one thing that has 
remained constant during my career. If anything in that category has 
changed, it's that the amounts they reward themselves every year grows 
more and more excessive while employees earn less.
    What we have today is an industry and aviation system that 
literally seems to be at the brink of collapse. Besides the urgently 
needed upgrades to the technology of our air traffic control system and 
the investment in the workforce to run that technology, we are seeing a 
business model that seems to leave out of its equation the impact for 
employees, communities and consumers. The only thing that seems to be 
driving this industry today is how big the bottom line return is for a 
select few. It doesn't matter that our aviation system is a vital part 
of our national infrastructure and one that has made this country the 
powerful economic, cultural and military power that it is today. It is 
now a commodity that simply must be maximized to generate a profit for 
a select few.
    Since deregulation, our aviation policy has been dictated and 
driven entirely by the marketplace. Is this a wise policy for an 
aviation system that is as important and vital to our country? I could 
not find any better words to describe my own feelings about this policy 
than those used by Senator Dorgan at a hearing of this Committee last 
year. Senator Dorgan, when discussing the state of the aviation system, 
stated that he believed in the marketplace and that it often resulted 
in good things. But that the marketplace needed an umpire to make sure 
that it worked for everyone. I could not agree more. Deregulation has 
resulted in some positive developments. The marketplace has indeed 
increased competition and reduced fares for consumers in some markets. 
But the unfettered marketplace has also led to the loss of air service 
to struggling communities, the increasing difficulty for airline 
employees to make a decent living, calls for a passenger bill of rights 
and, most troubling, life saving safety initiatives that are the first 
casualty of the cost cutting knife.
    Some may interpret my comments as a call for deregulation. I'm not 
convinced that is the answer. What I am saying is that we need a 
serious national dialogue to start now, so that we can determine a 
sound and rational aviation policy that works for everyone in this 
country--employees, consumers and communities. And we cannot afford to 
wait. Everything should be on the table in this discussion, including 
the possibility of re-regulation--or at least re-regulating part of the 
market.
    Today, I and my members--indeed all aviation employees--look around 
at an industry where the days of an airline job leading to a secure, 
stable and exciting career is slipping away. The market forces have 
squeezed us to the point where some regional airlines are offering to 
start paying their employees $13,000 a year with virtually no benefits 
to speak of. Pensions are gone or frozen. Job prospects in the industry 
are bleak and everyone is in fear that their job is the next to be 
eliminated. Airline management keeps telling us that they cannot afford 
to go on with the current price of fuel and that something must be 
done.
    We've had an interesting past of growth, change and turmoil. We are 
in a present that is uncertain and bleak. Our future, if something 
isn't done to develop a sound aviation policy, is even less promising. 
The forces of globalization are now poised to bring sweeping changes to 
the airline industry yet again. The Open Skies Agreement between the 
United States and European Union, which went into effect this spring, 
includes a provision for so-called second stage negotiations that seeks 
to eliminate long-standing U.S. aviation law that ensures U.S. carriers 
are owned and controlled by U.S. citizens. If those negotiations result 
in a repeal of these laws, the U.S. aviation industry could be 
outsourced. The opening of markets across the Atlantic will create 
greater competition for our already struggling domestic aviation 
industry, which has recently relied on international flights to 
generate profits. While many of the U.S. airlines did nothing to oppose 
the agreement last year, they are now citing the Open Skies Agreement 
and the increased competition it is unleashing as yet another factor in 
the need for consolidation and their worsening bottom line. As this 
competition increases over the coming years, no doubt greater pressure 
will be placed on the U.S. Government to lift the cap on foreign 
ownership and control restrictions on U.S. airlines. This pressure will 
undoubtedly come from foreign governments eager to help their own flag 
carriers gain control of the domestic U.S. market. This is a future 
that will only lead to reduced jobs for U.S. citizens on flights 
overseas and opens the door for the widespread outsourcing of aviation 
jobs--an idea already broached by Northwest management.
    The solution advanced by the industry today, and which seems to 
daily become almost accepted fact by many, is for greater 
consolidation. They tell us that in order to survive a world of 
dramatically high fuel prices and increased foreign competition, 
mergers and consolidation are necessary. I'm not so sure that we should 
rush headlong into supporting this call for greater consolidation 
without taking a very serious pause. With us standing at the edge of 
great change in this industry, it is important that we begin the 
debate, discussion and dialogue on what kind of national aviation 
policy we want.
    That is why I am so glad that this merger between Northwest and 
Delta has drawn significant attention from the media, communities 
served by both carriers and here on Capitol Hill. The attention being 
paid to what will create the largest airline in the world is 
appropriate . . . and necessary. We must use it as an opportunity to 
begin that national discussion on our aviation policy.
    In light of this proposed merger, I believe that it is important to 
note that while some protections are in place for consumers and 
communities, there are virtually no protections for airline workers in 
this merger. There has been little attention paid to the extreme 
upheaval that mergers create for the thousands of airline employees who 
find themselves unemployed or whose lives are disrupted.
    This has not always been the plight of airline workers. There were 
many important protections in place for airline workers prior to the 
Airline Deregulation Act of 1978; the Allegheny-Mohawk Labor Protective 
Provisions (commonly know as the LPPs) were made a condition of 
government approval of virtually every airline merger. The LPPs 
contained extensive and specific protections--like displacement and 
relocation allowances, wage protections, transfer and seniority 
protections, layoff protection, and others--as part of a standardized 
set of provisions designed to shield workers from an unfair share of 
the burden resulting from corporate mergers.
    But no real protections from our Federal Government exist today to 
cushion airline workers involved in mergers. After Deregulation 
employers successfully lobbied for an end to the LPPs because, as they 
argued at the time, these matters are `better left to the collective 
bargaining process.' Union contracts provide a level of protection for 
those employees covered by the agreement, but there is little to no 
protection for non-union airline employees.
    Those same employers who wanted to leave these protections to the 
bargaining process now spend millions of dollars on union busting, 
trying to prevent their employees from attaining the right to bargain, 
or to strip that right from those who have had it for decades. And 
today, many of those same employers who hold press conferences to 
trumpet the fact that their mergers will not cause any layoffs often 
refuse to agree in writing to such guarantees.
    Mr. Chairman, there is a distinct and vast difference between a 
commitment and a contract. Union employees have commitments in writing, 
non-union employees rely on a commitment that can change instantly.
    Of all the well-developed rules referred to prior to Deregulation 
as the Allegheny-Mohawk Labor Protective Provisions, only one exits 
today--the provision establishing basic seniority protections in the 
event of a merger. And, that provision was only recently resurrected 
and included in last December's Omnibus Appropriations bill after the 
advocacy of AFA-CWA and the strong leadership of Senator Claire 
McCaskill and this Congress.
    Earlier attempts by Congress to provide protections for airline 
employees during mergers provides us with an instructive history in the 
current context. We continue to feel the effects of the Airline 
Deregulation Act. The proposed Delta--Northwest merger is just the 
latest manifestation of the impact of Deregulation. But an attempt by 
Congress to cushion the clearly anticipated effects of the start of 
Deregulation proved to be a complete failure.
    Congress included the Airline Employee Protection Program (EPP) in 
the Deregulation Act to assist adversely affected employees. At least 
40,000 employees lost their jobs in the wake of Deregulation. The EPP 
was supposed to provide for both monthly compensation and first-hire 
rights at other airlines. However, displaced employees never received 
the benefits Congress promised and funding was never authorized for the 
benefits, turning the whole program into a cruel joke for airline 
employees in desperate need of a life line. So while Congress has 
recognized the need to assist airline employees facing the traumatic 
effects of industry consolidation in the past, a fully-funded Federal 
effort is desperately needed now in what is shaping up to be another 
significant era of airline consolidation.
    Executives at the airlines have, to date, promised that there will 
be no layoffs, but they refuse to put that commitment in writing. We 
all know that the minute the ink is dry on the merger agreement, 
executives will be looking for cost saving `synergies' that will make 
the new airline ever more profitable. Many of the synergies that the 
executives will likely turn to first are precisely the steps that will 
harm the interests of the workers, such as furloughs, base closures, 
fleet reductions and, perhaps worst of all, outsourcing.
    Workers cannot, and should not, be left to fend for themselves in 
this situation; we did not bring these problems on ourselves. The 
Federal Government set this chain of events in motion with the passage 
of the Deregulation Act and its subsequent neglect in forming a 
rational aviation policy for our country. The airlines themselves have 
compounded the problems for workers with an almost endless string of 
cutbacks, bankruptcies, mergers and layoffs. Government and the 
airlines, then, bear the responsibility. And, either the Federal 
Government or the airlines must pay to offset what is otherwise the 
unfair burden placed on the workers resulting from Deregulation and its 
current aftermath.
    As we look for solutions to cushion the enormous negative impact 
this latest merger will have on workers at Northwest and Delta, perhaps 
it's time to revisit the concept of employee protection from the 
Deregulation Act. No, we are not proposing to re-regulate the industry 
today; that's a worthy discussion for a different hearing that we 
welcome and we would encourage Congress to hold. But we do think that--
at a minimum--something needs to be done to shield workers from the 
harshest effects of this merger and any future mergers.
    The Deregulation Act provided monthly compensation and first-hire 
rights to protect displaced airline workers. Those same protections are 
needed and appropriate today on the eve of the Delta--Northwest merger 
and potential mergers to come. Congress could adopt and fund those 
protections, or it could require the employer, as a condition of 
approval of this merger, to fund those protections. We must stop 
shifting these costs on employees who are least able to shoulder that 
burden.
    Most troubling to us, this merger also seriously jeopardizes the 
collective bargaining rights of all the Northwest employees who have 
fought for and won the legal right to have union representation. 
Virtually all employees at Northwest have chosen to join a union. 
Delta, on the other hand, has only one major workgroup that is 
unionized--its pilots. I am proud to say today that the approximately 
13,500 Delta flight attendants are now the closest to securing their 
future by forming a union through AFA-CWA as they are currently engaged 
in a representation election.
    Delta flight attendants have been working diligently to secure a 
better future through joining AFA-CWA and eventually securing a legally 
binding contract. Their hard work paid off when they filed cards from 
over 50 percent of all the Delta flight attendants requesting an 
election to join AFA-CWA. Late last month the National Mediation Board 
(NMB) mailed voting instructions to Delta flight attendants and the 
voting will end on May 28th. We remain confident that this dedicated 
group of Delta flight attendants will come together and choose union 
representation and a strong voice to protect themselves and the future 
of their profession, but the anti-union tactics of management have put 
that outcome in jeopardy while at the same time threatening the future 
collective bargaining rights of the Northwest flight attendants.
    These flight attendants are fighting against tremendous odds and a 
company that is determined to do anything and everything possible to 
prevent flight attendants from joining a union. I am testifying for 
AFA-CWA today to express our outrage over Delta Air Lines' ubiquitous 
and coercive campaign to interfere with its flight attendants' right to 
freely select a bargaining representative under the Railway Labor Act. 
Since the NMB mailed its voting instructions to the Delta flight 
attendants on April 23, Delta management has flooded the flight 
attendant crew lounges with supervisors, and wallpapered its facilities 
with anti-AFA posters urging flight attendants to not vote. Or as Delta 
puts it: ``Give a Rip--Don't Click, Don't Dial.''
    At the same time Delta's CEO was testifying before the House 
subcommittee in April, a letter over his signature, along with an anti-
union video, was already in the mail to flight attendants' homes. The 
first of what AFA-CWA expects will be many Delta-produced anti-union 
DVDs, was mailed out probably no later than the day after the NMB 
election commenced. The DVD, titled ``Important Information for Delta 
Flight Attendants,'' was included in a slick package featuring a 
personal message from Mr. Anderson outlining the reasons why a vote for 
AFA would have the effect of ``negatively changing a great 
relationship.'' Anderson goes on to reminisce about his days at 
unionized carrier Northwest by stating several blatant falsehoods:

        ``When I unilaterally gave pay raises and domestic partner 
        benefits to flight attendants at Northwest, I received loud 
        objections from the union because those benefits were paid 
        directly because it was the right thing to do. The union often 
        would criticize and vilify management in order to promote their 
        own value.''

    Perhaps Mr. Anderson's memory is clouded, or he knowingly made 
these untrue statements. In any event they are false. Danny Campbell 
the former President of the Northwest flight attendants when they were 
represented by the International Brotherhood of Teamsters, has 
submitted a sworn affidavit to the NMB stating that Mr. Anderson was 
not the CEO at Northwest when he ``gave pay raises and domestic partner 
benefits to flight attendants'' and further, Anderson never granted a 
pay raise to the Northwest flight attendants during his tenure as CEO. 
In fact, Anderson demanded pay cuts and benefit concessions beginning 
in 2002 and continuing with the successor Union to the Teamsters, the 
Professional Flight Attendants Association, through 2006.
    The major push in Delta's anti-union offensive is taking place at 
the flight attendant airport crew lounges located at Delta facilities 
across the system. Because crew lounges are the one, if not the only, 
central location for flight attendants to interact while at work, AFA-
CWA has set up information tables manned by AFA-CWA activists as means 
to communicate the union's message and to encourage flight attendants 
to vote. Delta has responded by flooding the crew lounges with Inflight 
supervisors, some of whom are wearing T-shirts with the message ``How 
was your flight'' on the back. Those supervisors are actively 
interfering with the ability of AFA-CWA supporters to speak to their 
co-workers.
    On April 26, at Delta's Atlanta crew lounge, a supervisor started 
shouting that AFA-CWA was ``scum'' as union activists were speaking to 
a flight attendant at their table. Later that same day, the 
International Base Manager told AFA-CWA activists to take down a small 
sign that said ``STEP UP'' even though the issue signs had been 
resolved by other Delta management personnel. Delta has also set up 
information tables and huge banners in the crew lounge with large 
posters imploring flight attendants to ``Give a Rip--Don't Click, Don't 
Dial.'' In other words--don't vote. Delta's information tables contain 
multiple signs and leaflets next to a continuous running video of CEO 
Richard Anderson imploring the flight attendants to reject 
unionization.
    The increased presence of Inflight supervisors in the crew lounge 
coupled with the overwhelming amount of literature and posters urging 
flight attendants to reject AFA-CWA has created a hostile, coercive 
environment that has destroyed the ``laboratory conditions'' the NMB is 
supposed to protect during a representation election. There is no basis 
for Delta to excuse this interference as simply ``informational,'' much 
less that it represents Delta's ``neutrality'' during the election. The 
company clearly is pulling out all the stops to destroy any chance that 
its flight attendants will be able to select a representative freely 
and without interference.
    On May 2, Delta executives attempted a coup de grace, announcing a 
pay raise for all ``non-contract'' employees scheduled to take effect 
on July 1, after the flight attendants election is scheduled to be 
completed. The wording of Delta's announcement makes it clear to all 
flight attendants that the raise will not be provided if they vote for 
the union. For obvious reasons, this is a textbook example of 
interference. AFA-CWA wants to make it clear: we support the pay raise 
for flight attendants. Like their colleagues at other airlines, the 
Delta flight attendants have suffered drastic cuts in pay and benefits 
as a result of the airline's recent bankruptcy. But, this Committee 
should ask Mr. Anderson to state, on the record and under oath, if the 
raise will be given to flight attendants whether or not they vote for 
the union. If he refuses, and insists on maintaining the right to deny 
the raise to flight attendants if they vote for the union, then the 
coercive effect of the raise will be clear. If, on the other hand, he 
agrees to grant the raise regardless of the election outcome, AFA-CWA 
will waive its right to object to the raise as interference.
    The incidents of Delta interference I have discussed are, in AFA-
CWA's view, only a sample of the coercive acts Delta executives will 
unleash on its flight attendants in the weeks preceding the May 28, 
ballot count. Indeed, Delta's conduct in the past week reflects its 
utter contempt and indifference to the election rules the NMB is 
responsible for enforcing. AFA-CWA has urged the NMB to fulfill its 
statutory obligation to supervise this election in a manner that 
prevents Delta from blithely poisoning the laboratory conditions 
necessary for a lawful election. To that end, AFA-CWA has argued that 
``extraordinary circumstances'' exist in this election process and 
demand an immediate Board investigation under Rule 17.0 of the NMB 
Representation Manual. We have requested that, while the investigation 
is ongoing, the Board should order Delta to:

   immediately cease its interference and coercion with respect 
        to AFA-CWA's communication activities in the flight attendant 
        crew lounges;

   cease its deliberate misstatements regarding voter 
        eligibility;

   cease its intrusive and false communication to flight 
        attendants, and

   send a notice to all flight attendants on the eligibility 
        list to report all incidents of interference and coercion to 
        the NMB.

    Failure to stem Delta's unlawful activities will irrevocably taint 
the laboratory conditions needed for a legitimate election. This 
Board's track record on interference leaves AFA-CWA with grave doubts 
that any action will be taken by the NMB.
    In the context of this merger, the company's anti-union tactics 
take on added urgency; the merger should not be permitted to become a 
vehicle for union busting. Airline executives have realized the 
opportunity that this merger presents: not just a chance to prevent 
thousands of non-union employees from gaining a union, but also a 
chance to eliminate the unions that already provide protection for 
their members at Northwest.
    While Delta flight attendants vote on whether to join the union, 
the Northwest flight attendants face a very real threat to their 
collective bargaining rights. Northwest flight attendants have been 
union members for 60 years. Their proud tradition of union 
representation is threatened by management's use of this merger process 
to attempt to eliminate the Northwest flight attendants collective 
bargaining agreement which, in turn, poses a real threat to the job 
security for thousands of flight attendants.
    In fact, we view the current representation election among the 
Delta flight attendants as not just an opportunity for them to gain a 
voice on the job and a seat at the table, but as the ``first line of 
defense'' to protect the over 60 years of collective bargaining rights 
for the Northwest flight attendants. This is due to the unique way that 
representation elections are governed by the National Mediation Board. 
Although the Railway Labor Act (RLA) makes no mention of such an 
extraordinary requirement, the NMB rules state that in order for a 
representation election to be considered valid, a majority of all 
eligible voters must turn out to vote in the election. If 95 percent of 
flight attendants who cast a vote want to join AFA-CWA but only 49.9 
percent of all the eligible flight attendants cast a vote, then the 
election is invalid.
    In effect, a person who chooses not to cast a vote in an NMB 
election is counted as a ``no'' vote, encouraging management to focus 
their efforts on voter suppression in every election. I ask the members 
of the Committee to consider if they, or most of their colleagues, 
would be sitting here today if our Congressional elections were 
governed under the same onerous rules, where turnout is more important 
than the votes cast.
    Based on the number of Delta flight attendants who have signed AFA 
authorization cards, and the number of Northwest flight attendants who 
are already union members, AFA has the support of a solid majority of 
the combined work force. Since at least 1926, national labor policy as 
defined by this Congress has been to encourage unionization of workers. 
Congress could further that goal, and prevent airline mergers from 
becoming an occasion for union busting, simply by defining victory 
under the RLA organizing rules as a majority of the votes cast.
    It is our hope, and the hope of thousands of Delta flight 
attendants, that they will overcome these difficult election procedures 
and decide next month to join AFA-CWA. They will then have the right to 
bargain for improved work rules through a legally binding contract and 
the historic collective bargaining rights of the Northwest flight 
attendants will have been protected in the newly merged Delta Airlines. 
Delta and Northwest flight attendants, working under the umbrella of 
AFA-CWA's constitution and bylaws, can move forward on integrating 
their two groups and negotiating for an improved contract for what will 
be the largest flight attendant workgroup in the United States. This 
does not require new legislation; all we ask is that the Committee urge 
these employers to remain neutral so, as originally envisioned by 
Congress when it adopted the Railway Labor Act, the employees can 
decide the issue of union representation for themselves, without 
coercion, interference or influence by the employer.
    Bargaining rights are paramount if the flight attendants are to 
have an opportunity to negotiate over the impact this merger will have 
on their work lives. Our primary concern is that Delta executives will 
use the merger to eliminate the rights of employees to have a seat at 
the table when the airline is fully merged with Northwest.
    Delta executives have not been shy about their efforts to prevent 
the employees from forming unions. In fact, in a meeting with AFA-CWA 
Northwest leadership, Northwest management stated flatly that there 
would not be a seat at the table for the flight attendants in the 
merger discussions. He went on to state that the current Delta was a 
non-union company and that the ``New Delta'' had every intention of 
remaining a non-union company; Delta planned to defeat the union and 
prevent the flight attendants from having, or keeping, the bargaining 
rights that are essential in the face of this merger. Delta has already 
demonstrated that they will again continue to spread disinformation and 
make every effort to prevent Delta flight attendants from casting 
ballots in the upcoming election. Is this what we've come to in this 
country? I would ask this Committee: what is wrong with our system when 
the majority of these flight attendants want union representation and 
yet face such great barriers to achieve that goal?
    Using this merger as an opportunity to destroy unions provides 
these airlines, and all who would follow, with an opportunity to drive 
down wages, work rules and benefits for all airline employees. It can 
create a domino effect that will force even unionized carriers to match 
those drastic cuts in order to compete. They will set industry 
standards back to levels we have not seen in decades. If Delta is a 
non-union carrier, as well as the largest carrier, they will be poised 
to set in motion an unprecedented remaking of the entire airline 
industry that will destroy airline jobs as a stable and secure middle 
class career once and for all.
    Flight attendants face one other devastating threat in this merger, 
one that no other work group is likely to encounter. This merger may 
resurrect efforts by Northwest executives to outsource our best jobs to 
flight attendants based outside the U.S. Such outsourcing of flight 
attendant jobs on international routes to foreign nationals will 
resurface and become a standard industry practice. When Northwest first 
proposed doing just this during bankruptcy, a bipartisan group of House 
and Senate members rose up to decry such a move as jeopardizing 
aviation safety and especially security. With a union fighting to 
protect the Northwest flight attendants jobs, and support from Members 
of Congress, Northwest management backed off such a proposal and 
thousands of good paying jobs remained for Northwest flight attendants. 
Only if the union retains its bargaining rights following the merger 
will the flight attendants have the legal standing to continue the 
fight against such outrageous ideas as outsourcing flight attendant 
jobs; such an idea is just the tip of the iceberg. Many of the current 
Delta executives were involved in earlier outsourcing attempts when 
they were at Northwest Airlines.
    I urge the members of this Committee to send a strong and clear 
signal to Northwest, and especially to Delta executives, that they must 
not use this merger as a means to destroy the collective bargaining 
rights of the employees. I would urge this Committee to use its good 
offices to monitor Delta management as this representation election 
progresses over the next 5 weeks so that they do not engage in election 
activities similar to those of 5 years ago--actions that violated the 
spirit of the Railway Labor Act, even if the NMB ruled they did not 
violate the letter of the law. And finally, I hope that you will use 
your influence to persuade Delta management to remain neutral in this 
representation election. If they are successful in their goal to keep 
the ``new Delta'' non-union, we could see this merger as the beginning 
of the end for the airline industry as a source of decent and 
respectable jobs.
    While much will be made over the coming months about the impact of 
this merger on consumers and communities, I urge you to remember the 
hundreds of thousands of airline employees across this country. Keep us 
in mind as you review this merger and the impact that it will have on 
our lives and our families. We are the ones who have the most to lose; 
and we have the least protection. Most importantly, don't let them 
destroy the one thing we have protecting us--our unions.

    Senator Rockefeller. Thank you very much, Ms. Friend.
    And our next witness is Mr. Robert Roach, who is the 
General Vice President--Transportation, The International 
Association of Machinists and Aerospace Workers. Please.

          STATEMENT OF ROBERT ROACH, JR., GENERAL VICE

       PRESIDENT, INTERNATIONAL ASSOCIATION OF MACHINISTS

                     AND AEROSPACE WORKERS

    Mr. Roach. Thank you, Mr. Chairman and the Members of the 
Committee, for the opportunity to speak to you today concerning 
the transportation industry in our country.
    Let me say from the outset I believe I am the only one at 
this table who has been part of a merger, along with tens of 
thousands of people from TWA. We lost our jobs. We lost our 
pensions. We lost our health insurance. In addition, the once 
thriving hub of St. Louis, which was promised would always be a 
thriving hub, and other locations within that structure would 
be there. We were promised jobs, just as jobs would be a 
promise today. And all of these promises were never kept.
    So I come here to speak to you in terms of the overall 
industry. And the overall industry, it must be noted, as we are 
talking about massive losses, airlines going into bankruptcy. 
All of the airlines are not going into bankruptcy. Southwest 
Airlines, Continental Airlines, and American Airlines have done 
pretty good over the last 7 years, and in the process of 
turmoil, during turmoil, they have been able to navigate 
through the system.
    Now we have airlines that consistently have come before 
Committees like this, before the Congress, asking for relief, 
Pension Protection Act, in which there is now $7 billion of 
underfunded liabilities between Delta and Northwest Airlines. 
Mountains of debt between these two carriers, and they come 
once again, always asking for relief.
    Since 9/11, airlines have received $6.3 billion worth of 
relief from the Federal Government, and employees have lost 
billions of dollars in wages and pensions and benefits. Cities 
that used to be served are no longer served. Small communities 
are no longer served.
    And so, we must ask ourselves, is this a problem of the 
industry, or is it a problem of some who have not managed 
properly through this turbulent time? We believe that with 
proper management, and we believe that coming to the table with 
management, labor, and the Government to find solutions to the 
problems that we do confront within this industry. We have 
sought that type of meeting across the table from management. 
Not to discuss collective bargaining, but issues that are of 
concern to all of us so that we can jointly come before 
Congress or before the Department of Transportation with 
solutions to the problems.
    Creating a smaller amount of airlines we do not believe 
solves the problems. Eastern Airlines is gone. Braniff Airlines 
is gone. TWA is gone. Ozark Airlines is gone. People's Express 
has come and gone, and still they cry for more consolidation.
    Now we hear one rep at this table that all the planes are 
going to fly, all the hubs are going to remain in place. And 
then we hear an analyst say we must reduce seat capacity. You 
can't have it both ways. And if you put these airlines 
together, it is not going to drop the price of oil one nickel.
    Yes, there is a need for fuel, fuel price relief. And 
somewhere, we need to work on that particular situation. But 
there are some problems that we have sought--that we have 
sought across the table with others to find solutions. Again, 
we have asked for meetings with management, the CEOs of the 
various major airlines through the ATA, and they fell on deaf 
ears.
    We have now contacted, at the request of Mr. Lou Dobbs of 
CNN, a former CEO, Robert Crandall. And while we do not agree 
with everything Mr. Crandall has to say, we believe he has some 
interesting views on the industry today. And we hope to work as 
a partner with Mr. Crandall and consumer advocates and people 
who are concerned about pensions and the money that is owed to 
the Federal Government concerning pensions to find solutions to 
these problems without destroying an industry that some of us 
have come to work in for well over 30 and 40 years and we have 
come to love.
    And so, as our remarks are in the--will be placed in the 
full record, we wanted to say that our conversation with Mr. 
Crandall, referring to an article, and I just want to briefly 
read from that New York Times article, April 21, 2008.

        Consolidation will not resolve the woes of individual 
        carriers nor will it fix the Nation's aviation 
        problems. Delta and Northwest Airlines agreed to a 
        merger last week, and that deal is likely to be 
        followed by other proposals. But the case for mergers 
        is unpersuasive. Mergers would not lower fuel prices. 
        It would not increase the economies of scale for these 
        already sizable major airlines.

        It will create large costs related to consolidation, 
        and it will anger airline employees who will perceive 
        themselves be hurt by the merger. Although the system 
        could conceivably be operated by a single efficient 
        carrier, consumers clearly benefit from the existence 
        of multiple carriers. The absence of competition never 
        forces better consumer service.

    Again, Mr. Chairman, we would ask that this panel or other 
members of Government would try to help us with a format to sit 
down and really try to fix some of the problems that confront 
this industry. But we want to remind people every airline is 
not coming before you asking for mergers. Some of them are. 
Some of them have lost focus on what is the true job of 
management, and that is to run the core business.
    And every time I come here, year after year, it is always 
for a short-term fix, some relief, some billions of dollars to 
go back to the airlines, which never are passed on to the 
employees. We have poor customer service. It is time that we 
fix the problems instead of trying to have a short-term fix 
that only provides millions and millions of dollars to the 
people at the top of these airlines.
    So, again, we call for a meeting, a summit, a 
transportation summit. We will work with anybody. Again, we are 
working with Mr. Crandall. Hopefully, we can come to some 
format so we can find resolutions to these problems.
    I thank you, Mr. Chairman, for the opportunity to come 
before you.
    [The prepared statement of Mr. Roach follows:]

   Prepared Statement of Robert Roach, Jr., General Vice President, 
     International Association of Machinists and Aerospace Workers
    Thank you, Chairman Rockefeller, and Members of this Committee, for 
the opportunity to submit this testimony on behalf of airline workers 
throughout North America. My name is Robert Roach, Jr., General Vice 
President of Transportation for the International Association of 
Machinists and Aerospace Workers (IAM), the largest airline union in 
North America. I am submitting this testimony on behalf of 
International President R. Thomas Buffenbarger. The IAM represents more 
than 110,000 airline workers in almost every job classification, 
including flight attendants, ramp service workers, mechanics, customer 
service, reservation agents and office employees.
    It is my firm belief, and the belief of many others, that airline 
executives are using a crisis of their own making to justify the 
establishment of what can only be called a monopoly.
Regulation
    Airline CEOs regularly complain about overcapacity, but they are 
the ones responsible for creating the problem, not passengers, not fuel 
prices and certainly not employees.
    The need to address overcapacity has been a favorite battle cry for 
airline management for decades and won't be resolved by mergers. 
Braniff, Eastern, Pan Am, TWA, Peoples Express, Aloha Airlines and 
others have all disappeared from the scene. Reducing capacity will not 
overcome management's failure to run a profitable business.
    The Machinists Union is not advocating that we maintain the status 
quo in the airline industry. When something is so clearly broken, it 
must not be merely bandaged, but completely repaired. Immediately after 
9/11, airlines demanded more than $6.3 billion in government aid. 
Carriers then sought and won pension relief legislation, but still 
abandoned their pension obligations.
    Airlines also used the bankruptcy law to force employees and 
shareholders to make sacrifices to save the carriers. IAM members alone 
at Northwest Airlines, U.S. Airways, United Airlines, Comair, Hawaiian 
Airlines and Aloha Airlines gave up nearly $9 billion in bankruptcy to 
help their airlines.
    Even with all this aid, this troubled industry still lost $30 
billion from 2001 to 2006.\1\ Airlines are constantly asking the 
government for relief, begging the courts to abrogate contracts and 
forcing the government to absorb its pension obligations. History has 
shown that airlines cannot operate without government assistance. 
Airlines repeatedly appeal to the government for bailouts because the 
free market has failed to nurture a competitive and profitable 
industry. The government must step in and put an end to the charade 
that this industry, left to its own ridiculous pattern of suicidal 
business practices, can ever prosper.
---------------------------------------------------------------------------
    \1\ The New York Times, Did Ending Regulation Help Fliers? By 
Micheline Maynard, April 17, 2008.
---------------------------------------------------------------------------
    In 1993, the Clinton Administration recognized the problems facing 
the air transportation industry. President Clinton empanelled a 
National Commission to Ensure a Strong Competitive Airline Industry, 
and one of my predecessors, IAM General Vice President John Peterpaul, 
served on the Commission. The Commissioners were charged with 
investigating and devising recommendations that would resolve the 
crisis in the airline industry and return it to financial health and 
stability.
    The Committee essentially recommended no substantial regulatory 
changes and believed that market forces would stabilize the industry. 
The IAM's representative on the Commission was the only dissenter, 
arguing that deregulation destabilized the industry and government 
intervention was necessary.
    The Machinists Union's assertion that deregulation had failed to 
deliver on its promises were ignored in 1993 in favor of supporting 
airline industry executives who advocated staying the course. Congress 
now has a second chance to make effective changes to this industry. If 
that opportunity is squandered again, bankruptcies will increase, more 
proud airlines will disappear, employees will continue suffering and 
passengers will be even further alienated. We can close our eyes and 
ignore millions of consumers, employees and investors, or we can have 
an efficient air transportation industry. More than 150 carriers have 
gone bankrupt since deregulation.\2\
---------------------------------------------------------------------------
    \2\The New York Times, Did Ending Regulation Help Fliers? By 
Micheline Maynard, April 17, 2008.
---------------------------------------------------------------------------
    Instead of temporary fixes, long term solutions are required. 
Airlines today compete by cutting standards, eliminating services and 
reducing ticket prices to the bone, which make a profitable industry 
impossible. The GAO estimates that median ticket prices have dropped 
nearly 40 percent since 1980, although the costs of aircraft, airport 
leases and fuel have increased dramatically.\3\ No business can survive 
if they sell their product for less than what it costs to deliver their 
goods.
---------------------------------------------------------------------------
    \3\ Government Accountability Office, ``Airline Deregulation'' GAO-
06-630.
---------------------------------------------------------------------------
    The long-term cost of under pricing tickets is too extreme. Pan Am, 
TWA, Eastern, and Aloha Airlines all survived for more than half a 
century, but could not endure the insanity of deregulation. This 
industry is crying out for sane regulation that includes limiting 
capacity, setting fares or both.
Effective Management
    Even with limited re-regulation, more competent management is 
needed to save the industry, not consolidation.
    If airline executives spent as much time running their airline as 
they do looking for bailouts or mergers, this industry and our 
country's transportation system would be much better off.
    Mergers prevent airlines from running effective operations. United 
Airlines emerged from bankruptcy with a plan to pay its executives 
undeserved multi-million dollar bonuses, but with no intention of 
operating the airline. Instead of finding ways to conserve cash and 
operate United Airlines in times of record-high fuel prices, the 
airline paid out an unnecessary $250 million dividend to shareholders 
in December 2007, against the objections from employees who warned 
against such reckless actions. This demonstrates that United's only 
plan is to plunder the airline and market it for acquisition, to the 
detriment of passengers and employees.
    This industry is in disarray and the executives in charge are only 
making things worse.
    Airlines can't police their own maintenance programs, small 
communities are under-served, passengers are treated like cattle and 
employees are continually being steamrolled.
    There is too much at stake to let executives and their legacy of 
failure try and solve the industry's problems. It is time for airline 
passengers, employees and the government to finally say ``NO'' to 
airline executives.
    Some form of limited re-regulation is necessary if this country has 
any chance for a safe, reliable, profitable and competitive air 
transportation industry. And I'm not the only one calling for re-
regulation.
    Although I do not agree with everything former American Airlines 
CEO Robert Crandall says about the airline industry, I share his 
opinion that, ``market-base approaches alone have not and will not 
produce the aviation system our country needs'' and that ``some form of 
government intervention is required.'' \4\
---------------------------------------------------------------------------
    \4\ The New York Times Op-Ed, April 21, 2008.
---------------------------------------------------------------------------
Northwest-Delta
    Re-regulation is the only long-term solution. Today, however, we 
must deal with immediate issues.
    One factor the airlines will not admit publicly is that they expect 
this merger to eliminate the union representation rights of Northwest 
Airlines workers. They want to use this merger as a weapon to eliminate 
the jobs and rights of thousands of workers. The Machinists Union will 
not allow this to happen.
    An issue that neither Northwest nor Delta have addressed is how 
they will deal with current pensions. IAM members at Northwest Airlines 
still have a secure defined benefit pension plan, the IAM National 
Pension Plan. Our members are the only employees at either carrier 
still earning a traditional pension benefit, but that will be lost if 
our members lose IAM representation in a merger. Delta has not 
guaranteed that our members will not lose the security of a defined 
benefit pension plan in the merger.
    Additionally, both Delta and Northwest have frozen or terminated 
their pension plans. If a merger takes place, and the combined carrier 
ultimately fails, the pensions will be forced onto the Pension Benefit 
Guaranty Corporation (PBGC).
    This will burden the PBGC with more than $7 billion in combined 
liabilities. The PBGC has already expressed concerns about such a 
scenario.
    Delta and Northwest have made commitments to employees, but these 
commitments are unenforceable and subject to change. If the combined 
airline wants to make a true commitment, then they should stop 
interfering with Delta employees' right to organize, and make their 
commitments part of collective bargaining agreements that protect 
employees at the combined carrier.
    Northwest and Delta say that no frontline workers will lose their 
jobs. Don't believe them. If Northwest headquarters is downsized, 930 
IAM-represented clerical workers, are at risk. The frontline employees, 
not the high level management employees, which Northwest has said are 
the only jobs at risk in a merger.
    Northwest has a history of broken promises. The State of Minnesota 
bailed out Northwest to the tune of $761 million in 1992. In return, 
Northwest Airlines promised to continue employing at least 1,000 
workers in Duluth, Minnesota, and committed to building an engine 
maintenance facility in Duluth with a minimum of 500 new jobs. Instead, 
they never opened the engine shop and closed their operation in Duluth 
entirely in 2005. Additionally, Northwest committed to keeping 
employment levels in the state to a minimum of 18,000 employees. They 
are already down to about 12,000. Northwest Airlines has left a trail 
of broken promises throughout Minnesota that will multiply and expand 
throughout the country if this merger is approved.
    Delta also is not averse to making promises it doesn't keep. Over 
the last 10 years the airline offered employees early retirement 
packages based principally on very attractive free or minimal cost 
health care programs.
    According to the Delta Air Lines Retirement Committee, retirees' 
health care deductibles and co-pays were increased dramatically after 
accepting the packages and retiring.
    If the airlines truly cared about their employees they would have 
engaged all their unions when they first contemplated a merger. 
Instead, they rebuffed our efforts to cooperate and have ensured labor 
turmoil for years to come, even if a merger is not completed.
    Faced with inadequate or indifferent responses from airline 
management, the IAM has contacted Governors, Senators and 
Representatives as part of our efforts to protect the thousands of 
employees and dozens of communities that will be negatively impacted by 
these proposed mergers.
Seniority
    Delta has said that it will integrate seniority fairly, and that 
they are required to do so under the law. But what does ``fairly'' 
mean? There are no less than five recognized methods for ``fair and 
equitable'' integration of airline seniority lists.

        1. The surviving group principle, where the acquiring company's 
        employees receive seniority preference over the acquired 
        employees;

        2. The follow-the-work-principle, were seniority is allocated 
        by a ratio of what assets each individual airline contributed 
        to the combined company;

        3. The absolute rank principle, where employees retain their 
        respective rank on the newly merged seniority list;

        4. The ratio-rank principle, where a ratio of the employees of 
        each group to be merged are assigned places on the combined 
        seniority list according to a ratio of total employees; and

        5. The length of service principle, where all employees are 
        combined by their current seniority date, regardless of which 
        airline they came from.\5\
---------------------------------------------------------------------------
    \5\ How Arbitration Works, Sixth Edition Elkouri, Elkouri, Reuban; 
BNA Books, p.868-870.

    Fairness is in the eye of the beholder, and what Richard Anderson 
deems fair is not important. We need to focus on what employees 
consider to be fair.
    Northwest and Delta employees sacrificed wages, pensions and, in 
too many cases, their jobs to help their airlines survive bankruptcy.
    Mergers are another avenue for airlines to cut even more jobs.
    I realize this hearing was prompted by the Northwest Airlines--
Delta Air Lines merger announcement. However, we must recognize this 
announcement will lead to additional merger attempts.
    Continental Airlines, United Airlines, American Airlines and U.S. 
Airways have all discussed various pairings and alliances in response 
to the Delta-Northwest action. This will lead to other mergers, likely 
cutting the number of major national carriers in half, from six to 
three.
Financial Health
    Both Northwest and Delta have seen their stock prices sink since 
exiting bankruptcy, and more so since the merger was announced. 
Passengers, employees and investors, three groups with different 
concerns, all think this merger is a bad idea.
    If the two airline CEOs testifying today can't independently 
provide their customers and shareholders with value for their dollar, 
what will happen under a merged company that is saddled with debt and 
even harder to manage?
    If allowed to proceed, Northwest and Delta will form the world's 
largest airline, creating the world's biggest corporate headache. 
According to the most recent Securities and Exchange Commission (SEC) 
filings, the combined carrier would have $15.7 billion in long-term 
debt, plus $11.3 billion in current liabilities and $14.23 billion in 
non-current liabilities, including pension liabilities. This non-
current liabilities figure includes $7.51 billion in pension and 
retiree benefit liabilities. The total liabilities of the combined 
company would be $40.55 billion. It is not in this country's best 
interest to approve the creation of an enormously debt-ridden company.
Consumer Impact
    The wholesale reshaping of the industry will destroy competition 
and harm consumers on routes throughout the United States.
    It would be difficult to find anyone outside of a small group of 
airline executives who expect to benefit from additional airline 
consolidation.
    Passengers, employees and shareholders have suffered enough by 
senseless management decisions. In the last month, four airlines have 
declared bankruptcy.
    We have seen how airlines fail to comply with FAA-mandated safety 
compliance directives. Do we really need more instability in this 
chaotic industry?
    Both Northwest and Delta operate a hub and spoke system. Combining 
the two will create redundancies, which, if the airlines keep their 
promise not to close hubs, will create regional dominance.
    The new Delta will control the Southeast and Upper Midwest with two 
hubs in each region.
    Atlanta and Memphis, less than 400 miles apart, will both be Delta 
hubs.
    Delta will also have two major hubs in Detroit and Cincinnati, less 
than 300 miles apart. If these two airlines merge, the frequency of 
flights between cities they both serve will be diminished.
    It is both insulting and a testament to these airlines' arrogance 
that they think anyone believes they can combine these two companies 
without eliminating service and purging employees.
    Passengers originating or traveling to Memphis, Detroit, 
Cincinnati, Minneapolis and the smaller communities served by airports 
in these cities will lose service frequencies and pay higher fares.
    Experience has shown us that commitments made by airlines in 
bankruptcy are absolutely worthless.
    When American Airlines purchased TWA out of bankruptcy in 2001, 
promises were made to TWA employees. American's then-CEO Donald Carty 
testified before the Senate Commerce Committee saying, ``We look 
forward to adding TWA's 20,000 employees to the American Airlines 
family,'' and that American was willing to make ``commitments to the 
20,000 TWA employees and their families that no one else would make.'' 
\6\
---------------------------------------------------------------------------
    \6\ Testimony of Don Carty, http://judiciary.senate.gov/oldsite/
te020701dc.htm.
---------------------------------------------------------------------------
    In spite of these assurances, the overwhelming majority of former 
TWA employees are no longer employed by American Airlines.
    Thousands of mechanics, ramp workers, customer service agents, 
flight attendants and pilots who were promised careers with American 
are no longer working in the industry.
    We also cannot count on Delta's promise not to further reduce 
capacity beyond already announced service cuts. American Airlines 
promised the City of St. Louis that it would maintain TWA's hub 
operation at Lambert Field after the TWA merger.
    That once bustling hub had over 474,000 flights in 2000, TWA's last 
full year of operation. In 2007 that number was reduced to a little 
more than 254,000. Passengers flown have been reduced nearly in half, 
from 30.5 million to 15.4 million in the same period.\7\
---------------------------------------------------------------------------
    \7\ http://www.lambert-stlouis.com/.
---------------------------------------------------------------------------
    With the loss of passengers came the loss of tax revenue to the 
City of St. Louis and income for the businesses that support the 
airport and service the airlines.
    Just over a year, ago Delta Air Lines was making the rounds in 
Washington trying to block a merger proposal with U.S. Airways.
    Delta said then that ``the competitive impact of the U.S. Airways 
proposal deal is that if the merger were to go forward, it would 
trigger broad industry consolidation.'' \8\ Delta was right then, and 
wrong now.
---------------------------------------------------------------------------
    \8\ Delta Air Lines press release, http://news.delta.com/
print_doc.cfm?article_id=10533.
---------------------------------------------------------------------------
    Both Northwest and Delta entered bankruptcy on the same day in 2005 
to make their companies leaner and more competitive.
    Since they are here today saying that they must merge to become 
profitable, their bankruptcy restructurings must have failed.
    So why should we believe them when they say this merger will be a 
positive step for employees, consumers and shareholders? Too much is at 
stake to take these airlines at their word.
Who Benefits?
    One final point, Mr. Chairman.
    Since employees, passengers and shareholders will lose in this 
merger, who benefits?
    Doug Steenland stands to gain as much as $19 million due to the 
ending of his employment at Northwest.
    Richard Anderson has said he would wave the $15 million in merger-
related compensation he could receive due to change in control, but he 
could still realize tremendous benefits through a new employment 
contract as the CEO of a much larger company.
    If employees lose their right to collectively bargain, if IAM 
members lose the new pensions they negotiated in bankruptcy, if 
employees are going to be sacrificed to grow executives' personal bank 
accounts, then this merger will fail.
    A Delta-Northwest merger will eliminate jobs, reduce choices for 
passengers, further deteriorate customer service, trigger additional 
senseless mergers, make millionaires even richer, and most importantly, 
do nothing to address the problems of a failing industry.
    While the status quo is unacceptable, we believe that consolidation 
will not produce a stable, profitable industry. Instead, consolidation 
and the ensuing reduction in service, coupled with insanely low 
barriers to entry, will simply produce a variant of competition that is 
less reliable, less safe and more unstable.
    This merger and the ones that will follow should not be allowed to 
proceed.
    Thank you for the opportunity to appear before the Committee. I 
welcome any questions.

    Senator Rockefeller. Thank you, Mr. Roach.
    And our final witness will be Mr. Cooper, who is the 
Director of Research from the Consumer Federation of America. 
We look forward to your testimony.

 STATEMENT OF DR. MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER 
 FEDERATION OF AMERICA ON BEHALF OF THE CONSUMER FEDERATION OF 
                  AMERICA AND CONSUMERS UNION

    Mr. Cooper. Thank you, Mr. Chairman, Members of the 
Committee.
    The pending merger and those that are likely to follow it 
are an admission of failure, a clear signal that the industry 
cannot support financially healthy airlines while remaining 
vigorously competitive across the Nation. This is an industry 
that truly pleases no one.
    Consumers are frustrated by lousy service and pricing that 
is at best erratic because competition is at best erratic. 
Investors are buffeted by a boom and bust cycle and a low rate 
of return over the long term. Labor has been at war with the 
airlines for 30 years since deregulation. Unfortunately, there 
are no simple solutions to such a pervasive market failure.
    Delta and Northwest tell us that the merger won't harm 
competition because they don't compete. But that is because 
they either never chose to compete or, worse still, have 
recently withdrawn from competing with each other. The bottom 
line is simple, however. Consumers do not have competition 
without which they get abused. And if they are telling you we 
are benefiting from their competition, you just listen to what 
your constituents say about the service they get.
    Without vastly improved regulation, the mergers will do the 
public no good. All the promises they make today will be broken 
in short order, and the consumer will have fewer choices, 
higher prices, and crummier service. If the mergers are 
blocked, without vastly improved regulation, the consumers will 
have fewer choices, higher prices, and crummier service.
    As airlines, and I quote, ``eliminate duplicate service, 
shift away from competition, and scale back growth,'' that is 
the future, and it is not very pretty.
    Emerging from another wave of bankruptcies, the worst on-
time performance in history, low-cost carriers going bankrupt, 
a proposal for a merger wave among network industries, it is 
time for Congress to consider the proposition that this 
industry just does not work as an unregulated market, to 
recognize that it is an infrastructure industry that supplies 
essential inputs for growth and vibrancy in our economy and one 
that must provide high-quality service to all corners of the 
Nation.
    Finally, an industry that relies on public resources for 
its existence, public airways and facilities that are supported 
by public dollars like airports and air traffic control. The 
public interest is not being served by the current model.
    Now we are not suggesting that we go back to price and 
quantity controls of the early history of the industry, but it 
is time to establish consumer rights and reform the incentive 
structure that exists in the industry to give airlines an 
economic incentive to serve the public.
    In many cases, individual abuses by individual airlines are 
not the problem. It is a collective problem, a shared problem, 
a structural problem. Overscheduling and imprisoned passengers, 
for example, are perfect examples. The airlines share the 
blame, but they cannot solve the problem because they are 
unwilling to adjust their schedules to reduce congestion at 
airports. They would just prefer to publish schedules that they 
cannot meet, fraudulently advertising their product to the 
public.
    The problem of passengers imprisoned on airplanes for long 
hours will not be solved as long as standing in line is the way 
you allocate takeoff slots. They will sit there for hours for 
fear that they won't lose their chance when it is time to go. 
We need some ground traffic control. We need end-to-end traffic 
control. In an industry that can load and embark an airplane in 
an hour, why are people being held captive for 7 hours on the 
tarmac? It is an outrage.
    Obviously, there are individual problems for airlines--
overbooking, lost baggage--which need to be responded to with 
protection for consumers. Fines that make it really painful to 
deliver crummy service. There is no discipline in this industry 
for poor service. These are just a few of the examples of the 
pervasive problem that I urge you to confront.
    Whether or not these mergers are approved, unless there is 
a substantial improvement in regulatory oversight, the industry 
will continue to abuse the public because the competitive 
market forces are just too weak in many, many parts of the 
industry.
    So, instead of holding hearings on mergers, I urge you to 
commence a series of hearings on each of the problems that 
afflicts all aspects of the industry--operations, congestion, 
slot allocation, landing fees, customer service, delays and 
schedule, tarmac holding time, lost bagging, overbooking and 
bumping, tickets on bankrupt airlines. There are consumers out 
there who get stuck when they go bankrupt. And market 
structure, abandonment of routes, essential service, and the 
real nature of competition. Yes, there is some, but it is 
really not benefiting the vast majority of the traveling 
public.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cooper follows:]

 Prepared Statement of Dr. Mark Cooper, Director of Research, Consumer 
 Federation of America on Behalf of The Consumer Federation of America 
                          and Consumers Union
    Mr. Chairman and Members of the Committee,

    My name is Dr. Mark Cooper. I am Director of Research at the 
Consumer Federation of America. I greatly appreciate the opportunity to 
testify yet again on the serious consumer problems with the airline 
industry and commend the Committee for holding a hearing that 
investigates the general condition of the industry. I appear today on 
behalf of the Consumer Federation of America \1\ and Consumers 
Union.\2\
---------------------------------------------------------------------------
    \1\ The Consumer Federation of America is an advocacy, research, 
education and service organization established in 1968. CFA has as its 
members some 300 nonprofit organizations from throughout the Nation 
with a combined membership exceeding 50 million people. As an advocacy 
group, CFA works to advance pro-consumer policy on a variety of issues 
before Congress, the White House, Federal and state regulatory 
agencies, state legislatures, and the courts.
    \2\ Consumers Union, the publisher of Consumer Reports, is an 
independent, nonprofit testing and information organization serving 
only consumers. CU does advocacy work from four offices in New York, 
Washington, San Francisco, and Austin. CU's public policy staff 
addresses a broad range of telecommunications, media and other policy 
issues affecting consumers at the regional, national and international 
level. CU staff members frequently testify before Federal and state 
legislative and regulatory bodies and participate in rulemaking 
activities at the Commission and elsewhere.
---------------------------------------------------------------------------
    This is truly an industry that makes no one happy, as the opening 
paragraph in a New York Times column put it recently

        What a time for airlines. Delays and cancellations. Oil more 
        than $100 a barrel. Customers are furious and flight crews are 
        bedraggled. And that's before the economic slowdown in the 
        United States brings its won misery. Warren E. Buffett once 
        famously said of his fellow investors in the airline industry, 
        ``If we knew then what we know now, we'd have shot the Wright 
        Brothers down.'' (``A Profitable 18 Hours That's All 
        Business,'' Tuesday March 11, 2008, C-6)

    Consumers are frustrated by lousy service and pricing that is, at 
best erratic. Investors are buffeted by boom and bust cycles. Emerging 
from another wave of bankruptcies, the worst on time performance record 
in history, and confronted with a likely merger wave that would reduce 
the number of major carries from a handful to a precious few, it is 
time for Congress to consider the proposition that this industry just 
does not work as an unregulated market. In my remarks today I will lay 
out the basic causes of the problem and give some initial thoughts 
about the solution, but my primary goal is to convince Congress to 
begin asking the right questions regarding endemic problems in the 
industry that must be addressed. The occasional hearings, triggered by 
this or that merger, are not enough to solve these problems because 
they do not provide a proper context for the thorough policy rethinking 
that the industry needs and the public demands.
    From a policy point of view, the key factor is that competition is 
at best sporadic in the industry, limited to a small subset of routes 
and metropolitan areas, primarily on the on the coasts. Left to its own 
devises, the industry will over schedule take-offs and landings at the 
most competitive airports to drag customers to the airport under a 
false claim about when they will leave or arrive. They get away with it 
because there are only a few of them and they tend to do it en mass. 
There is too little competition to punish the abusers.
    The middle of the country is dominated by fortress hubs, that force 
consumers into additional take-offs and landings and provide the 
trigger points for cascading delays. Consumers not only have longer 
travel times, but those who are captive to these hubs pay a heavy price 
in terms of higher fares on the many routes with little competition.
    The most famous of the cut-rate competitors has just been hit with 
the largest fine in the history of the industry for failing to properly 
inspect its aging fleet--aging because that is the best way to squeeze 
a little profit out of the skies. The most prominent of the recent new 
entrants into the industry has had repeated melt downs of service, 
keeping consumers prisoner on planes for hours on end. In fact, they 
all keep consumers captive on planes for long periods, rather than risk 
losing a take-off slot, or a body in a seat. They get away with it 
because they tend to do it en mass and there is too little competition 
to punish the abusers.
    It is time to rethink public policy toward the airline industry. To 
say that the thirty- year experiment in deregulation has been a wild 
ride would be a gross understatement. When a market performs this 
badly, this consistently, from every point of view--consumer, investor 
and labor--it is time to consider major changes. More and more, it 
appears that the original public policy judgment about the industry by 
policymakers in the 1930s, that it is destructively competitive, 
subject to vicious boom and bust cycles, and prone to exploitation of 
the consumer, was correct.
    Moreover, this is not just an industry that manufactures widgets. 
It is infrastructure that supplies an essential input to other 
industries that has an effect on the growth and vibrancy of regional 
and national economies.
    The industry is also fundamentally dependent on public resources 
for its existence. It relies on the public airways, and facilities that 
are supported by public dollars, airports and air traffic control, 
which reinforces the justification for more direct intervention to 
protect the public from the abuse it suffers at the hands of the 
industry.
    The pending mergers and those that are likely to follow are an 
admission of failure. The industry cannot support financially healthy 
airlines with vigorous competition. Delta and Northwest tell us that 
the merger won't harm competition because they don't compete, in some 
cases they have withdrawn from competition with each other over the 
past few years. If other mergers are proposed, and rejected, the 
airlines will reduce their overlap and propose mergers down the road. 
In the end, consumers have less and less competition. Without vigorous 
competition the abuse of consumers will continue and become worse.
    Nobody wants to go back to price and quantity controls, but the 
industry has lost it right to be unregulated by consistently abusing 
the traveling public. A consumer bill of rights would be helpful, but 
if we do not change the incentive structure and back it up with 
energetic enforcement by public authorities, it will not lead to long-
term solutions to the vast problems I have detailed. In many cases, 
individual abuses by individual airlines are not the problem; it is the 
overall structure that is.
    Dealing with delays and cancellations--weather, mechanical or 
economic--is a delicate problem. We never want an unsafe plane to take 
off or a safe one to take off in unsafe conditions. However, there are 
a number of practices that abuse the public that have nothing to do 
with the difficult question of safety versus service.
    Over-scheduling is a perfect example, where all airlines share the 
blame and the solution is a reduction of all schedules proportionate to 
the number of flights. They will not voluntarily solve the problem and 
they certainly should not be allowed to publish schedules that they 
cannot meet. The FAA should respond quickly and aggressively to over-
scheduling. A landing slot is a perishable commodity whose value varies 
widely between airports and over the course of a day. The allocation of 
those slots to users should reflect their value. The public will 
benefit much more from a systematic approach to the problem, than the 
sporadic, after the fact fixes that have been applied in the past. The 
airlines would initially be free to set schedules as they like, but if 
they behaving badly and produce situations of chronic over-scheduling, 
then the regulator would shape the traffic curve adjusting the fee 
structure and/or administratively reducing the number of flights at 
congested airports/times. The reductions in flight should be spread 
across all airlines that have shown chronic delays.
    Imprisoned passengers are a similar collective problem that demands 
a collective solution. The problem of passengers imprisoned on 
airplanes for long hours will not be solved as long as standing in line 
is the way we allocate take-off slots. An industry that manages 
thousands of planes moving hundreds of miles an hour in the air at one 
time ought to be able to manage dozens of planes standing still on the 
ground at an airport better. When it takes half an hour to load and 
embark a plane, it is absurd that people should be forced to sit on 
runways for hours because the airline does not want to lose its place 
in the queue. The regulator should institute queuing policies that do 
not reward, perhaps even punish, airlines for keeping people sitting on 
the tarmac for excessive periods of time.
    Overbooking and lost baggage are individual airline issues that can 
be dealt with by improving consumer rights. If the penalties are 
stiffened, the individual airlines will have more incentive to do a 
better job.
    In the long run, expanding capacity will enable the airlines to 
better serve the public, but if we expand capacity without reforming 
the incentive structure, the industry will, soon enough, recreate 
existing problems. Capacity or the lack thereof is not the cause of the 
current problem. The irresponsibility of the airline industry is the 
problem. It is the failure of the industry to offer service to the 
public that fits within the capacity of the current system--air traffic 
control and airport landing slots--that harms the public. If you build 
it, without setting new rules, they will come and come and come until 
it is overburdened.
    Again I thank you for the opportunity to express the consumers' 
frustration with the airline industry and urge you to undertake a top-
to-bottom review of its market failure. The Consumer Federation of 
America looks forward to assisting you in any way we can in that 
important endeavor.

    Senator Rockefeller. Thank you very much, Mr. Cooper.
    I guess I would put aside a couple of the questions I was 
going to ask and say that this doesn't sound to me 
automatically like a group full of comity that wishes to 
exchange views to work on an airline--aviation policy.
    As Chair, I wish to point out that this hearing was called 
for the purpose of looking at the overall situation of the 
aviation industry. Obviously, we have people representing 
different parts of that industry, and they have every right to 
express their views. But the point of this hearing is to figure 
out what needs to be done to make the aviation system work.
    Senator Hutchison and I spent the better part of the last 
week or 10 days giving endless speeches about the failure of 
airlines to hold on to their operating margins and, therefore, 
go into Chapter 11, merge, or go into Chapter 7.
    I can remember when I started off in Charleston, West 
Virginia, we had jets from American Airlines, United Airlines, 
and Eastern Airlines. We deregulated the industry, and within 4 
days, that was the end of all the jets to Charleston. So I 
don't, frankly, discount myself entirely from the consideration 
of re-regulation of the airline industry. I am very sincere in 
that.
    I also am very sincere in my understanding that the folks 
that run these airlines, who I know pretty well, in addition to 
those who work for the airlines, are doing everything they can 
to try and make it work. It has been said by a number of people 
that at least 40 percent of all of the cost for an airline is 
fuel, and that is a pretty hard number to bear.
    Ms. Friend, I noticed that when you were giving your 
testimony, you referred to making things work for the 
customers, for the communities, and for the workers. You didn't 
mention the airlines. We had a discussion once before, and it 
strikes me as not uncommon to think that unless the airlines 
are working or unless all of the money that you indicate that 
is being paid to senior executives is the cause for these 
mergers or failures or droppings off and trouble in the 
marketplace, but that troubles me.
    That troubles me because the question is, are you here 
because you really want to look at new aviation policy--which 
Mr. Neidl referred to, or are you here to express your 
complaints? And you are totally free to do that. You came on 
your own, and you are free to say whatever you want. But I 
really would like to figure out how we can make this aviation 
industry work and complaints do not help with that.
    We have failed over the last week in being able to pass the 
Federal aviation bill. I won't go into the reasons for that, 
but they are fairly stark. And so, I would just wonder if you 
agree that discussing aviation policy means that, in fact, we 
somehow have to get ourselves to the table, maybe some of us in 
the Federal Government and aviation experts need to be 
involved, and take some of these things head on.
    I am always fascinating by the charge, because it is so 
enticing, that you take what somebody is being paid, and then 
whatever is going wrong with the aviation system, that is the 
answer. If we just stop doing that, everything would sort of 
clear up.
    So, I am not going to ask a question right now. I have many 
I want to ask. But I am perplexed a little bit by the nature of 
what I heard, and I am very sincere. I cherish this 
Subcommittee. I cherish the whole concept of aviation.
    I cherish the concept of when it was working well, and I am 
in agony these days, coming from a small state like West 
Virginia, when it isn't working as well and when people are 
having to do things which bring out in some ways the worst in 
them and turn them into competitors, although they are all 
working, I think, sincerely toward making the aviation system 
work.
    But that was not my first impression, I guess, from the 
first round of statements, and I will simply say that and then 
call on Senator Lautenberg.
    Senator Lautenberg. Thanks, Mr. Chairman.
    Ms. Friend, what needs to be done to ensure workers' rights 
to unionize after this merger is done?
    Ms. Friend. Well, what we would like to see is a level 
playing field where the flight attendants, the Delta flight 
attendants that are currently voting are allowed to do so 
without influence by management, that they are allowed to 
freely make a decision, that they are not flooded with 
information, with flashy folders and DVDs that explain to them 
how evil AFA is and how they deceive them and tell them lies.
    Quite frankly, Senator, our ideal would be that the 
National Mediation Board revise their archaic rules that set a 
threshold that 50 percent plus 1 of the eligible unit must 
participate in order for them to form a union. It is my belief 
that if we applied that same arbitrary standard to our Federal 
laws, that this building would be mostly empty and that we 
should have a simple--in choosing whether or not to form a 
union, we should have a simple yes/no ballot. And those who 
choose to participate would make that decision just as they 
make the decision in our Federal elections.
    Senator Lautenberg. Mr. Anderson, just a question. You have 
heard the response that Ms. Friend gave us. Now, some part of 
Delta is unionized. I believe the pilots, if I am not mistaken.
    Mr. Anderson. And the dispatchers.
    Senator Lautenberg. And the dispatchers. There is a 
significant part of the workforce that is not?
    Mr. Anderson. That is correct, Senator.
    Senator Lautenberg. What do you see the outcome of a merger 
here in terms of the evidence or whatever that Ms. Friend has? 
I say ``whatever.'' Is that a piece that is put out by Delta?
    Mr. Anderson. The company--the way we approach it, Delta is 
a very unique place. If you look at its history--if you look at 
its history, it has long had a very good relationship with its 
employees, and that is important to Delta. It has very high 
service standards and very high ratings in terms of its 
service, J.D. Powers ratings.
    And so, we respect the NMB process, and the NMB process 
essentially lays out through the course of a merger, it has 
happened many times in the industry. Oftentimes the process is 
between two different unions. And the employees go through a 
selection process after the National Mediation Board makes the 
determination of a single carrier. And we are respectful of 
that process.
    At the same time, if you look at what Delta has done, 
Delta, as an airline, has never had a single strike. It has 
never had--the first time it had a layoff in 80 years was at 9/
11. So it has a special relationship, and we respect both the 
employees at the company that have decided they are going to be 
a member of the union, ALPA or the dispatchers union, or have 
decided that they are going to be non-union.
    And we think that the National Mediation Board process lays 
out very clear ways for what they call the laboratory 
conditions for selecting whether or not a group of employees 
wants to be represented by a union.
    Senator Lautenberg. Have you seen the material that Ms. 
Friend----
    Mr. Anderson. I am sure I have seen some of it, yes.
    Senator Lautenberg. Is that a Delta product? Is it 
something that Delta----
    Mr. Anderson. It is both. There are employee grassroots 
campaigns on both sides of this issue, and there are very many 
employees at the company that feel very strongly both ways.
    And the NMB, we respect the NMB process to be certain that 
we have the laboratory conditions and that we respect that 
process. So the collective bargaining agreements that are in 
place for both the Delta employees and the Northwest employees 
will be honored after the merger closes.
    And then we go through the regular process of determining 
whether there will be representation or not among the different 
classes and crafts of employees.
    Senator Lautenberg. Well, if there was an attempt to 
unionize the non-union portion of your work force, would Delta 
resist that?
    Mr. Anderson. We would--we would put information out to be 
certain that there is a fair and open election between the two 
groups. And we have respected that in the past, and we will 
respect it in the future. We have tried very hard to create a 
positive work environment at Delta.
    If you look across the board, pretty much the Delta 
employees have always been among the higher paid, with better 
work rules and better work benefits. And we are committed to 
continuing to do that whether we are unionized or not unionized 
because, in the end, if you take care of your employees--and 
that has always been the philosophy, going back to the founder 
of Delta, Mr. Woolman. If you take care of your employees, they 
will take care of your customers.
    And the employees of Delta have been through a lot. 
Employees at Northwest have been through a lot, and what we are 
trying to do here is create something positive for the 
employees that creates a more durable franchise so that we 
don't have to come back to them for concessions. These 
employees have been through enough of that. And what our hope 
is is that by providing equity and seniority protection and 
making this an end-to-end transaction, that it can be positive 
for both of the employee groups.
    Senator Lautenberg. Is it not likely that some redundancy 
would follow a merger? There are always reasons that, say, 
redundancy is one of the things typically the companies talk 
about when they merge. You know, I came from the business 
background.
    Mr. Anderson. Right. A very successful business, I might 
add. There are. But what we have really tried to do and the 
reason why this works is we are end-to-end. We don't have very 
much overlap. So when you look at the places that Delta serves 
and the places that Northwest serves, for the frontline 
employees, we can put a transaction together that protects 
them.
    The redundancies come in the overheard of the company and 
the corporate headquarters and in what you will remember as 
SG&A. It is those redundancies that we have to work through in 
a respectful way to create the synergies that allow us to be a 
stronger airline.
    Senator Lautenberg. Thanks very much.
    Mr. Chairman, thank you.
    Senator Rockefeller. Thank you, Senator Lautenberg.
    Senator Klobuchar?
    Senator Klobuchar. Thank you very much, Mr. Chair.
    I described earlier about how Northwest Airlines has been 
such a vital part of our state. I will also say that if 
Northwest has been good to Minnesota, our State has been good 
in return. In 1992, when Northwest was threatened by rising 
fuel costs and an economic recession, our State leaders 
approved a loan package worth more than $300 million in 
exchange for Northwest's promise to build new facilities in 
Minnesota.
    And more recently, when Northwest faced financial 
difficulties, our Metropolitan Airports Commission granted it 
millions of dollars in rent reductions. I would also add that 
after these efforts, they came on top of a $15 billion 
financial rescue package that Congress created in 2001 to help 
the airline industry after 9/11.
    So I think it is fair to say that the people of my state 
and this country have been good partners with the airline 
industry, as have their employees who have taken a number of 
concessions, many times great reductions in their salaries in 
the last few years. So one of the things that I want to focus 
on today just is some of the promises that have been made to 
the employees and to the people of my state about this merger.
    Earlier, at a Judiciary Committee hearing that I sat in on, 
I focused more globally on my concerns that Ms. Friend raised 
that this merger not be looked at in isolation by the Justice 
Department, that they look at this as a whole and not look at 
it in a vacuum. But today, with the first round of questions 
here, I wanted to focus on some of the promises and statements 
that have been made about how this will be I think the quote 
was ``a merger of addition and not subtraction'' from Mr. 
Anderson and Mr. Steenland.
    So my first question was about, again, a Minnesota-specific 
question. There are at least 450 Northwest employees who work 
in the Chisholm, Minnesota, reservation center and around 400 
employees who work in the Bloomington, Minnesota, reservation 
center. And I was hoping you could make a commitment to 
maintain both the Chisholm and the Bloomington reservation 
centers. Can you do that?
    Mr. Anderson. I actually built the Chisholm reservation 
center. So it has a certain fondness. So, yes, both of those 
res centers will stay open.
    Senator Klobuchar. And can you commit to the current level 
of staffing at the Chisholm and the Bloomington centers?
    Mr. Anderson. I think the commitment we have made, it may 
go higher. But if it has to go lower at any time, it won't be 
because of involuntary. But I think we are pretty comfortable 
in saying that the current levels that we have there in those 
two facilities will remain the same.
    Senator Klobuchar. And how long can you make that 
commitment for with these two facilities?
    Mr. Anderson. Well, I know that with the Chisholm facility, 
there is actually a specific covenant that runs out, but I 
would use the term indefinite. I mean, I think the great--going 
back, there is an area where we all do agree here, which is the 
industry has been under real distress, and the great unknown 
that really makes it very difficult to plan and to run an 
airline is when fuel prices go up.
    Senator Klobuchar. Although we did discuss at the last 
hearing how the fuel prices right now are high. They may go 
higher, but that the combined airline is not going to be able 
to negotiate better fuel prices.
    Mr. Anderson. That is correct.
    Senator Klobuchar. OK. I just want to make that point.
    Mr. Anderson. You also made some good points about the need 
for an energy policy, which we----
    Senator Klobuchar. We did. That was a good discussion. We 
can have it again maybe in a few hours, but the thing that I am 
trying to get at now--so it is an indefinite commitment?
    Mr. Anderson. Yes, there is no plans. Let me just run 
through the different facilities that we have talked about at 
different points in time with you and with the Governor and I 
think that we have been pretty open about. One is the 
reservation facility in Chisholm and the reservation facility 
in Minneapolis. Second is the pilot base. Third is the flight 
attendant--or I guess, fourth is the flight attendant base.
    Senator Klobuchar. Right. And there are 2,200 flight 
attendants based in the Twin Cities.
    Mr. Anderson. Right.
    Senator Klobuchar. And 1,000 aviation mechanics, and then 
the pilot training facility.
    Mr. Anderson. At NATCO. And then the simulator technicians 
that support those. Those, plus the data center in Eagan, 
Minnesota, are all included in what we intend on keeping in 
Minnesota.
    Senator Klobuchar. So the 1,000 aviation mechanics, 2,200 
flight attendants, the pilot training facility in Eagan, the 
employees working at Northwest cargo facilities?
    Mr. Anderson. The cargo facility at the airport, the 
building at the cargo facility.
    Senator Klobuchar. And the information services, the data 
center or customer service operation--and customer service? So 
those are all the same answer?
    Mr. Anderson. Correct. Correct.
    Senator Klobuchar. OK. And then, how about the 1,100 
employees who work at Northwest Airlines headquarters in Eagan?
    Mr. Anderson. We have not--we have just kicked off the 
integration effort of putting together the two--the two 
headquarters staff. Actually, we had our first session. So 
there will be reductions there. We have been clear about that 
because the headquarters is moving to Atlanta. But we haven't 
done a bottoms-up and really analyzed what makes sense to move 
and what makes sense not to move.
    Senator Klobuchar. I think you said at the Judiciary 
Committee hearing that the cuts could be made to both the Twin 
Cities headquarters and the Atlanta headquarters?
    Mr. Anderson. Yes, because what you really have to do, as 
hard as it is and as much as you don't like to do it and as 
much as we are going to try to mitigate it with early out 
programs and the like, in order to get the economies of scale 
that it takes to develop the benefits, you really have to sort 
of move to one overhead structure, and we have really committed 
to do a best in breed process to doing that.
    Senator Klobuchar. I think, Mr. Steenland, do you want to?
    Mr. Steenland. I think if I could just make one point with 
respect to this, and that is the only thing that we know is the 
world that we see today. And obviously, we can make judgments 
and we can make observations based on that world. But, for 
example, yesterday Goldman Sachs, one of the leading sort of 
oil trading firms in the world, came out with a prediction that 
said, in their judgment, oil was going to rise to $200 a 
barrel.
    Now, if that happens, clearly, airfares are going to have 
to go up in a very significant way. If airfares go up in a very 
significant way, by definition of the laws of supply and 
demand, we are going to have fewer passengers. If we have fewer 
passengers, we probably need fewer reservation agents to take 
calls. We are going to need to have fewer flights because we 
have fewer people to carry.
    So in terms of making commitments as to numbers of people, 
we have to recognize that there are variables out there that 
are completely outside of our control that could well change 
that dynamic, and it doesn't mean that we were misleading. It 
doesn't mean that we were sort of not truthfully stating what 
we saw today. It means that there has been a sea change, a 
change in the external world that changes how this business 
needs to be run if it is going to stay in business, and we will 
have to make adjustments accordingly.
    Senator Klobuchar. But at this point, you are committing to 
keep these groups--the 1,000 aviation mechanics, the 2 
reservation centers, the 2,200 flight attendants--this is like 
the partridge in the pear tree--the pilot training facility in 
Eagan, Northwest cargo facilities, the information services 
data center, customer service operations, and then you are 
looking, but you are not committing to the corporate 
headquarters employees?
    Mr. Anderson. And a partridge in a pear tree.
    Senator Klobuchar. Well, we hope we can get more than that 
as I look at our employees.
    Would you mind, Chairman, if Mr. Roach just responded for 1 
minute? Thank you.
    Mr. Roach. I have been in this industry 33 years, and I 
have never seen--I have heard a lot of these promises, and as 
Mr. Steenland was saying, I think we need to hear them loud and 
clear. In the transportation industry, there is nothing 
constant but change.
    And so, commitments that are made today will mean nothing 
tomorrow. And clearly, I have been through a number of them. 
And I have seen we are going to keep this facility. We are 
going to do this, that, that, and that. Maybe they put it in 
writing to you, so you have a piece of paper that may mean 
something. But it really don't hold water down the road the 
same way like TWA and Ozark Airlines and those type of mergers.
    But I would like to go back to something Senator 
Rockefeller said about we need a format to talk about this 
issue, but to talk about the overall industry. That is what we 
need to be doing because the overall industry does have some 
problems.
    And what is happening here is that people are focusing on 
Northwest/Delta, which we think is a problem, but the industry 
needs to sit down--management, labor, and Government to sit 
down talk about what is needed to fix the problems because we 
have passenger problems. We have employee problems. We have 
airlines that cannot make money, and there are serious problems 
within the industry.
    And we have since 2001, I have the letters here, we have 
attached them to our other testimony, in attempting to have 
that type of format in order to fix the problem so that we 
don't wind up with ourselves in these constant consolidation, 
band-aid, borrow money from the Government type situation.
    I just want to say that is a good idea, and we need to work 
on that and getting that format together. And the machinists 
union will be certainly in the forefront of working with any 
Government official or company officials to get that done.
    Senator Klobuchar. Well, Mr. Anderson could maybe respond 
the next time I ask questions. I know I have gone way over my 
time here.
    Senator Rockefeller. I think you have done pretty well, 
Senator Klobuchar.
    Senator Klobuchar. Well, I will continue on. This is a very 
important thing for our State and for our employees and the hub 
as well.
    Mr. Anderson. And we agree with you.
    Senator Klobuchar. Thank you, Mr. Chairman.
    Senator Rockefeller. I mean, that is kind of a record-
breaking list of commitments.
    Senator Klobuchar. Well, it is. And as we know and have 
acknowledged, things can change. But it is good to get those 
commitments right now. But we have other questions to ask as we 
go forward, Mr. Chairman. Thank you.
    Senator Rockefeller. And you will have a chance to ask 
them. I simply was impressed by your tenacity.
    Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much.
    First of all, I am skeptical of mergers. That is not a 
surprise. I don't think we solve the problems of the airlines 
by getting bigger. And I think, generally speaking, it is 
axiomatic that more concentration means less competition.
    I want to just make a couple of comments and ask a couple 
of questions. Mr. Murphy, you indicated that your study shows 
more competition that at any time in history. Maybe not in some 
parts of the country. I will show some charts that respond to 
that in a moment.
    Mr. Neidl, you said that in Europe there is much greater 
consolidation, and therefore, we need to merge in this country 
or allow mergers in this country so that we can compete. As I 
was thinking about that, we have, I think, six network carriers 
in this country. If that is the urge and the issue, maybe we 
should not take a half a dose of medicine. Instead of going 
from six to five, maybe we should go from six to three?
    Because I think there are a couple pairs of other mergers 
out there, and so I don't think we look at this in just a 
vacuum. And I am not prepared to accept your notion that 
because there is more concentration in Europe, we must have 
more concentration here at home. But that is what I heard you 
say.
    The question for me is either post merger or even today, 
what is the service level? We need commercial air service in 
this country. It is critical to this country's economy, 
essential to our economy. We need good airline service. So what 
is the service level, and how is it priced? Those are the 
questions for me.
    And so, I came to work this morning. I met with Mr. 
Steenland yesterday. I met with Mr. Anderson and Mr. Steenland 
previously, and I appreciate your being open to visit with all 
of us, and we are going to visit again. But I came to work 
early this morning, and I went on Orbitz--I think both of you 
probably own a part of Orbitz. I know Northwest does.
    Mr. Anderson. Use to.
    Senator Dorgan. Use to. All right. Well, I went on Orbitz, 
and I decided I was going to check and see what it is going to 
cost me to fly. So I plugged in three dates. I just want to 
show you the result.
    I said let us go from D.C. to Bismarck on June 16. I just 
plugged in these dates just for the heck of it. That is a 
Monday, coming back Thursday. D.C. to Bismarck, $860. D.C. to 
Grand Forks, North Dakota, $860. Same days I would like to go 
to Los Angeles, $380--twice as far and half as much. I want to 
go to San Francisco, $568. I want to go to Seattle, $440. So 
fly twice as far, you get to pay half the cost.


    Senator Dorgan. So then I thought, well, let us just go 
into September. I mean, this is way down the road. This is way 
in advance, and same thing, Monday come back on a Thursday, 
about the same thing. D.C. to Bismarck, $888. Grand Forks, 
about the same. D.C. to Los Angeles, $343. Seattle, $314.


    Senator Dorgan. So I said, well, maybe it has to have a 
Saturday night stay because we've got to keep the hotels full. 
And so, I put in September 15 through 22 so I am out there 7 
days. And here is what it looks like, a little better actually. 
But you still pay $538 roundtrip to Bismarck, $481 roundtrip to 
Grand Forks. And then go twice as far, you get to pay less 
money.


    Senator Dorgan. And my point with showing you those graphs 
is very simply some of us in some regions of this country, Mr. 
Murphy, don't believe for a minute--don't believe for a 
minute--that this has really been nirvana for us. What a 
wonderful thing. What robust competition. That is not the case.
    And when I say that, I understand the hub and spoke system 
is an essential system for getting people from a Bismarck or a 
Sioux Falls to a hub, to move one stop to anywhere else in the 
world. I understand that. But I also believe that the pricing 
has upset a lot of folks in some parts of this country that no 
one at this table speaks of. You just speak of the larger 
picture. If you live in Chicago, Los Angeles, New York, good 
for them. They have got a lot of choices, and they have got low 
prices. Good for them.
    The fact is in many areas of the country, we don't. I don't 
have an airline name up here, but I used this example this 
morning to figure out what is it going to cost to fly to these 
areas? And you know, all of you know that you will find the 
same thing if you go to Orbitz.
    My time must be close to up, but let me just mention 
additionally, I sat in this room hearing United wanting to take 
over U.S. Air. I sat in this room listening to U.S. Air wanting 
to take over Delta. We had Delta employees in the room then. I 
was visited by Delta later thanking me very much for opposing 
the merger. That wasn't too long ago.
    And I heard all four of those carriers--I heard all four of 
those carriers say that this will be complementary, end-to-end, 
and they used a word you all didn't use. They used and overused 
the word ``synergy.'' You didn't use that, and so I think you 
can make that case, perhaps either more or less, with most 
mergers, proposals between the top six.
    But having said all that, so I can explain to you why I am 
a bit skeptical and where I come from, I want to ask you ask 
you about oil prices. Oil prices are killing you, and I don't 
think this is going to solve an oil price issue, no. You are 
still going to run fuel through your planes.
    What have you done about oil prices? When you have set the 
labor costs, I watched. And you go at them and you have got to 
deal with labor costs, you cut labor costs and so on. But you 
have got to buy oil. So what kind of pressure are you putting 
on those that are taking your money to the bank and depositing 
that in the name of Exxon or Saudi Arabia?
    And there are things, it seems to me, as an industry you 
could do. For example, we are putting 70,000 barrels of oil 
underground every day in the Strategic Petroleum Reserve that 
is sweet light crude. That is the most valuable subset of oil. 
Seventy thousand barrels a day right now, yet the SPR is 90 
percent full.
    How do the airlines look at that? Do you think it is as 
dumb as I think it is to put that oil underground?
    Mr. Steenland. I think as companies and as an industry, we 
would support stopping filling the Strategic Petroleum Reserve 
right now. Certainly with the prices at this level and given 
the demand out there, we don't need to be filling that reserve 
at $122 a barrel.
    Second, we ought to look at addressing margin requirements 
for people who play in the oil markets, who aren't there are as 
real consumers of the good, but instead are simply trading it 
as a paper instrument to make a profit. Margin requirements for 
oil trading are 5 percent. Margin requirement for stock trading 
are around 50. Things like that I think are policies that we 
need to look at and address and deal with that.
    One of the problems that we face is that we buy oil in 
dollars. The dollar is a very weak currency. Our European 
competitors pay for oil in euros. So their piece of paper is 
worth $1.60, and ours is worth a dollar. And those kind of 
issues, I think, are fully appropriate for the Congress to 
address and to take on. And we would support that.
    Senator Dorgan. Mr. Anderson, both of your companies have 
these travel planning systems, companies around the country. In 
fact, I think Northwest has a fairly large one in Minot, North 
Dakota.
    Mr. Anderson. Yes, it does. Three hundred jobs.
    Senator Dorgan. Three hundred jobs. I kind of like the 
precedent that Senator Klobuchar set.
    [Laughter.]
    Mr. Anderson. I built that one, too.
    Senator Dorgan. You built that one, too. So you will give 
us the same guarantee that----
    Mr. Anderson. Sure.
    [Laughter.]
    Senator Dorgan. I think you came to this hearing with one 
word available, ``sure.'' But let me be serious about the issue 
of price and service.
    Assuming that your companies merge, tell me about the 
commitment of a much larger airline with management perhaps 
living in Atlanta, Georgia, or much of management in Atlanta, 
Georgia, servicing the Northern Great Plains routes that I just 
described. But tell me about attention to smaller communities, 
smaller markets.
    Mr. Anderson. Well, first, as to that specific one, as you 
know, Delta does not fly--this gets to the point about not 
being overlapping. Delta does not fly to North Dakota.
    Senator Dorgan. Well, you did.
    Mr. Anderson. We did. But it gives you an idea about why 
this is end-to-end. We didn't have enough presence in that 
marketplace to be able to sustain one flight a day from Fargo 
to Salt Lake City.
    But let us talk about small communities, and I think you 
made a very good point. Hub and spoke systems are critical to 
service in small communities. Low-cost carriers and discount 
carriers do not make investments in small communities. They 
don't buy the airplanes to serve small communities, and that is 
really left to the hub and spoke carriers.
    And the hub and spoke system is particularly well adapted 
because we can send one airplane to Fargo and pick up everyone 
that wants to go to every other destination on a network. So 
you have indivisibilities on that same airplane.
    We have invested hundreds of millions of dollars in fleets, 
if not billions of dollars in fleets, this combination will 
serve 140 communities, and a stronger hub and spoke carrier 
will be better for small communities. And this will be the 
major airline that serves small communities.
    I would just add that the DOT and the Government--it is 
probably appropriate that Mr. Murphy is here because he was in 
charge of it for quite a long time. We should revamp the EAS 
program in this country. We should get very serious about what 
it is going to take to run a real Essential Air Service 
Program, particularly with fuel prices at these levels.
    And I am not talking about just taking the current EAS 
formulas. I am talking about to the point that some have made 
here about how you get an industry and Government and all the 
constituents together to figure out how a real EAS program 
should work.
    Senator Dorgan. Mr. Chairman, my time has expired. I have 
to go to the floor on an amendment that I have pending. So I 
would like to submit some additional questions to the 
witnesses. And I think all of the witnesses have made some 
really interesting observations today. I appreciate them being 
here.
    Thank you.
    Senator Rockefeller. Thank you, Senator Dorgan.
    Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman.
    I am hearing mixed messages here today. I mean, there is no 
question that spiraling oil prices have put the airline 
industry in a precarious position. And what I am hearing is 
that it necessitates expanding the market into the 
international arena because you can't compete with low-cost 
carriers in this country.
    Mr. Neidl, you are saying that there is excess capacity, 
that seats are going to have to come out of the sky. And I read 
your testimony and heard it here today, Mr. Steenland, Mr. 
Anderson, that smaller communities stand to gain the most. You 
are going to be, in fact, doubling the number of small 
communities served.
    So, which is it in the final analysis? How do we know if 
the merits of this international expansion, it is probably 
going to come at the expense of domestic service and certainly 
to small communities. I think we have seen at the non-hub 
airports, in my state and across this country and the ones to 
which Senator Dorgan referred to in his chart, we are seeing 
either prices gone up or we have lost seats.
    So if Mr. Neidl is saying seats are going to have to come 
out of capacity, and you are suggesting that even in the good 
times, as I understand it from your testimony, Mr. Neidl. Then 
here we are in this troubling period and chapter in the history 
of the aviation industry, and you are somehow saying it is not 
going to come at the expense of domestic service. What I am 
hearing is global, global, global.
    And we don't disparage the fact that you should be involved 
in the international arena, but we heard that with free trade 
agreements, and we have lost jobs. What I am concerned about is 
the lost service that is going to occur here in this country as 
well.
    So how do we know that what we stand to gain or lose in 
this post merger period, since Mr. Neidl is saying that we are 
going to have to reduce excess capacity? He said, in fact, in 
reading your testimony, it says besides greater market mass as 
a result of the expansion, the two other benefits of 
consolidation would be cost cutting and revenue enhancement. To 
cut costs, marginal operation, small expensive hub operations 
have to be evaluated as to their viability, which will have an 
effect on the communities they currently serve.
    So Mr. Steenland, Mr. Anderson, how do you respond to that?
    Mr. Steenland. Let me take a first shot at it, Senator. 
First, I think we have to do the difficult exercise of 
distinguishing what might be created or caused by the merger 
transaction and what might be caused by the price of fuel. 
Because the price of fuel pressures are going to exist whether 
this transaction occurs or not, and the same, the merged entity 
will be better able to withstand it because we will be able to 
drive some benefits that on a stand-alone basis we couldn't 
reach.
    But whether we have a merger transaction or we don't, we 
are going to be impacted and the industry as a whole is going 
to be impacted vis-a-vis the price of fuel. Now as to small 
communities, Delta and Northwest serve more small communities 
than any other two airlines in the U.S. today. And we have 
invested, Northwest--I will just speak about Northwest. We have 
invested tens of millions of dollars in fleet and 
infrastructure in order to be able to provide that service.
    Senator Dorgan, we fly to numerous places in North Dakota. 
We have five different airplane types from 34 seats to 125 
seats that basically provide service to North Dakota, and that 
allows us to provide a pattern and level of service that only a 
hub and spoke carrier can provide. So we have designed a 
network, and we have built a structural business that is 
capable of serving small communities.
    It is not done as a charitable act. It is done as an act 
that can benefit a hub and that where we can provide service on 
a profitable, sustainable basis. We have done it in the past, 
and by consummating this transaction, we will be better able to 
continue in the future.
    Senator Snowe. Mr. Anderson?
    Mr. Anderson. I will speak to the point you made about 
international, and this really proves up the point Doug made 
about small community service. We did a look at Bangor to JFK, 
and a quarter of all the passengers that we carry from Bangor 
to JFK are international passengers.
    And in fact, if we look at our passenger loads at JFK, 
where we operate a large gateway to many destinations in 
Europe, Africa, and the Middle East, 25 percent of the 
passengers that we connect through JFK come from small 
communities. The opportunity that we have ahead of us together 
is to continue to expand in a global environment, where 
business is being conducted all around the world, where our 
large customer, our largest customer is Procter & Gamble. 
Northwest's largest customer is probably----
    Mr. Steenland. General Motors.
    Mr. Anderson. General Motors. And those companies and 
companies like them--Coca-Cola, IBM--those companies are 
conducting business all around the world. And we want to be 
positioned where we can provide to them a single network 
whether it is a large community or a small community. So the 
opportunity we have ahead of us is to be able to expand 
internationally to really compete for the business traveler.
    Senator Snowe. But you can't dismiss the value and the 
importance of domestic service and smaller communities. Because 
albeit there are people leaving from Bangor and going to JFK to 
go internationally, they still depend mightily on the service 
that your two carriers provide to that small community because 
low-cost carriers will not go to Bangor. You know, they are 
point-to-point. They go to one community in Maine, and they 
don't serve anything beyond that, and that is going to be the 
problem.
    Mr. Anderson. Well, I mean, if you look at the history of 
these two airlines, these two airlines have had long and deep 
histories serving small communities around the United States, 
and we have made significant investments in long-term gate 
leases, in aircraft leases, and in hub facilities to be able to 
support small communities. We rely--our business model for 
decades has relied very heavily on collecting traffic from 
small communities.
    And that is why the hub system works because when you send 
an airplane to Bangor into your hub, you can carry everyone in 
Bangor without five different airplanes. You can put everyone 
on one, and that indivisibility gives you an economic model 
that works.
    Senator Snowe. Well, I hope that continues to be 
sustained----
    Mr. Anderson. I do, too.
    Senator Snowe.--if the merger is completed because that is 
going to be ultimately the issue. We have heard that, and I 
certainly agree with Ms. Friend with respect to the fact that 
we have not had a rational aviation policy since deregulation. 
We have all experienced it since deregulation the last 30 years 
on a weekly basis, and I understand the struggles within the 
industry. But clearly, there remain to be challenges.
    And I agree with the Chairman. We need to have an 
overarching plan because it is in our security interest in this 
country, frankly, from a number of standpoints and 
perspectives. And I think that that needs to happen rather than 
just predicated on conjecture and speculation about what the 
future will look like.
    So I thank all of you. Thank you, Mr. Chairman.
    Senator Rockefeller. Senator Cantwell?

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman.
    And thank you for holding this hearing. I am sorry I had to 
step out for a few minutes, but I did hear most of the 
testimony and I want to say that I am very sympathetic to the 
points that Ms. Friend and Mr. Roach made. It is very 
frustrating that during this time period that people really 
have lost their jobs and really have lost their pensions.
    And I am not sure that the Federal Pension Board has done 
its job, oftentimes drawing this into bankruptcy and allowing 
the individuals to basically be parceled out on pensions and 
things of that nature in bankruptcy proceedings.
    But I am concerned in the sense that when I look at this 
issue that fuel costs have got to have played a very large role 
in the challenges that we are seeing in aviation today. It is 
amazing to me that anybody is still in business at the level of 
fuel price spikes that we have seen. And we are not exactly 
seeing any relief today. I hope that this Committee will have 
oversight hearings on the FTC's new responsibility in reining 
in market manipulation and making sure that we do police oil 
markets effectively.
    But I was wondering, Mr. Anderson or Mr. Steenland, if any 
of you have comments about how you look at oil prices moving 
forward, and what do we do about it in protecting all of us? 
Because it really does impact everybody, it impacts people's 
jobs and livelihood.
    Mr. Anderson. Well, I will go out a little bit on a limb 
here. I mean, we have had not an energy policy in this 
company--in this country. Well, we have one in the company. 
Particularly, it is pay the fuel bill. But in this country, we 
have not had an energy policy over the last 8 years, and that 
is a real problem not just for this industry, but for all 
industries.
    And it seems to me that when you think about what is the 
most important thing that Congress can do or that our 
Government can do for this industry and all industries is to 
get our arms around what the energy policy needs to be.
    There are things in the short run that we can do. Stop 
filling the Strategic Petroleum Reserve. Take steps to be 
certain that paper trading in oil commodities is stopped 
because a lot of the people that buy and sell oil never use the 
oil. It is--the futures market doesn't require much in the way 
of margin accounts.
    But further than that, we have to have conservation. We 
have to have alternative sources. I can tell you that the 
airline industry in the past 20 years has had over 100 percent 
efficiency because of the good work at Boeing, General 
Electric, and Pratt in terms of the advances in technology. But 
our advances in technology and our investments in new 
technology is not keeping up.
    You know, a dollar a barrel of oil is $80 million a year. 
So when it moves $5 in a day, on an annual basis, Delta just 
spent $400 million more. And we can't build engines more 
efficiently fast enough to keep up with the fact that we do not 
have a national energy policy.
    Senator Cantwell. Thank you. I understand, Mr. Steenland, I 
might have been out of the hearing when you said about margin 
rates as well.
    Mr. Steenland. Right. I think that is clearly worth looking 
at. And I would completely concur with what you have said. I 
don't think we can underestimate the incredible impact that 
this radical spike in oil prices is driving.
    If you just look at last year, Northwest made over $750 
million, and we were able to pay to our employees $125 million 
in profit sharing and other incentives. In the first quarter of 
this year, we lost $191 million versus earning $73 million in 
the first quarter of the prior year. And our fuel bill for 
flying the exact same size airline was $450 million higher, and 
that is going to continue through the rest of this year. And 
unabated, these kinds of increased oil prices are going to have 
a significant impact on not just the airline industry, but on 
other industries and on society as a whole.
    Senator Cantwell. And as an industry that I would assume 
because you are very big and intense users, what is it, second 
highest cost of your expenses, I would----
    Mr. Steenland. Highest. Forty percent of every dollar we 
collect goes to the crude--goes to our jet fuel prices.
    Senator Cantwell. So do you think this is a rational market 
that we are seeing?
    Mr. Steenland. No. No.
    Senator Cantwell. Mr. Anderson?
    Mr. Anderson. No. It is not a rational market. Rational 
markets don't move this way.
    Mr. Cooper. Senator, could I offer one other suggestion? I 
think the margin requirements. We have to scare some money out 
of this market. It has just been outrageous. The other one is 
closing the Enron loophole. If you go back and look, Congress 
allowed oil to be less regulated than onions. And----
    Senator Cantwell. I like to say hamburger, but you know 
what? Onions work as well.
    Mr. Cooper. Onions are neat because they are a perishable 
commodity, and we actually have a lot of regulation of onions 
because it is easy to manipulate a market when they go bad 
fast.
    Since that decision was made in 2002, there has been an 
exponential increase in the number of contracts and value 
traded in that market. In 2006, the Senate Committee on 
Oversight and Investigations concluded that one third of the 
price of oil was due to speculation. At today's prices, that is 
$30 a barrel or more.
    And so, the Congress has voted once to close the Enron 
loophole. The President vetoed it in the ag bill. I understand 
it is back in the bill. And with all the talk about how we want 
to lower the price of gasoline--I just came from a House 
hearing on gasoline--that is the single-most important thing 
you can do. Because if you require people to identify who they 
are and how much they are trading, they will run from this 
market, and that will be a good thing.
    Senator Cantwell. Well, I thank you for that answer.
    And Mr. Chairman, I don't know how this is all going to 
work out here. But I definitely think that this issue and the 
passion that the witnesses just showed as it relates to this 
and the numbers that they revealed show that we have to pay 
much more attention to policing of these markets.
    So I thank the Chair.
    Senator Rockefeller. Thank you.
    I have some questions, but I am anxious to have Senator 
Klobuchar go ahead.
    Senator Klobuchar. I am sure you are. I just wanted to 
follow up on Senator Cantwell's questions and just say that we 
introduced today--Senator Cantwell was involved, I was 
involved--the Consumer First Energy Act. And I think one of the 
things that would be very helpful for us is if we got some 
business support for these types of efforts.
    We have a lot of consumer support, but it basically rolls 
back some of the tax breaks for the oil companies, puts them 
into the development of renewable energy, asks big oil to pay 
their fair share through a windfall profit tax, halts the 
Government purchase of oil for the Strategic Petroleum Reserve 
that you mentioned, protects consumers from price gouging, and 
does work on the market speculation that we were talking about, 
closes the Enron loophole that is actually in the farm bill, 
and then standing up to OPEC. We would really like to push the 
administration to push OPEC since we have business dealings 
with some of their countries, that they not keep their 
production artificially low.
    And I am not going to spend my time right now asking 
questions on your views of every one of those. But I do ask you 
to look at those because it is very difficult for us to be on 
our own when we need the help of business, but you have just 
described it is 40 percent of your costs.
    The questions I want to ask, first of all, some of the 
employee issues, and specifically first the pilot issues. And I 
understand the carriers have only reached a contract with the 
Delta pilots and not the Northwest pilots. Don't you need a 
joint contract with both Northwest and Delta pilots before you 
close on the merger to get the synergies that you have talked 
about in this deal?
    Mr. Anderson. Well, first, what we tried to do had never 
been tried before in this industry. Typically, what has 
happened in every other consolidation during regulation or 
deregulation is the deal gets announced, and then after it 
closes, the parties begin a process under the ALPA merger 
policy of beginning to combine the collective bargaining 
agreements.
    So what we wanted to do was bring the two together in 
advance. We made good progress. We didn't get it done. We are 
still hopeful that we are going to be able to get it done. And 
in fact, I think we have had a very conciliatory statement 
issued by both Captain Moak and Captain Stevens, who runs the 
ALPA unit at Northwest.
    In terms of the synergies we can capture with the 
collective bargaining agreement amendments that we entered into 
with the Delta pilots and the existing collective bargaining 
agreement with the Northwest pilots that was negotiated during 
the bankruptcy, we can capture a significant portion of the 
synergies on day one.
    And that is the result of the fact that this is a little 
bit different merger. Northwest and Delta have had a domestic 
alliance arrangement for 5 years. And in the course of that and 
getting approval from the Department of Transportation for that 
back in 2003, our computer systems, our yield management, 
scheduling, pricing, we sell each other's products and manage 
each other's inventory and code share today. And we have a 
joint frequent flyer program, joint club problem.
    So we have the ability under the two collective bargaining 
agreements to do system code share, day one, and will jointly 
manage the product or manage the product and manage the yield 
management systems so we can capture a significant amount of 
the synergies from day one.
    Mr. Steenland. I think it would be fair to say that the 
goal clearly remains to look to attain a single collective 
bargaining agreement with the pilot groups prior to the 
closing, and there will be meetings set up and discussions to 
look to attain that result.
    Senator Klobuchar. I am just concerned based on what we 
have seen with other mergers when we didn't have that kind of 
agreement and didn't seem to result in good things.
    The other question I had was at the Judiciary Committee 
hearing, Mr. Anderson, you said that the combined carrier has 
``made a commitment to the frontline employees that there would 
be no furloughs as a result of the transaction.'' Do you still 
stand by that commitment and for how long?
    Mr. Anderson. Yes. Well, indefinite. But go back to what 
Doug had said, I mean, and even what Mr. Roach had said. If 
fuel is at--and it is this difficulty in sort of divining 
between this transaction and what happens if oil prices do go 
to the level that the CEO of Exxon and the head of Goldman 
Sachs say. That will be an independent effect.
    But as a result of this merger, where we sit today, both of 
these airlines are very lean in terms of having gone through 
bankruptcy. And we are really confident that because they are 
end-to-end, we won't be faced with that prospect.
    Senator Klobuchar. And I understand that both Delta and 
Northwest have employees on involuntary furlough. Delta is 
having something like 800, and Northwest has 500. What will 
happen to these employees as a result of the merger?
    Mr. Anderson. Well, we obviously want--I don't know the 
specifics of the Northwest. I can tell you about the Delta 
situation are principally we have recalled all the flight 
attendants, we have recalled all the pilots, and those are 
principally mechanics. And we are going through an early out 
program right now and an early retirement program that our 
employees have asked us for repeatedly. Well, we put one in 
place, and we are hopeful that it is going to give us the 
opportunity to get the furloughed mechanics back on quickly as 
we build our maintenance business.
    Senator Klobuchar. And then to follow up on some of Senator 
Dorgan's questions. Back in January, I sent a letter, you sent 
a response back, about the service to some of the rural areas. 
And in that letter, you wrote to me that the merger between 
your two carriers ``would deliver significant benefit to 
consumers by, among other things, increasing service to 
smaller, more thinly traveled routes.''
    Could you describe what you mean by that commitment?
    Mr. Anderson. Well, I think it is just generally the point 
that a stronger hub and spoke carrier that would emanate from 
this combination would allow us to go into cities where--take, 
for instance, Fargo. And we don't have antitrust--or we are not 
a single entity. So we haven't--we have got to operate 
separately and still compete.
    But the kinds of things you think about are we had one 
flight a day, Fargo-Salt Lake City. We just didn't have--Great 
Plains Software in Fargo was not going to sign a corporate 
agreement with Delta because we only had one flight a day, 
whereas Northwest has been in Fargo since the 1930s. And when 
you take that network and combine it with the Delta network, 
now we have the opportunity to go into cities that either of us 
maybe served alone, but because we have enough presence, we 
will be able to connect that city to another hub.
    Senator Klobuchar. You know, there is about 140 combined 
communities that you both serve, smaller communities?
    Mr. Anderson. Yes.
    Senator Klobuchar. And I guess Minnesota--we have our 
picture here of our state with the service to the communities. 
Sioux Falls, South Dakota, right across the border. Fargo, as 
you mentioned. Grand Forks, Thief River Falls, Bemidji, 
International Falls, Chisholm and Hibbing, Duluth, Brainerd, 
St. Cloud, Rochester.


    Senator Klobuchar. Do you envision that the service to 
those areas is going to change as a result of the merger?
    Mr. Steenland. No. And we have provided service to those 
communities for a long time. Several of them are EAS 
communities, and I think we have said that is another program 
that probably, for the Congress, is worth looking at because 
when you sign EAS, make EAS commitments, you make them for 2 
years. And when you think about what has impact--what has 
changed in the world of fuel prices during that 2-year period, 
that clearly has some impact on willingness to make that 
commitment.
    But having said that, we are--have no intention to 
eliminate service to any of those cities. And what the evidence 
shows is that when you are able to offer service on the same 
airline with the same brand, the same policies, the same 
frequent flyer program and the like, that provides more 
incentives for customers to fly on that airline.
    So somebody coming out of International Falls or Thief 
River Falls or Bemidji or Duluth, when they are looking at 
flying on the post merger airline, there is going to be a lot 
more destinations that they are going to be able to get to that 
will be online single carrier points than what they previously 
could do just out of Northwest.
    And that is going to make flying over the Minneapolis hub 
more attractive, and we think it will allow us to be better 
able to justify and to continue the level of service that we 
provide to those small communities.
    Senator Klobuchar. Thank you very much.
    Senator Rockefeller. Thank you.
    Senator Thune?

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman. And I want to thank 
you for holding the hearing. I think this is an important 
discussion to have not only with respect to the merger in front 
of us, which is awfully important to those of us who represent 
States that are going to be most impacted by this, but I think 
generally speaking as well the entire aviation industry. I 
expect we are going to see a lot more of this.
    And something has to give, and I can understand why 
Northwest and Delta, from an economic standpoint, want to do 
this. It, in many respects, becomes a matter of survival in the 
airline business today.
    But there are many of us who are very concerned about the 
future of the industry, the impacts of this merger and 
potential mergers that we might be reviewing in the future. But 
I guess I would just like to follow up on a couple of the 
questions that have perhaps already been asked and get at the--
some of the service and cost issues, particularly with regard 
to smaller communities in the network.
    But the first question I wanted to ask has to do, though, 
with--my understanding is that the rationale for the combined 
airline is about a billion dollars in savings, and the losses 
in the first quarter were like $10 billion. It seems to me like 
if you are going to save a billion dollars and you are losing 
$10 billion in a quarter, that the economics of that in the 
long run are going to be awfully difficult to make work.
    So I understand why you are doing it. I understand that the 
necessity of trying to find some synergies and the end-to-end 
concept and that many of your routes don't overlap, but expand 
you--create expansion opportunities into other areas. But could 
you just kind of elaborate a little bit on how these savings in 
the long run are going to be useful in terms of the viability 
of the company when you have got those types of--declaring 
those types of losses?
    Mr. Steenland. Well, first, as to the first quarter losses, 
the real, true economic loss that Northwest experienced was 
$191 million, and Delta, I believe, was about $275 million.
    Our accountants required us to basically write down the net 
worth that was on our balance sheet because of, in part, what 
oil was doing, and so we both took very large noncash 
accounting write-offs that helped produce that very large 
number. So they were legitimate write-offs from a GAAP 
accounting perspective, but they weren't real economic losses 
to reflect how the business was otherwise performing.
    Now, obviously, the bottom line results are going to be 
impacted by the price of oil. From our perspective, these 
benefits, which we think are conservative at a little bit north 
of $1 billion, are going to be there whether the price of oil 
is $100, whether the price of oil is $110, $120. So the merged 
carrier will always be better off in terms of being 
economically more viable.
    But obviously, as the price of oil, if it continues to 
increase, the economic challenges that the merged carrier will 
face will be increasingly difficult, although it will always be 
at least a billion dollars better off because of this 
transaction.
    Senator Thune. And maybe you answered this question 
already. But did that billion dollars in savings assume an 
agreement with the pilots? Did that billion, that is assuming 
that, OK, which hasn't been reached yet.
    If, in fact, gas prices, fuel prices continue to do what 
they are doing today--and I think, Mr. Anderson, you have 
mentioned somebody that had projected $200 a barrel at some 
point? I mean, I don't know how any airline is going to be able 
to survive under those economic circumstances.
    But let us just say, for example, that fuel costs continue 
to go up. How would service to rural states like South Dakota 
be impacted? And do you see reductions occurring on those 
routes to areas like the ones that were on the map that Senator 
Klobuchar put up just now?
    Some of those cities are--in my state are EAS cities, but 
there are some that aren't. And already, we are seeing I don't 
think there has been a lot in terms of announcements with 
regard to summer service. I think there is an aircraft change 
going into Rapid City this summer. But clearly, one of the main 
concerns of those of us who represent that part of the country 
have is in a post merger airline, what the service is going to 
be like? Are we going to continue to have frequency of flights?
    And then, second follow up to that is what about 
affordability and cost? Are you going to see the types of cost 
and prices that we are seeing in some of our communities today 
continue to go up, fares?
    Mr. Steenland. Well, I think, Senator, the--we are in a 
reality where we both have restructured. We have committed we 
are not going to go back to our employees. We are going to 
continue to meet our pension obligations. Our aircraft cost 
have basically been marked-to-market so there is no more 
savings to be had there.
    We have gone after our vendors with a passion to try to be 
sure we get the best prices from them. And as our fuel costs go 
up, we really have no choice but to pass them on. And as they 
get passed on and fares increase, simple economics would say 
that there will be fewer passengers that travel at higher 
prices.
    Now one of the things--the benefits and one of the ways 
that we can address that is that we serve rural communities 
with multiple aircraft types. So if you just think about what 
we do in South Dakota, we operate several airplanes that seat 
150 passengers. We operate several Saab propeller airplanes 
that seat 34 passengers. So maybe in a higher fuel price world, 
the 150-passenger airplane becomes a 125-passenger airplane or 
maybe becomes a 100-passenger airplane.
    And we adjust for that decrease in demand that higher 
prices drive by taking the investments that we have made in 
having a varied fleet and being able to preserve the service, 
but perhaps with fewer seats. And we also want to try to 
preserve frequency because the South Dakota flights come into 
Minneapolis. We operate multiple banks during the day, and it 
is in our interest as well as your constituents and our 
customer interests to try to provide as many multiple times of 
day when they can depart Aberdeen or Rapid City or Sioux Falls.
    Today at Sioux Falls, we fly seven times a day to 
Minneapolis. And that helps our hub. It also helps the people 
destined for Sioux Falls. And to the extent that we can, maybe 
seven becomes six. Or maybe, as I said, the airplane size 
becomes a little smaller. I think that is how we adjust for 
this potential new world.
    Senator Thune. I think I have asked this question of you 
previously. But from an operational standpoint, I have been 
told that it was more costly to operate RJs because you had 
fewer seats to help pay for the cost of the fuel increase. And 
you had indicated that is not necessarily an issue. Because a 
lot of the premise for service into smaller communities is 
smaller planes, fewer seats, higher loads. But that some of 
those types of flights might be in jeopardy because of higher 
fuel costs--from an operations standpoint, an RJ relative to 
one of your more standard widebody.
    Mr. Steenland. Sure. On a seat basis, the larger airplane 
is going to be more efficient to operate. But if you think 
about comparing the 50-seat CRJ with the 100-seat DC-9, if you 
were going to operate the 50-seat CRJ, you would end up putting 
on that airplane your 50 highest-paying passengers. And so, in 
essence, your unit revenues that you would collect on that 
flight would be higher as well compared to what you would 
collect on the bigger airplane because you would have a bigger 
dispersion of what fares would be.
    Senator Thune. Well, Mr. Chairman, the industry is a lot 
like we have described agriculture in past years. We have had 
some commodity price improvement here in the last year or so, 
but for a lot of years, farmers would lose a little bit on each 
sale and make up for it in volume. And it seems to me that is 
kind of what maybe characterizes or describes the airline 
industry today.
    And if we see these continued increases in fuel costs, I 
don't know where this is headed. But it seems to me we are 
going to have to take a very hard look at where the industry is 
headed. And these types of--I think we are going to see a lot 
more of this in the future, and like I said, from an economic 
standpoint, I don't fault you at all for trying to figure out 
how you survive in an environment that is going to be very 
difficult.
    But I thank you for your answers to the questions and look 
forward to continuing the dialogue as the process moves 
forward. Thank you all.
    Thank you, Mr. Chairman.
    Senator Rockefeller. Thank you, Senator Thune.
    I am going to have to close this now, much to my regret, 
due to a specific timing of a phone call that I have to make to 
the Director of National Intelligence. He is waiting on a phone 
call.
    But let me close with these thoughts. When you have 
hearings--this has been very interesting to me. People say if 
they are in an operational situation what their problems are. 
People say if they are in a worker situation what their 
problems are. And often some of it is said with a particular 
passion because, after all, they are there at the witness 
table, and it needs to be said.
    I also have a feeling that just looking at all of you, that 
the stakes are so enormous for each one of you to make all of 
this work. And we have failed in the Congress, for reasons 
which I will not go into, to pass a Federal aviation bill in 
this past week. We have moved to reconsider so that we can 
still do work in the future, and I believe that we will.
    The interplay of personalities works in the Senate just as 
it does anywhere else. But I come out of this hearing, frankly, 
somewhat optimistic simply because the whole concept of the 
United States of America without a viable aviation industry is 
not only repugnant, but it sort of defines national security 
and the ability for people to move from here to there and to do 
business.
    I understand companies go overseas and they can do better 
over there. I am not against the merger. I want very, very 
strong scrutiny of it by the Department of Justice and others 
and with great detail. But I am not convinced that anybody here 
is operating out of ill faith. I think people are angry or 
frustrated simply because of, one, the times, the price of oil, 
the unpredictability.
    Senator Klobuchar had this whole series of commitments, and 
I admire you enormously, Mr. Anderson, for accepting most of 
them. But I don't think that morally or in the real world that 
you know what is going to happen 2 years from now, or Mr. 
Steenland, or Ms. Friend, or Mr. Cooper, Mr. Roach. None of us 
know.
    The trends are all strictly downhill now, and there is 
nothing that is particularly hopeful at the present time. So I 
think we need each other a lot more than we are willing to 
admit and that it is good to get emotions out and to get plans 
out and to get analysis out. But at the end of the day, we are 
going to have to fix this system.
    And I have said that I am not against re-regulation. I 
don't think I want to go back to that day. But if I get 
desperate enough, count on me to be that kind of a vote because 
I represent a rural constituency with no possible way of 
developing its potential without the essential Air Service 
Program, the Airport Improvement Program and the hub and spoke 
system working.
    We have had to make substantial adjustments since U.S. Air 
moved out of Pittsburgh and with United to go to Dulles. And it 
is working, but we are always holding on by our fingertips. And 
you know that. You all know that. And you are all holding on by 
your fingertips. I mean, not to be schmaltzy, but we are all in 
this together.
    And so, rather than say that this has been an unuseful 
session, I think it has been very useful. I think there have 
been people who have been absolutely candid. You have been very 
forthcoming. Mr. Anderson, I have never heard such a commitment 
in my entire life from any corporate executive.
    [Laughter.]
    Senator Rockefeller. And I think that is wonderful, and I 
hope that it all works out. But everything is changing all the 
time. The war on terror has not finished its business in this 
country or elsewhere, and it will continue to change the way we 
have to do our aviation system.
    I had an all labor group come in to see me a couple of 
weeks ago and say let us get that FAA bill passed, and we did 
try. And I would be delighted to talk with you why it didn't 
work. But it is not over yet. It is not over yet.
    One thing around here, and I will just say this for the 
record and then I will stop. I am not an enormous fan of 
railroads. When I came here, there were 50 Class A railroads, 
24 years ago, there were 50 Class A railroads. And they all 
competed with each other, and then the Staggers Act passed. And 
the Staggers Act made a very simple declaration.
    It said that 80 percent of wherever there are two railroads 
competing for a market, and this takes place over the entire 
country--that means it is all 50 states--then the market will 
set the price. Where there is only one railroad operating, then 
the railroad will not the set the price, but the Surface 
Transportation Board will set the price.
    Now that has been conveniently forgotten by every single 
chairman of the Commerce Committee over the past 20 years. So 
the law has been broken consistently. The American Railroad 
Association stays under the radar. So nobody ever says that 
much or they would make special arrangements with people to 
keep them calm. But it is no way to run a transportation 
system.
    I am thrilled to chair the aviation system. I admire its 
challenges. I admire the way all of its people are trying to 
cope with the difficulties that emerge out of this, and I 
simply pledge to you that this, from my point of view, will be 
the first of a very serious effort to try and get an aviation 
system that works. Not just through congressional legislation, 
but, in fact, in the practice of it. Easily said, hard to do, 
but time to start.
    Senator Klobuchar. Mr. Chairman, could I say one more 
thing?
    I just want to make one point as part of this. I am glad 
that they were willing to commit in current situations to this, 
but remember there were promises that was made to our state in 
exchange for our state giving the money, basically, so that 
they wouldn't go financially under. And so, there was more than 
just asking these questions in the course of a hearing and 
trying to get commitments. There were actual promises made to 
the state of Minnesota at a time when the airlines were having 
financial problems, and there is actual fiscal penalties that 
attach if those promises aren't met.
    So I wanted to clarify that for the record and also that I 
would be submitting some questions in writing about what I was 
thinking at the end here, as the commitments are triggered by 
if the price of oil goes up more, maybe we won't have the 
commitment for the employees. But perhaps there could be some 
way to estimate at what point those commitments would change, 
given where the price of oil could be?
    And I can do that in writing since I know that you have to 
go to something else. But I wanted to thank the witnesses 
today.
    Senator Rockefeller. This hearing is adjourned.
    [Whereupon, at 4:35 p.m., the hearing was adjourned.]
                            A P P E N D I X

    Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
    Chairman Rockefeller, thank you for scheduling our hearing today on 
the financial state of the airline industry. I would also like to thank 
our witnesses for their participation.
    In the past 10 years, this Committee has witnessed dramatic ``ups 
and downs'' in the airline industry. For a state like Alaska, which 
depends on aviation more than any other mode of transportation, the 
seemingly constant state of turmoil and uncertainty is very concerning.
    Over the last week and a half Congress has debated the need to 
modernize the Nation's aviation infrastructure. This modernization has 
important implications for both our busiest cities and rural areas, 
like Alaska. Unfortunately, other issues made this impossible. I hope 
that Congress will continue to work to modernize our aviation 
infrastructure.
    Today, we turn to the financial state of the airlines. On Monday of 
this week, crude oil rose to over $120 a barrel. Already, many of the 
airlines and their employees have gone through difficult bankruptcy 
proceedings and restructuring. If the price of oil continues to 
increase, or even remains stagnant at over $100 a barrel, 
sustainability of U.S. air carriers is going to be significantly 
impacted and we may see consolidation through elimination instead of 
mergers.
    Obviously, one solution to the crude oil problem is increased 
domestic production, but that is an issue for another hearing.
    Thank you Chairman Rockefeller, I look forward to the testimony.
                                 ______
                                 
   Prepared Statement of Captain Lee Moak, Chairman, Delta Air Lines 
  Master Executive Council, Air Line Pilots Association, International
    Mr. Chairman, Ranking Member Hutchison, Members of the Committee, 
thank you for providing me the opportunity to submit testimony for 
today's ``Hearing on The State of the Airline Industry and the 
Potential Impact of a Delta/Northwest Merger.''
    My name is Lee Moak, and I am a Captain with Delta Air Lines. I am 
also the Chairman of the Delta Master Executive Council of the Air Line 
Pilots Association (ALPA), the union that represents over 7,300 pilots 
of Delta Air Lines. I have flown for Delta for over 20 years. Prior to 
my career at Delta, I served this Nation as a United States Marine 
Corps fighter pilot, and as I joined Delta, I transitioned to the Naval 
Air Reserve Force to finish my military career as a U.S. Navy fighter 
pilot.
    I mention my military credentials because as I continue, I want to 
emphasize that I am proud of my service in defense of our American way 
of life, including a free market economy.
    Our Nation's aviation industry is unique, and careful government 
scrutiny and oversight must ensure that any potential industry 
consolidation is in the best interests of the traveling public. It is 
for this reason that I welcome the opportunity to testify in support of 
the proposed merger between Delta Air Lines and Northwest Airlines.
    Fifteen months ago, I submitted written testimony to the U.S. 
Senate Committee on Commerce, Science and Transportation. The Committee 
was holding a hearing entitled ``State of the Airline Industry: The 
Potential Impact of Airline Mergers and Industry Consolidation.'' As 
you may recall, at that time, Delta Air Lines was the target of a 
hostile takeover attempt by U.S. Airways, an attempt which ultimately 
failed due in large part to the extreme opposition demonstrated by 
Delta's employees. At that time, I submitted my testimony on behalf of 
the pilots of Delta Air Lines, who stood solidly opposed to the hostile 
takeover attempt of our company.
    Today, I am submitting testimony on a distinctly different matter, 
the proposed merger between Delta Air Lines and Northwest Airlines, and 
I am testifying in support of the proposed merger.
    While you may ask whether I have changed my position on industry 
consolidation since I testified last year, nothing could he further 
from the truth. In fact, the position of the Delta pilots' union has 
been clear and consistent over time. Last year, in opposition to U.S. 
Airways' hostile takeover attempt, I wrote:

        Many leading industry experts suggest, and we recognize, that 
        eventually, industry consolidation is not only likely, but 
        probable and perhaps even inevitable. With that in mind, I want 
        to make the following point:

        We support a free market solution that includes rational 
        industry consolidation; consolidation that does not lead to 
        reduced service, increased fares and other problems for the 
        industry's constituents.

        In the future, sensible airline consolidation opportunities may 
        occur. If faced with such an opportunity, the pilots of Delta 
        Air Lines are interested in participating in the ``right'' 
        consolidation effort, a consensual merger with a rational mix 
        of routes, employees and resources, and with the absence of 
        major antitrust and other detrimental issues. The ``right'' 
        merger opportunity could draw our support and result in a 
        successful merger that benefits everyone involved--the 
        traveling public, the corporations, the employees, and the 
        communities we serve.

    The hostile attempt by U.S. Airways to takeover Delta Air Lines was 
not that merger. In contrast, the proposed merger between Delta Air 
Lines and Northwest Airlines is that ``right'' merger.
    On September 11, 2001, terrorists used commercial airliners as 
weapons of mass destruction to attack the United States of America. 
Those horrific events changed our lives forever and also marked the 
beginning of drastic change for America's aviation industry. In the 
years that followed the airline industry was rocked by record financial 
losses, skyrocketing oil prices (which are a bargain in comparison to 
today's prices), increased security costs, and numerous airline 
bankruptcies and liquidations. In response Congress approved, and 
several airlines took advantage of government backed loans through the 
Air Transportation Stabilization Board (ATSB).
    Delta and Northwest were not immune from the pressures of the post-
9/11 environment, and on the same day in September 2005, both 
corporations filed for protection under Chapter 11 of the U.S. 
Bankruptcy Code. At the time, the industry was still hemorrhaging, and 
many familiar with the economics of the industry believed that neither 
Delta nor Northwest would survive.
    But fueled in large part by substantial concessions from the pilots 
and our fellow employees, both companies were able to successfully 
reorganize and exit bankruptcy just less than 1 year ago. The employees 
of both carriers were able to take pride in the part they played in the 
emergence of new, healthier, airlines--airlines poised for long-term 
success. In the months that followed, things seemed to go as planned, 
but due to factors beyond the control of any airline management team or 
labor group, the industry soon faced increasing economic challenges on 
several fronts.
    When Delta and Northwest exited bankruptcy in the spring of 2007, 
crude oil traded in the mid-sixty dollar per barrel range. This week, 
the price of crude set another new record as it broke through $122 per 
barrel, an increase of approximately 85 percent in less than 1 year. 
Additionally, the Nation's economy is suffering, and many economists 
assert that we are entering a recession; others argue we may already be 
in recession. The credit markets have become increasingly difficult if 
not impossible to access. Just last month, due largely to the 
unavailability of debtor-in-possession financing, Aloha, ATA and Skybus 
ceased operations, and Champion Air will shut its doors on May 31. 
Frontier Airlines recently filed for Chapter 11 protection. Legitimate 
concerns exist about the long-term financial viability of several other 
carriers.
    In short, for the second time since the terrorist attacks of 
September 11, 2001, the industry's long-term future--in fact, its 
survival--is in peril. If our nation's airline industry is to survive, 
the economics of that industry overwhelmingly suggest that the time for 
long- anticipated industry consolidation has arrived.
    In the months leading up to the proposed merger, the Delta pilots 
worked closely with our company's senior management team as we 
considered what was best for our company, its employees, our passengers 
and the communities we serve. As the union representing the Delta 
pilots, we made clear that we were not interested in a transaction for 
transaction's sake. We insisted that if a merger were to draw our 
support, several conditions would have to be met, and the most 
important of these was that the combination would produce an even 
stronger and growing airline that would vigorously and successfully 
compete in the domestic and international marketplaces for years to 
come.
    The proposed merger between Delta Air Lines and Northwest Airlines 
not only meets but exceeds the conditions necessary to draw our 
support.
    The proposed merger between Delta and Northwest is far different 
from the one that would have resulted had U.S. Airways been successful 
in its attempt to take over Delta. Delta and U.S. Airways are strong 
competitors in many markets, with large overlapping route structures 
and several hub city pairs located in close geographic proximity. Had 
that takeover attempt succeeded, it would have cost thousands of jobs, 
created monopolization in key business markets, resulted in huh 
closures and eliminated customer choice, all in the name of a short-
term financial gain for a few.
    In contrast, the proposed merger between Delta and Northwest 
represents an ``end to end'' merger with far different dynamics. Delta 
and Northwest have very little route overlap both domestically and 
internationally, and in fact have complementary route structures that 
will expand opportunities to the traveling public. Further, as the 
surviving management team, Delta's senior executives have committed to 
preserving frontline employee jobs and that hubs will remain open. Over 
the weeks and months leading up to the merger announcement, Delta 
management shared its financial projections and merger analyses with 
the Air Line Pilots Association, and we were able to validate the 
results with our own independent analysis which showed very similar 
results. The value in the proposed merger will manifest itself not at 
the expense of employees, passengers and communities served, but by the 
synergies of the combined strength of both carriers. As a result, the 
merger will serve the interests of the corporation, the approximately 
78,000 employees of the merged company, the communities we serve and 
most importantly, the lifeblood of our company, our passengers.
    Finally, you are all aware that one of the most difficult tasks of 
any merger is that of workforce integration. As the probability of 
consolidation increased, the Delta pilots' union recognized that the 
traditional approach to labor integration is flawed, if not completely 
broken. That is why we made the decision last fall to provide our pilot 
membership with an alternative to the traditional process. Our goal was 
to reach an agreement with the Northwest pilots on the most contentious 
of labor issues in advance of a merger announcement. The task was 
extremely difficult and Herculean efforts were made by representatives 
from both pilots groups. While significant progress was made in many 
areas, we were unable to reach agreement on an integrated seniority 
list in advance of the merger announcement. However, with the 
probability of a merger announcement on the horizon and the timeline 
shrinking, the Delta pilots' union leadership was able to reach an 
agreement with Delta management designed to facilitate the merger while 
providing financial returns for the value we would bring to the 
transaction. That agreement is currently before our pilot membership 
for ratification.
    An important part of that agreement was a unanimous commitment on 
the part of Delta's pilot union leaders that ``the Delta [union 
leadership] welcomes the Northwest pilots as partners in the building 
of the new merged airline and looks forward to working with the 
Northwest [union leadership] to bring about the rapid completion of a 
new joint agreement to take effect on the closing of the corporate 
transaction providing immediate parity in rates of pay and further 
providing for a rapid completion of a fair and equitable integrated 
seniority list to take effect on the effective date of the new joint 
agreement.''
    The Delta pilots have a long and proud history of treating each 
other fairly and acting with the best interests of our fellow pilots, 
as demonstrated by our successful integrations of the pilots of 
Northeast Air Lines in the 1970s, Western Airlines in the 1980s, and 
Pan Am in the 1990s. Make no mistake, once the corporate transaction 
closes, the Delta and Northwest pilots will all be Delta pilots. Our 
ethics, our integrity and our record of fairness and professionalism 
will not be compromised as we transition to a group over 12,000 strong.
Conclusion
    In the years following the September 11 attacks, the American 
aviation industry experienced its worst period in history up to that 
point. After numerous corporate restructurings, both in and out of 
bankruptcy, there were strong indications of an industry on the 
rebound. Due to factors beyond the control of any management team or 
labor group, that rebound was short-lived. The health and viability of 
America's iconic aviation industry, an industry that helps drive our 
nation's economy, is in serious jeopardy, and while it may seem 
inconceivable, it is quite possible--even probable--that circumstances 
will get much worse before they get better.
    In my opening remarks, I acknowledged that careful government 
scrutiny and oversight must ensure that any potential industry 
consolidation is in the best interests of the traveling public. I 
submit that the proposed merger between Delta Air Lines and Northwest 
Airlines is not only in the best interests of the traveling public, but 
also our Nation's aviation industry and economy.
    On behalf of the over 7,300 professional pilots of Delta Air Lines, 
thank you for the opportunity to testify before the Committee.
                                 ______
                                 
   Prepared Statement of the Aircraft Mechanics Fraternal Association
    I am Steve MacFarlane, National Director of the Aircraft Mechanics 
Fraternal Association (AMFA), a craft union representing 4,200 aviation 
mechanics and related at Alaska, ATA, Southwest, Northwest (NWA), 
Mesaba, and Horizon. AMFA represents over 900 mechanics at NWA, and 
over 200 at Mesaba--one of NWA's regional subsidiaries. I am writing to 
share my organization's concerns regarding mergers and consolidation 
within the airline industry, specifically the proposed deal between 
Delta and Northwest. Having worked in the airline industry for twenty-
five years and lived through two mergers, Hughes Airwest/Republic and 
Republic/Northwest, I can attest first hand to the harm that can befall 
workers caught up in airline mergers.
    AMFA understands that consolidation within the industry is likely, 
and we are not necessarily opposed to consolidation per se, however, 
AMFA believes there are facts surrounding the Delta- NWA pairing that 
need to be addressed. These issues include, but are not limited to:

   The 500 NWA mechanics currently on furlough, whose last 
        opportunity to return to work will expire on November 6, 2008.

   Current and potential future union representation at the 
        combined carrier.

   Billions of dollars in outstanding pension obligations.

   The potential wave of mergers stemming from the approval of 
        the Delta-NWA deal.

   Promises made by management teams to garner political favor 
        for deals that turn out to cause great harm, such as pledges to 
        keep all hubs, employees, and small community air service.

    Having endured devastating job losses and drastic reductions in pay 
and benefits coerced from airline workers throughout the industry over 
the past 5 years, we can't help but flinch at the prospect of another 
corporate tactic that has the potential of delivering yet another blow 
to the livelihoods of airline workers. Prior to the attacks of 9/11, 
AMFA represented nearly 10,000 mechanics and related at NWA. 
Immediately after the attacks, tens of thousands of frontline airline 
employees at numerous carriers were laid off, including about half of 
AMFA's NWA population. Today, the number stands at 910. AMFA members in 
Minnesota numbered over 6,000 during the late 90s alone. These workers 
earned above average wages, owned homes, and contributed significantly 
to the economy of Minnesota and the Nation as a whole. There are now 
615 AMFA NWA mechanics at MSP and 300 in Detroit (DTW). Most of them 
own homes in other states.
    AMFA currently has approximately 400 Technicians and a little less 
than 100 cleaners on nonvoluntary furlough. In order for us to support 
the merger NWA needs to insure these employees are given the 
opportunity to return to work for the ``New Delta''. Many of these 
furloughed employees were working for NWA long before Mr. Steenland or 
Mr. Anderson joined NWA; some of these men and women have 20 plus years 
at NWA. NWA and Delta have been unwilling to even sit down with AMFA to 
discuss our concerns. It seems they feel the only group they need to 
get buy-in from is the pilot group. Thousands of other employees and 
their representatives have needs and concerns that need to be addressed 
as well.
    On November 6, 2008 the approximate 500 employees on non-voluntary 
furlough will be terminated as a result of the expiration of their 
recall rights. NWA arbitrarily reduced the recall period from 5 years 
to 2 years in our strike settlement agreement. The ``New Delta'' could 
show some good faith to support their claims that they intend to 
protect jobs by:

   Reestablishing the original five-year recall rights which 
        would extend by 3 years the November 6, 2008 termination 
        deadline currently looming over the heads of hundreds of NWA 
        employees. Unless this action is taken approximately 500 NWA 
        mechanic and related employees will be terminated in November 
        of this year. By taking this action these long time NWA 
        employees would simply be given the opportunity to bid for a 
        job as they became available.

   Offer the furloughed employees that have recently reached 
        the age of 55 the opportunity to return to work for one day in 
        order to retire active, which would increase their pension 
        payments by hundreds of dollars per month. NWA has been given a 
        freeze on benefit accruals and many years of relief from the 
        government to fund their pension obligations. The ``New Delta'' 
        should be required to at least live up to their end of the 
        agreement by paying the full value of the pension and not 
        receive yet another opportunity to short change their 
        retirement eligible employees by terminating them.

   Offer the rule-of-60 flight benefits to those currently on 
        furlough (age + yrs of service = 60). This action would result 
        in lifetime retired employee flight benefits, something offered 
        to all employees that chose to resign but not those who chose 
        the furlough.

    Former mechanics have, in many cases, moved on to lower-paying jobs 
and turned to refinancing homes or other forms of debt to sustain their 
families. This scenario shows that for all the numbers thrown around 
about how vital an airline is to an economy--both micro and macro--the 
benefits must be more than residents with proximity to a certain 
airport being able to fly to Mexico City via Salt Lake City. With no 
economic base to support leisure travel, and the forecasted ``15-20 
percent rise in ticket prices'' \1\ needed to offset soaring fuel 
prices, the current crisis in the industry will, by this logic, expand 
to the point where no one will be able to fly.
---------------------------------------------------------------------------
    \1\ Delta CEO Richard Anderson quoted by Associated Press. USA 
Today April 22, 2008.
---------------------------------------------------------------------------
    The government has provided great assistance to the airline 
industry after 911 and during difficult times, in the form of the ATSB, 
whereby $5B in taxpayer dollars was given to the industry without any 
guidance as to how the airlines were to spend the money. Another $10B 
was made available for loans to assist the ailing industry. While this 
is laudable, no help was forthcoming to the tens of thousands of 
workers who lost their jobs.
    Additionally, Federal bankruptcy laws, never intended to be used as 
a strategic tool for competitive purposes, were turned against workers 
as Federal judges aided executive management teams in extracting 
severe, painful, and permanent concessions from American airline 
workers. Pensions were defaulted, work rules changed, work forces 
reduced by thousands, wages slashed, and on and on. We acknowledge the 
value and benefit of having a viable airline industry that provides 
great mobility and swift commerce for our nation; however, the other 
part of the equation is a stable and productive middle class that 
contributes to the economic vibrance and tax base of the American 
economy.
    Now, as we enter the era of Open Skies and mega-carriers, the need 
for scrutiny grows. NWA and Delta claim that employees will be given a 
4 percent stake in the merged company. Employees at United Airlines can 
attest to the perks of ESOP programs, where $125,000 in stock yielded a 
$1,800 payout. This merger does nothing to allay concerns of future 
bankruptcy filings, and future financial distress. In fact, the cost of 
merging has been reported to be somewhere near $1 billion. Given the 
combined $10 billion in losses by NWA and Delta in the first quarter of 
2008, it seems the carriers need all the money they can get. Even 
without ``one-time'' costs of $6 billion for Delta and $4 Billion for 
NWA, the two combined to lose just short of $500 million in the 
quarter--largely due to $115/bbl oil.
    Oil and refined fuel commodity prices will not decrease with the 
formation of the largest airline in the world. With this merger, the 
company will have a fleet of over 800 aircraft, with the only overlap 
in aircraft type being the Boeing 757-200 (Delta--131; NWA--71).\2\ 
This means the combined carrier will have 19 different and unique 
aircraft, and a fleet that will be one of the oldest in the industry. 
The companies have said that the carrier will be able to right size 
aircraft to specific routes, and park older airplanes, but both 
airlines have stated their individual intentions to do this in the next 
year anyway, as well announcing cuts in mainline capacity. The costs of 
the merger procedure fly in the face of the actions the companies are 
taking independently.
---------------------------------------------------------------------------
    \2\ Aviation Week & Space Technology Aerospace Sourcebook 2008. Pgs 
364 and 372.
---------------------------------------------------------------------------
    Earlier in the month, Delta, NWA, Air France-KLM, CSA Czech 
Airlines and Alitalia were granted antitrust immunity for their 
international code-share alliance operations as part of the SkyTeam 
Alliance. This, combined with Stage I of the US-EU Open Skies Agreement 
(OSA), appears to be leading to the creation of global mega-carriers, 
and with it, the gradual erosion of the traditional airline employee. 
If not for U.S. ownership and ``actual control'' restrictions, perhaps 
trans-Atlantic consolidation would have been realized already. In fact, 
Stage I of the OSA stipulates that if the U.S. does not liberalize its 
ownership requirements for a Stage II agreement, Stage I will be 
negated and withdrawn.
    While many employees would likely welcome being part of the world's 
largest air carrier, that endorsement cannot come without some tangible 
benefits. Airlines have lost $29 billion since 2001, defaulted or 
deferred over $20 billion in pension obligations, and laid off over 
150,000 employees. These facts show that something fundamental must 
change. But, how does this merger, and the likely wave of mergers to 
follow afterward, change anything? It seems more likely a continuation 
down the same pothole-laden path.
    Again, AMFA is not against Delta and Northwest merging, but we are 
hard pressed to see how this betters the industry and provides 
stability to its employees. At a minimum, Delta's mechanics must be 
given a fair chance to vote on representation. AMFA has received a 
significant number of NMB cards, and stands to vie for representation 
in the event that this merger is approved. If the workers of the merged 
carrier choose no representation through a vote, then so be it. But, we 
feel that in the current environment, the mechanics at a combined Delta 
will see that as at-will employees, they will have little recourse in 
the event of another severe industry downturn.
    We hope that all the promises made by Mr. Steenland and Mr. 
Anderson come to fruition and this merger works well for everyone 
involved. But sadly, rank and file airline employees have been down 
this road before, and historically it has ended with thousands of 
layoffs for airline workers and a few golden parachutes at the top for 
executives.
                                 ______
                                 
       Prepared Statement on Behalf of the Minnesota Parties \1\
---------------------------------------------------------------------------
    \1\ This testimony is offered on behalf of the Minnesota Chamber of 
Commerce, Minneapolis Regional Chamber of Commerce, Saint Paul Area 
Chamber of Commerce and the Metropolitan Coalition of Chambers, 
representing thousands of businesses throughout the State of Minnesota.
---------------------------------------------------------------------------
Introduction
    Chairman Rockefeller, Senator Hutchison, Members of the Committee, 
we submit this testimony on behalf of the Minnesota Chamber of 
Commerce, the Minneapolis Regional Chamber of Commerce, the Saint Paul 
Area Chamber of Commerce and the Metropolitan Coalition of Chambers 
representing thousands of businesses throughout the state of Minnesota. 
Thank you for the opportunity to file testimony on a matter of great 
importance to all of the residents of the Twin Cities and Minnesota.
    The Twin Cities business community was a driving force behind the 
growth and development of Northwest Airlines. The carrier took flight 
in 1927 thanks to the determined efforts of civic leaders who 
recognized the importance of good air service for the progress of the 
Twin Cities and the development of its economy. From its first flights 
as a mail carrier and over the next 82 years, Northwest has contributed 
to the Twin Cities' and Minnesota's economy far beyond even the bold 
visions of its founders. Today, Northwest operates 475 daily flights 
from Minneapolis/St. Paul International Airport to more than 150 
destinations, including nonstop international service to Tokyo, 
Amsterdam, London, and beginning this month, Paris.
    It's impossible for proud Minnesotans like us to not have mixed 
emotions about last week's merger announcement. Northwest is as much a 
part of our state as our lakes, our winters and our hockey. Even so, 
Minnesota businesses recognize that this merger is an economic 
necessity for both airlines in an era of unprecedented pressures from 
record oil prices, economic distress and competition.
    We also recognize and expect that, while the Northwest name may 
cease, the air service that drives billions of dollars of economic 
activity will go forward under the Delta banner. Minneapolis/St. Paul 
will continue as a major, primary and growing airline hub, providing 
economic benefits to the Twin Cities and the entire upper Midwest 
region. Both Delta and Northwest have pledged to grow--and strengthen--
our hub, to maintain substantial management and line operations in 
Minnesota and to continue to be one of our largest employers. The new 
Delta has the opportunity to use its financial strength and the 
superior network to serve Minnesota better; to provide greater job 
security for its employees; and, to catalyze economic activity 
statewide.
    The MSP hub has been and will continue to be critical to the 
ongoing development of our economy. The benefits of the hub--frequent, 
non-stop service to a wide range of domestic and international 
destinations--makes it easy for our citizens to travel for business and 
leisure and--even more importantly--for the world to come to Minnesota 
to do business with us and to experience our natural and cultural 
beauty.
    The numbers, Mr. Chairman and Members of the Committee, are 
compelling.
    In 2004, the most recent data available, our airport generated 
153,000 jobs, $6.0 billion in personal income, $10.7 billion in 
business revenue, $1.3 billion in sales, and $626 million in local/
state taxes.\2\ In 2000, 2001, 2002, and again in 2004, the 
International Air Transport Association named MSP ``the Best Large 
Airport in North America'', as measured by overall consumer 
satisfaction. In 2004, J.D. Power and Associates ranked MSP as the 3rd 
best large airport in the world, after Frankfurt and Denver.
---------------------------------------------------------------------------
    \2\ Minneapolis-St. Paul Metropolitan Airports Commission, Economic 
Impact Statement, March 7, 2005.
---------------------------------------------------------------------------
    According to the U.S. Census Statistical Abstracts (2007), 
Minnesota's compound annual growth rate (in terms of Gross State 
Product) ranked 9th among the 20 largest states, ahead of states with 
much larger gross state products like New York, Illinois, and 
Pennsylvania. Minnesota is also home to large, world-class companies, 
including the headquarters of 19 Fortune 500 public companies (2007) 
and 12 Forbes 500 private corporations (2007) representing a broad 
spectrum of industries. 3M, U.S. Bancorp, Target, General Mills, United 
Health Group, Cargill, and Medtronic each call Minnesota home, and many 
of these large companies have business interests or operations in 
foreign countries--in part because of the ease of travel across the 
Northwest network. Not surprisingly, the strong metropolitan, 
statewide, and regional fundamentals--the product of a well-diversified 
economy and an economic base of world-class corporations--generate 
substantial demand for air service.
    There are, of course, many factors that make our state's economy 
what it is, but a necessary ingredient for our success is the hub and 
particularly its health and continued growth. Its current status and 
future growth are secured by the commitments of the merged airline's 
board of directors and management.
    Implementation of this promise will rest with thousands of front-
line employees who work on the ground and in the air. These employees 
are protected by a promise of no involuntary furloughs and a commitment 
that any employee who wants to stay with the combined airline will have 
a job. Bankruptcies and high oil prices present a much greater threat 
to airline employees than mergers. In fact, the airline industry has 
lost over 150,000 jobs since 2001 (USDOT Form 41 data) through 
bankruptcy and recession. Five U.S. airlines have failed so far this 
year due to high fuel prices and a struggling economy. The combined 
airline will be better able to meet those challenges.
The Merged Airline Will Provide Minneapolis/st. Paul and the Upper 
        Midwest with a Superior Global Network
    The new Delta will be America's premier global airline with service 
to more destinations around the world than any other carrier. Combining 
Northwest's heritage in Canada and Asia with Delta's network throughout 
the Caribbean, Latin America, Europe, the Middle East and Africa 
creates a larger, more attractive network than either airline can offer 
alone. This ``network effect'' as it's called makes it easier for the 
new airline to enter new and underserved markets and attracts new 
customers who want the convenience and familiarity of a single global 
airline. The expanded Delta network will strengthen and preserve the 
primacy of our Twin Cities hub by making it economical to serve more 
destinations and provide more schedule options.
    Hubs are particularly valuable because of the international service 
they support. Nonstop international air service is very important to 
our state and region, and the combination of Northwest's and Delta's 
global networks will enhance its ability to sustain and--we expect--
expand those services. It's worth noting--and it certainly hasn't 
escaped the notice of both Northwest's and Delta's leadership--that MSP 
is the northernmost hub airport in the eastern half of the United 
States, making it geographically desirable for non-stop service to 
Asia.
Delta/Northwest Will Not Change the Competitive Landscape in 
        Minneapolis/St. Paul
    Northwest has 475 daily departures, whereas Delta has about 17 
daily departures from Minneapolis/St. Paul. The disparity in service at 
MSP illustrates the overall complementary nature of these route 
networks, which have very little overlap. Minneapolis/St. Paul is 
served by three discount carriers and by the four other major legacy 
carriers. Accordingly, we do not believe that the combination of Delta 
and Northwest will have any appreciable effect on customers.
The Minneapolis-St. Paul Metropolitan Area and the State of Minnesota 
        Are a Large, Prosperous, and Growing Community That Depends on 
        Air Travel Service
    Minneapolis-St. Paul is a large, dynamic, and prosperous 
metropolitan area with a long history as a major transportation hub. 
Our rivers and railroads were the transportation networks of their 
times and the forerunners of today's global air travel network. 
Minnesota is home to hundreds of international companies, to a long 
list of distinguished colleges and universities--including one of the 
most productive research universities in the world in the University of 
Minnesota--and is an important center for tourism with attractions 
ranging from Mall of America to the region's extraordinary wilderness 
and natural grandeur. Our community has enjoyed substantial growth and 
economic prosperity in recent times largely because our means of 
``making a living'' has evolved constantly. A key ingredient to that 
evolution has been the hub at MSP. For our economic evolution and 
success to continue, we must be able to reach the world and the world 
must be able to reach us--reliably and at a competitive price. We 
believe this merger increases our chances of being able to do just that 
well into the future.
Conclusion
    We know that much of our good fortune over the years has been the 
product of being a transportation hub. We believe our future is best 
guaranteed by continuing to play that role for our businesses and 
citizens who call Minnesota home, for those who want to do business 
with us; for those who want to visit; and, for those who simply want an 
efficient and convenient waypoint on their journeys. We will miss and 
remember the Northwest name as it gives way to Delta; we will credit it 
for creating and sustaining the hub at MSP; and we will benefit from 
its legacy every time we board a Delta flight for a nonstop domestic or 
international destination. For these reasons, we believe a merger 
between Delta and Northwest can create the synergies to help fuel the 
development and growth of our economy.
            Thank you.
                                            David C. Olson,
                          President, Minnesota Chamber of Commerce.
                                              Todd Klingel,
               President, Minneapolis Regional Chamber of Commerce.
                                         Kristofer Johnson,
                    President, Saint Paul Area Chamber of Commerce.
                                          Daron Van Helden,
                         Chair, Metropolitan Coalition of Chambers.
                                 ______
                                 
          Prepared Statement of the Memphis Regional Chamber 
            and the Memphis/Shelby County Airport Authority
Introduction
    The Memphis Regional Chamber and the Memphis/Shelby County Airport 
Authority firmly believe that approval of the proposed merger of 
Northwest and Delta is the best way to secure and promote Memphis's 
status as a major airline passenger hub. The combination of the two 
carriers will create America's premier global airline. The new airline 
will have the financial strength and a better network to serve the 
Memphis community, provide greater job security and growth, make the 
aviation industry more stable, and benefit the U.S. economy overall.
    It is no coincidence that two major airlines have established hubs 
in Memphis. Northwest and its Airlink carriers operate more than 230 
daily passenger flights, and FedEx has developed Memphis into the 
world's busiest air cargo hub. Memphis is ideally located in the south 
central United States--near the center of the U.S. population base. 
Moreover, Memphis has a strong regional economy and skilled work force, 
which contributes to the success of our two airline hub operations.
    Northwest is our hometown passenger carrier, and has served the 
Memphis community well for over two decades. It is important to 
remember, however, that Memphis became a Northwest hub by virtue of 
Northwest's merger with Republic Airlines in 1986. And, before that, 
Republic was created when Southern and North Central merged in 1979. 
Simply put, mergers, acquisitions (and airline failures) have been a 
prominent feature of the airline industry since deregulation. Yet, 
Memphis has endured as a hub. Based on the ``business case'' of MEM as 
a proven and successful hub--as well as the specific assurances we have 
received from Delta and Northwest that there will be no hub closures--
we fully expect Memphis to continue to play an important role to the 
combined carrier after the merger.
    With mounting pressures from low cost carriers, as well as sky-high 
oil prices, many believe that consolidation among the major legacy 
carriers is inevitable. From Memphis's perspective, the end-to-end 
combination of Northwest and Delta creates the greatest opportunity for 
stability and growth, with the least amount of overlap. The merger will 
allow for more efficient use of the companies' combined strategic 
assets and thereby strengthen the economies of the communities served 
by the two airlines. The scale and strength of the new global airline 
will make jobs more secure and provide a better quality of life for 
employees.
The Proposed Merger Will Help to Secure Jobs and Airline Activity at 
        the Memphis Hub
    Together, Northwest and Delta employ about 4,000 people in 
Tennessee, the vast majority of whom are frontline employees working in 
Memphis. According to the two airlines, these employees of both 
airlines are protected by a promise of no involuntary furloughs and a 
commitment that any employee who wants to stay with the combined 
airline will have a job.
    The biggest threats to airline jobs are not mergers but 
bankruptcies and high oil prices. Since 2001, the airline industry has 
lost over 150,000 jobs through bankruptcy and recession; and, in the 
first half of this year, fuel prices have permanently grounded five 
U.S. airlines. The proposed merger helps mitigate those threats.
The Merged Airline Will Connect Memphis and the Mid-South Region to the 
        World
    The combined company will offer service to more destinations around 
the world than any other U.S. carrier. By combining Northwest's leading 
positions in Canada and Asia with Delta's strength across the 
Caribbean, Latin America, Europe, the Middle East and Africa, customers 
and communities will benefit from enhanced access to destinations 
worldwide. Even with its new runway, Atlanta is operating at capacity. 
Memphis provides the combined carrier with a flexible and less 
congested alternative to transport connecting passengers throughout the 
Southeastern United States. Moreover, the expanded network of the 
combined carrier will provide Memphis and the surrounding areas with 
potential opportunities for economic development, new investment and 
increased tourism.
    Northwest provides Memphis with its only nonstop passenger service 
to Europe (Memphis-Amsterdam). We are very pleased that the Department 
of Transportation recently approved antitrust immunity to Delta, 
Northwest, and their respective European partners, Air France and KLM. 
By creating a merger with the SkyTeam Alliance, the potential for 
service disruptions is minimized.
Competition Among Carriers in Memphis Will Continue to Thrive
    The combination of Delta and Northwest will not change the 
competitive environment for customers in Memphis. Delta has 14 daily 
departures from Memphis, while Northwest has 233, demonstrating that 
the companies have complementary route networks and very little 
overlap. Two discount carriers, AirTran and Frontier serve Memphis, and 
the only overlap route between Northwest and Delta (Memphis-Atlanta) 
has competitive low cost service on AirTran.
Memphis Is a Diverse and Growing Community That Is Highly Dependent on 
        Air Service.
    Memphis is one of the most significant cities in the central United 
States for several fundamental reasons. It is large, with a current 
metro population of more than 1.2 million which is forecast to exceed 
1.3 million by the end of this decade. It has a vibrant and growing 
economy on many levels. Average personal income for residents of the 
Memphis Metropolitan Statistical Area (``MSA'') is expected to continue 
its strong annual growth of 4.0 percent, reaching $42,017 by 2010. 
Memphis experienced $16.5 billion in retail sales for 2005, and those 
sales are expected to surpass $20.5 billion by 2010 based on the 
continuation of its impressive decade-long growth rate of 4.4 percent 
per year.
    Given its central location at the intersection of Interstates U.S. 
40 and U.S. 55 (two of the principal highways in the central United 
States), Memphis International Airport, service by five of the six U.S. 
class-one railroads and the Mississippi River, Memphis has become one 
of the world's leading intermodal transportation hubs--often being 
described as ``America's Distribution Center.'' Specifically, Memphis 
provides water-to/from-rail, water-to/from-truck, rail-to/from-truck, 
and air-to/from-truck linkages. More than 300 motor freight companies 
operate in the Memphis MSA, from which 152 markets are served 
overnight, more than from any other city in the U.S., while 45 states 
can be reached with two-day truck service. More than twenty container 
depots are located in Memphis, and there are two Foreign Trade Zones 
with multiple sites. More than $10 billion in goods clear customs in 
Memphis each year through twelve full-service customs brokers.
    Passenger access enables so much of Memphis's economic vitality 
from Fortune 500 companies to NBA basketball to curing childhood 
diseases. Memphis is home to the world headquarters of FedEx, AutoZone, 
International Paper, and ServiceMaster. Memphis's St. Jude Children's 
Research Hospital is internationally recognized for its pioneering work 
in finding cures and saving children with cancer and other catastrophic 
diseases. Memphis is the Nation's second-largest center for the 
manufacturing of orthopaedic devices. The Downtown Memphis area is 
enjoying a rebirth, with growth in businesses, restaurants, and 
commercial and residential properties to complement its diverse arts 
and cultural communities. Its historical and ongoing contributions to 
the music industry--Home of the Blues, Birthplace of Rock & Roll, and 
Graceland--are world-renowned. Memphis is home to NBA basketball's 
Memphis Grizzlies.
    In addition, our community has embarked on a major economic 
development initiative to ensure Memphis has a strong and diverse 
economy, fosters innovation and entrepreneurship, and advances the 
region's global leadership in the bioscience, music/film and logistics 
industries. This will ensure the strength of our growing economy and 
citizenry.
    The Memphis International Airport has played a vitally important 
role in making Memphis the economically vibrant and attractive 
community it is. In the 2006 Fiscal Year, Memphis International Airport 
handled 10,853,934 passengers and an unsurpassed 4,009,413 tons of 
cargo making it the largest air cargo hub in the world. Given this 
commercial and trade activity, it is not surprising that the Memphis 
International Airport's contribution to the local economy is 
substantial. Cargo operations alone generated a total impact of more 
than $19.5 billion in 2004 and supported a total of 155,872 jobs with 
total earnings of nearly $5.6 billion.\1\ The direct and indirect 
economic impact of passenger services was almost $1.2 billion, 
supporting almost 10,000 jobs with total earnings in excess of $340 
million. In total, in 2004, the Memphis International Airport generated 
over $10 billion in direct expenditures and created an economic impact 
output of more than $20.7 billion and 165,500 jobs.\2\ Community 
leaders are determined to continue the strength of the airport by 
amplifying Memphis's position as America's Aerotropolis.
---------------------------------------------------------------------------
    \1\ ``The Economic Impact of Memphis International Airport,'' 
prepared by Sparks Bureau of Business, University of Tennessee, May 
2005, at 7.
    \2\ Id., at 12.
---------------------------------------------------------------------------
Conclusion
    The Memphis Regional Chamber and the Memphis/Shelby County Airport 
Authority welcomed the news of the Delta/Northwest merger announcement. 
This is, as the carriers have said, ``a merger of addition, not 
subtraction.'' Memphis has a strong economy, a skilled labor force, and 
the airport infrastructure to attract and sustain air service. We look 
forward to continuing to play a vital role as a hub city for the new 
Delta.
                                             John W. Moore,
                       President and CEO, Memphis Regional Chamber.
                                              Larry D. Cox,
                President, Memphis/Shelby County Airport Authority.
                                 ______
                                 
           Prepared Statement of the Detroit Regional Chamber
    Chairman Rockefeller, Senator Hutchison, Members of the Committee, 
thank you for the opportunity to appear before you today.
    With 23,000 members, the Detroit Regional Chamber is the largest 
local chamber of commerce in the country. Our mission is carried out by 
attracting new business to our community, through public policy 
advocacy, strategic partnerships and by providing quality products and 
services for our members.
    Northwest Airlines has been--and remains--a very positive force for 
economic development in the Detroit area. The presence of a Northwest 
hub since 1986 and their leadership in constructing the world-class Ed 
McNamara terminal at the Detroit Metropolitan Airport is a testament to 
their commitment to our region. Northwest Airlines is a respected and 
admired member of the Detroit regional business community.
    The Chamber believes the Delta and Northwest merger will enhance 
the Detroit Region's ability to compete for new business development, 
for tourism and as both a destination and waypoint for travelers. The 
prospects for this merger are very complementary to the logistics hub 
and aerotropolis initiatives being aggressively pursued by our business 
community. These plans envision leveraging the region's air, land and 
sea resources to establish a major transportation center for moving 
people and goods around the globe. Being a strong hub for a true global 
carrier will better help the region realize this goal.
    Detroit Metropolitan Airport is one of our region's strongest 
economic development assets. We believe the Northwest-Delta merger will 
position us to serve as the centerpiece of Delta's Midwest network 
and--through that expanded network--improve our access to destinations 
throughout the globe. The combined airline will reach more cities than 
any other airline and will be better positioned to compete for 
travelers on a global basis. Those travelers, in turn, will enjoy a 
greater exposure to the business and leisure benefits our region can 
offer.
    Delta and Northwest currently generate more than $11.5 billion in 
combined annual economic benefit and employ approximately 9,150 people 
in Michigan. Since this is a merger of addition (not subtraction) it is 
our belief that the economic impact on our region will grow.
    Current non-stop service to Japan, Gatwick airport in London and 
planned direct service to Heathrow airport in London and Shanghai, 
China provide needed service for our region's automotive industry.
    Northwest's new nonstop service to Shanghai will benefit key 
Midwest manufacturing interests with growing trade and growing ties to 
China. Michigan and Northern Ohio are home to 25 Fortune 500 companies 
and there are 23 Chinese firms doing business in Metro Detroit. The 
U.S. auto industry is in the process of reinventing itself to become 
more competitive and more efficient in the global marketplace, and 
Detroit auto manufactures have been investing in China. This burgeoning 
trade relationship creates substantial China passenger and cargo demand 
in Detroit and throughout the Midwest Heartland.
    The Wayne County Airport Authority estimates the benefit of new 
Shanghai service to the Michigan economy to exceed $160 million, and 
nonstop Beijing service to produce an additional $105 million in 
benefits, for a combined total of $265 million.
    We are pleased that the combined airline is committed to 
maintaining Detroit as a hub airport and we believe that its larger 
network will make additional international routes possible. We look 
forward to an expansion of direct service to destinations in great 
demand by our business community as a result of the merger. We expect 
the combination to eventually open up opportunities for direct 
connections from Detroit to Latin America and South America--areas of 
great interest to businesses throughout our region.
    The merger combines Delta's strengths in the South, Mountain West, 
Northeast, Europe and Latin America with Northwest's leading positions 
in the Midwest, Canada and Asia. At the same time, we agree with the 
observation that competition will be preserved and enhanced. Detroit 
Metro Airport is currently served by 17 domestic and international 
airlines, including five discount carriers; that situation will not 
change appreciably as a result of this merger. In addition, Northwest 
and Delta currently operate complementary networks with relatively 
little overlap.
    Building on both airlines' long history of serving small 
communities, the new Delta will improve worldwide connections to small 
towns and cities across the U.S., enhancing their access to the global 
marketplace. Following the merger, Delta will serve more than 140 small 
communities in the United States--more than any other airline. In 
Michigan, the airline will serve Detroit, Lansing, Kalamazoo, Flint, 
Grand Rapids, Muskegon, Saginaw, Traverse City, Alpena, Pellston, Sault 
Ste. Marie, Marquette, Escanaba, Iron Mountain, and Hancock. Many of 
our smaller cities in Michigan are dependent on the continued strength 
and growth of Northwest Airlines; we believe the merger is good for 
these communities and for all of Michigan.
    The merger will strengthen the combined airline and our community 
by giving it a greater ability to withstand the crushing effect of high 
oil prices. As oil continues to set new all-time highs practically on a 
daily basis, American companies must find creative management 
strategies to remain competitive internationally. The merger will make 
the cost of fuel a smaller percentage of the over-all cost structure of 
the firm and will allow them to participate in greater long-term price 
hedging strategies.
    Again, thank you for this opportunity to comment on the proposed 
merger of Delta and Northwest Airlines. We fully support the merger and 
would hope that the members of the Committee will join us in that 
position.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                         Patrick V. Murphy, Jr.
    Question 1. A merged Delta/Northwest airline is expected to have a 
total of 20 percent market share in the domestic marketplace. What 
impact will additional mergers that are currently anticipated have on 
nationwide market share domestically and internationally?
    Answer. The Delta/Northwest merger now appears to be the only major 
airline merger on the horizon for 2008. The macroeconomic pressures 
from a slowing economy and soaring fuel prices have caused other 
carriers to forego additional mergers for the time being as they look 
to hunker down and attempt to ride out the current economic storm 
without the added cost burden of undertaking a merger. Nevertheless, 
should one or two additional network airline mergers be completed in 
the mid-term future, the impact will be to reduce the number of 
airlines but not necessarily competition at the national level. There 
have been 15 to 17 airlines with a 1 percent or greater U.S. domestic 
market share during each of the past 20 years. New entry continues, and 
the industry is very competitive. In fact, it is the low-cost carriers 
like Southwest, Jet Blue and AirTran that are driving much of the price 
competition and growth in the domestic market. Mergers by network 
carriers would not necessarily change that situation, although airline 
concentration levels would rise in the short to medium term. In the 
long term, low cost carriers' growth could return concentration levels 
to 2008 levels.
    In the international arena the expected network airline merger 
partners often have complementary route systems, e.g., Delta strong 
over the Atlantic and Northwest strong over the Pacific. Again, mergers 
could raise concentration measures, but competition should not be 
seriously affected internationally. U.S. airlines are only half the 
story for international markets. Foreign airlines have been growing 
faster, earning greater profits, enjoying better customer relations and 
in some cases consolidating more than U.S. carriers. U.S. airlines 
could find that mergers improve their ability to compete in the global 
market against their strengthening foreign competitors.
    In summary, a wave of mergers could increase measures of 
concentration, but the industry should remain competitive at the 
national and international levels.

    Question 2. Some proponents of consolidation in the aviation 
industry argue that consolidation is necessary for air carriers to 
remain financially stable, deal with rising fuel costs, keep consumer 
prices relatively low, reduce duplicative capacity, and creating 
stronger route structures that will help U.S. carriers better compete 
in a global market. Do you think you could explain how consolidation in 
this case will achieve some of these goals? What do you view as the 
major benefits and major drawbacks?
    Answer. The mergers being discussed almost always involve the six 
large network carriers. Those firms are under enormous competitive 
pressure from the low cost carriers that continue to enjoy lower costs, 
high growth rates and more stable profits. The low cost carriers have 
gained significant market share and now pressure prices downward for 
\3/4\ of all U.S. passengers. Network carriers find it difficult to 
compete head-to-head with a Southwest Airlines and often withdraw in 
the face of large service increases by them. (See for example U.S. 
Airways' situation at Pittsburgh or the recent withdrawal of network 
airlines from Oakland.) Consequently, network airlines are looking to 
their core market advantage--large hub-and-spoke networks--to collect 
traffic. These networks are ideal for feeding international markets 
where low cost carriers have not yet ventured.
    Mergers increase the scope of network carrier systems and give them 
a greater ability to collect traffic both for domestic and 
international competition. This advantage is needed because 
international competitors are growing through their own mergers (e.g., 
Air France/KLM and Lufthansa/Swiss) or higher market growth rates 
(e.g., Emirates Air, Singapore Airlines, Chinese and Indian airlines). 
The benefits of these kinds of network airline mergers are that they 
could make U.S. network airlines bigger, stronger and internationally 
more competitive. The primary risks are that a merger proves too 
expensive or disruptive. Another threat is that the international 
markets may eventually face competition from U.S. and foreign low cost 
carriers that have so far been considered unlikely to be effective 
competitors for long-haul international routes. That may not 
necessarily prove to be correct as international markets continue to 
deregulate and low cost carriers look for new ways to enter faster 
growing international markets either through partnerships or new 
services of their own.

    Question 3. The U.S. airline industry has experienced a major 
transformation over the past decade. LCCs have grown to represent 
approximately a quarter of the Nation's market share, up from about 15 
percent in 2000. What led to this LCC increase in market share? What 
impact do you think consolidation will have on LCC market share within 
the domestic marketplace? Will it be easier or more difficult for LCCs 
to grow in a consolidated industry?
    Answer. LCC's have grown rapidly since 2000 for several reasons. 
First their costs, and therefore their fares, are lower. Second, the 
Internet has given consumers a powerful tool for comparison shopping 
thereby pressuring fares downward. Third, the dot.com collapse 
contributed to the demise of a large portion of high-end business fares 
that the network carriers specialized in offering. This fare collapse 
has cost the network carriers at least $12 billion per year in lost 
revenue. Surprisingly, even after multiple bankruptcy reorganizations, 
the network carriers still suffer from higher costs and that propels 
the increasing LCC market shares.
    Network airline mergers seem likely to provide LCC's with more 
market opportunities in the short to medium term as merged network 
carriers consolidate services. In the longer run, if a merger is 
successful the new airline should be a more effective competitor and 
better able to compete with LCC's. This could slow the steady stream of 
LCC gains in market shares since 2000. To the extent LCC managers have 
commented on network airline mergers, they have tended to favor the new 
market opportunities that they anticipate being created for them, and 
they do not seem overly concerned with the formation of larger 
competitors.

    Question 4. We are all aware of the poor quarterly financial 
reports that were recently announced by the domestic legacy carriers. 
What do you attribute the cause to be? Has the industry fully felt the 
economic impact of the economic slowdown and the increased fuel prices? 
What are you expecting for the upcoming quarters for airlines?
    Answer. Airlines have historically been one of the least profitable 
and most cyclical of all industries. The current weakening economy and 
fuel price spike have thrown the airlines from a profit position to a 
large loss situation. The airlines have been unable to shrink their 
systems, lower their costs and raise fares fast enough to remain 
profitable. I anticipate that the network airlines will continue to cut 
capacity and attempt to raise fares for the remainder of the year. The 
impact of these changes will be felt more directly beginning in the 
fall of 2008 when the already scheduled and already sold peak summer 
season is completed. The large airlines appear to have enough cash to 
carry them into 2009, even with large losses for 2008. Whether they all 
survive 2009, or several liquidate as has happened in earlier 
downturns, will be a function of fuel prices and the economy. 
Liquidation, of course, could result in industry consolidation without 
mergers.

    Question 5. If DOJ is to approve this merger, it is almost certain 
that they will require divestiture of key assets as a condition of 
approving the consolidation in order to ensure viable competition. What 
do you anticipate as being necessary or potential divestiture 
requirements resulting from this merger? Do the airlines have plans to 
divest under the current agreement?
    Answer. I anticipate that DOJ will have few divestiture 
requirements for the Delta/Northwest merger because the two carriers do 
no compete head-to-head on many routes. The merger is more end-to-end 
than overlapping. To the extent DOJ requires remedies, those conditions 
usually revolve around the hub cities of the applicants. Delta and 
Northwest operate a combined total of seven hubs, and there are a few 
routes between those hubs where there are no nonstop competitors (e.g., 
Cincinnati--Detroit or Minneapolis--Salt Lake City). DOJ might want to 
ensure that airport facilities are readily available to competitors on 
those routes. In addition, at some hub cities low cost carriers might 
seek DOJ's intervention to ensure that airport facilities' are readily 
available. DOJ can be expected to interview competitors to determine if 
any intervention/divestiture would be necessary to approve the 
transaction. Such assets typically have been gates and slots at busy 
airports.

    Question 6. Will a consolidated aviation industry focus more 
heavily on their hubs for providing air service across the nation, or 
are there more plans to provide point-to-point service?
    Answer. Network carriers appear far more likely to focus on their 
hubs, either with or without consolidation. Competitive and 
macroeconomic pressures make the advantages of hub traffic flow more 
important than ever. Low cost carriers should continue to be 
significantly less focused on hub systems, although not completely 
independent of hubbing.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                         Patrick V. Murphy, Jr.
    Question. I am concerned that the DOJ will evaluate this merger in 
isolation and not take into consideration its larger effects on the 
airline industry as a whole and the American flying public, in 
particular. Should Congress consider strengthening the DOJ airline 
merger review process, and require DOJ to consider the impact of such 
mergers on employees, communities and the industry at-large?
    Answer. DOJ will review the Delta/Northwest merger in the context 
of a Sherman Act, Clayton Act, and Hart, Scott Rodino Act antitrust 
review. That analysis considers the merger's impact on the industry, 
employees and the public primarily as a function of maintaining a 
competitive market structure. Should Congress determine that a broader 
review of the impact of airline mergers on employees, communities and 
the industry at large is necessary, that role would not be optimally 
performed in the DOJ Antitrust Division. The Department of 
Transportation might be better suited to conduct that broader public 
interest analysis as it does on an ongoing basis for numerous airline 
issues and as it did for 5 years before all airline merger functions 
shifted to DOJ in 1989. That broad public interest analysis of airline 
mergers by DOT from 1985 to 1989 was a vestige of airline economic 
regulation carried out for almost 40 years by the Civil Aeronautics 
Board. To some degree, once again subjecting the airlines to a special 
merger review would take the oversight of the industry back in the 
direction of economic regulation distinct from other industries. There 
is no evidence that the public would be better served by such a policy 
shift, since deregulation of the airlines has generally been found to 
have greatly benefited the American traveling public. Broad public 
interest reviews of mergers would ultimately bring greater political 
and regional pressures on government decisionmakers, thereby further 
limiting the ability of airline managers to restructure a financially 
weak industry that is already handicapped by special airline investment 
laws that prohibit substantial cross-border investments or 
international mergers.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                          Douglas M. Steenland
    Question 1. I would appreciate you providing me in writing details 
of current service for Arkansas passengers on your airlines, and what 
your specific plans are for the future service for Arkansas passengers. 
Some things I am concerned about include: Will the Memphis hub remain 
open? Are there plans to expand or reduce current flight operations at 
Memphis?
    Answer. Currently, Memphis is a small but efficient and well-
performing hub. We have no present intention of dismantling Memphis or 
any other hubs as a result of the merger. We see the Delta/Northwest 
network as benefiting from its seven geographically balanced U.S. hubs.
    The demand for air travel to and from Memphis--which has sustained 
a major airline hub for more than three decades--is not going to 
disappear simply because there is a neighboring Delta hub 330 miles to 
the East at Atlanta. Northwest's Memphis hub has existed alongside 
Delta's Atlanta hub since its inception, and, in and of itself, the 
merger is not cause for its elimination. By coordinating and optimizing 
schedules across the complementary multi-hub network, the new carrier 
should be able to improve operating results and offer greater frequency 
and better routing choices for its customers. Memphis provides an 
important opportunity for future growth when economic circumstances 
permit. Even with its fifth runway, Atlanta is operating at or near 
capacity. Memphis is a flexible and less congested alternative hub.
    That said, no one can predict the future price of oil and consumer 
demand, which will impact the service levels and operations of all 
carriers irrespective of the merger. When the Delta-Northwest merger 
was announced on April 14, oil was at $112 barrel. Today, oil is at 
$143, an over $1 billion annual cost increase to Northwest alone. We do 
think that the merger provides the best opportunity for Delta and 
Northwest to preserve and expand on their hub infrastructure 
investments by generating additional traffic flows throughout the 
broader combined network.
    Another key consideration in maintaining our hub at Memphis is the 
business relationships and important corporate customers we have 
developed. FedEx is headquartered in Memphis and is one of Northwest's 
top five customers in the world. We carry their sales people, their 
executives, their pilots, and other of their employees throughout our 
global network. The existence of Northwest's hub in Memphis actually 
has helped FedEx to grow and to expand. And, they have helped us by 
sharing costs at the airport, which makes the Memphis airport a very 
attractive place for us to do business. FedEx is a critical customer 
and a great partner of Northwest. And they'll be a great partner of the 
merged airline going forward. Simply stated, the combined carrier has 
strong incentives to maintain service at all of the hubs.

    Question 1a. Will access to all current hubs currently served by 
Delta and Northwest from Little Rock National, Northwest Arkansas 
Regional, and Fort Smith Regional remain available?
    Answer. We expect Arkansas customers and the airports you have 
noted to benefit from the merger because the combined carrier can 
provide better service to customers across a broader, world-wide 
network. The new carrier's pattern of service will be optimized to 
provide the best and most efficient connecting opportunities, as well 
as serving hubs that have significant local market demand. Today's 
schedule from the spoke cities in Arkansas to Delta's hubs and 
Northwest's hubs is what is optimal for each carrier operating 
separately. Once the merger takes place, a combined schedule will be 
developed that optimizes for the entire combined network, so changes 
will take place.

    Question 1b. Will the same frequencies of flights continue? Will 
the same number of seats from and into each airport remain available?
    Answer. In the face of staggering fuel prices and a slowing 
economy, the entire domestic airline industry is shrinking. However, a 
combined Delta and Northwest will be much better able to meet these 
challenges and mitigate against loss of flights and jobs that are 
afflicting the industry as a whole. For example, last month United 
announced that it will reduce its mainline fleet by 100 aircraft and 
cut domestic capacity by 17 percent. Continental will retire 67 
mainline aircraft and reduce domestic capacity by 11 percent. American 
will retire at least 75 aircraft and cut domestic mainline capacity by 
12 percent.
    We expect the merger will enable Delta and Northwest to preserve 
more service and capacity together than would be possible by either 
carrier on a stand-alone basis. Together, Northwest and Delta can make 
more efficient use of their resources. However, with fuel prices 
continuing to climb, no one can predict whether the number of 
frequencies and seats will remain the same at any given airport.
    As noted above, today's schedule from the spoke cities in Arkansas 
to Delta's hubs and Northwest's hubs is what is optimal for each 
carrier operating separately. Once the merger takes place, a combined 
schedule will be developed that optimizes for the entire combined 
network, so changes will take place.

    Question 1c. Can consumers count on adequate service at airports? 
How many cuts to employees at our airports will you make?
    Answer. The Arkansas airports are important to the new carrier's 
network and customers will have access to an improved global single 
carrier network. However, the level of service is subject to the 
economic fundamentals of supply and demand. Fuel prices continue to 
wreak havoc on the airlines, and all major legacy carriers have had to 
cut back on capacity, because fewer people want to fly at the higher 
prices that are necessary to cover today's increased costs. The merger 
better positions Northwest and Delta to remain a strong and viable 
carrier in the face of $143/bbl oil and a $30 crack spread.
    Northwest currently employs about 40 people in Arkansas, and Delta 
about 90. While some overall reduction in force will occur, it is too 
early to specify the precise number.

    Question 1d. Will prices be reasonable and competitive? Who will be 
your competitors in these airports?
    Answer. All Arkansas airports will have competitive air service at 
fair and reasonable prices, taking into account the cost pressures 
facing the airline industry today. It is inevitable, however, that the 
increased price of fuel must be reflected in air fares. Our desire is 
to develop a sustainable, dependable carrier that is less vulnerable to 
the boom-and-bust cycle that has typified the industry. This is in the 
best interest of our customers, employees, and the communities that 
depend on our services. We don't know our competitors plans for future 
service; we do know that they are feeling the impact of exorbitant and 
unexpected fuel price increases. Based on published schedules, the 
following are the competitors at the three Arkansas airports----
    Little Rock is served by every major legacy carrier, plus Southwest 
Airlines, the largest U.S. domestic carrier, which is know for its LCC 
(Low Cost Carrier) business model. Specifically, the carriers at Little 
Rock are: American, Continental, Delta, Northwest, Southwest, United 
and U.S. Airways.
    Northwest Arkansas Regional is served by American, Continental, 
Delta, Northwest, United, and U.S. Airways.
    Fort Smith is served by American, Delta, and Northwest. Notably, 
Delta began service to Fort Smith just last year with regional jet 
service to Atlanta. Fort Smith will continue to have competitive 
service by American.
    The domestic U.S. airline business is highly competitive and 
expected to stay that way.

    Question 1e. What metrics do you use to determine comparative hub 
performance and will you please provide me with your latest hub 
performance data?
    Answer. Comparative hub performance is measured by the P&L of the 
various hubs. This is confidential, proprietary, and competitively 
sensitive data. However, as noted above, we consider MEM to be an 
efficient and well-performing hub.

    Question 1f. Can you provide revenue per passenger miles data for 
flights originating in Little Rock National, Northwest Arkansas 
Regional, Fort Smith Regional Airport?
    Answer. The table below contains outbound revenue passenger miles 
for flights operated by Northwest and its regional affiliates, for the 
year ended February 2008, from each of the three airports:

Fort Smith                 6,243,924
Little Rock               31,675,102
Northwest Arkansas        28,839,570



    Question 1g. Can you please provide me with current yields in the 
Little Rock National, Northwest Arkansas Regional, Fort Smith Regional 
markets? How do those yields compare to other similarly situation 
markets?
    Answer. The yields the three Arkansas airports are comparable to 
those in similarly situated markets. Below are the current yields for 
each of the three subject airports, together with representative 
counterparts, based on 4th Quarter 2007 DOT industry data.

    1. Little Rock:

      Birmingham,      BHM               $0.170
       Alabama
      Little Rock,     LIT               $0.170
       Arkansas
      Des Moines,      DSM               $0.169
       Iowa

    2. Northwest
     Arkansas
     Regional:

      Northwest        XNA               $0.212
       Arkansas
       Regional
      Airport,
       Arkansas
      Tallahassee,     TLH               $0.212
       Florida
      Greenville/      GSP               $0.200
       Spartanburg,
       South Carolina

    3. Fort Smith
     Regional:

      Beaumont/Port    BPT               $0.211
       Arthur, Texas
      Fort Smith,      FSM               $0.210
       Arkansas
      Jacksonville,    OAJ               $0.209
       North Carolina



    Question 2. While one of the main arguments you make in support of 
your merger is a lack of route overlap, I see many NWA/DAL hub or 
``connection'' overlap concerns for Arkansans traveling from Arkansas 
to destinations in the eastern U.S. and other regions of the country. 
For instance, when I travel from Little Rock to Washington, I 
traditionally look at both Northwest Airlines and Delta Airlines to 
compare schedules and prices (that is because they are the most 
sensible connections, and currently they offer many options). Under a 
merged airline, I will essentially only be looking at one airline. I am 
concerned that the connection competition in this case will likely be 
reduced or eliminated under a single airline. How can you assure me 
that this will not occur? How can you guarantee the current competition 
that exists will continue and prices will remain competitive in these 
types of instances?
    Answer. The industry will continue to have competition from a host 
of legacy and LCC carriers in both nonstop and connecting markets. Due 
to skyrocketing fuel prices which carriers must pass on to customers to 
cover their costs, air fares have increased in markets nationwide. 
However, the industry will remain competitive and there is no reason to 
conclude that fares will increase as a result of the merger. Post 
merger, no carrier will have greater than 20 percent domestic market 
share. Southwest is and will remain the largest U.S. domestic carrier.
    Based on published schedules, it is clear that service between 
Little Rock and Washington will remain competitive after the merger. 
Indeed, today Southwest operates nonstop service between Little Rock 
and BWI. U.S. Airways offers one-stop service via Charlotte to all 
three Washington Airports, and American serves Washington Reagan and 
BWI via O'Hare. Furthermore, in addition to serving Little Rock itself, 
Southwest operates substantial regional connecting complexes at 
Nashville, St. Louis, and Birmingham.
    There is ample competition in the Little Rock-Washington market, 
and other similar city-pairs serviced by Delta and Northwest on a 
connecting basis.

    Question 2a. What is the current status of your discussions with 
flight attendants, machinists, other administrative employees and 
``front-line'' employees?
    Answer. We are pleased that the NW-ALPA pilot leadership, together 
with Delta management and DALPA, were able to reach a tentative 
agreement this month concerning a labor contract. Because there are no 
common unions (like ALPA) within the other employee groups, Delta must 
await the results of the representation elections after the close of 
the merger to commence discussions with other employee groups.

    Question 3. I understand that you estimate savings of a merged 
airline to be approximately $1 billion. I assume you will attain some 
of these savings through both revenue increases and cost reductions. 
Could you be more specific as to where you anticipate having new 
revenue under the merger and where you anticipate reducing costs 
through such a merger?
    Answer. The synergies we project are as follows:

        Revenue Benefits

        First, by having access to a larger inventory of aircraft, we 
        will create a balanced and more flexible fleet and be able to 
        better match capacity to demand. For example, we fly a 747 with 
        403 seats from Minneapolis/St. Paul to Tokyo, whereas Delta 
        flies a 275 seat 777 from their much larger hub at Atlanta. 
        Both cities can sustain nonstop service, but it may make more 
        sense to fly the larger aircraft at the larger hub. Delta has 
        no aircraft over 285 seats; whereas Northwest has 37 planes in 
        this category. In addition, Delta has no aircraft in the 100 
        seat range, where Northwest's DC-9s have 100-125 seats. This 
        provides an opportunity to upgauge some regional jet routes to 
        larger, more efficient aircraft. All together, we estimate that 
        the fleet optimization benefits will total $400-$500 million.

        Second, we will offer customers a better and more attractive 
        network. We will have the best frequent flyer program in the 
        industry and will also be able to compete more effectively for 
        corporate contracts. The expanded schedule and marketing 
        benefits created by bringing the two airlines together are 
        anticipated to attract $200-$300 million in additional revenue.

        Lower Costs

        We also expect to realize substantial savings on the cost side. 
        We have identified more than $700 million in annual cost 
        synergies that can be realized from moving to a common 
        information technology platform, reducing sales and 
        distribution costs, improving productivity, and reducing 
        duplicative facilities and overhead.

        Total Synergies

        The $700-800 million in revenue benefits along with $700 
        million in cost synergies produces over $1 billion in annual 
        synergies.

    Question 4. Domestic airlines have reduced their total labor costs 
by about 13 percent from 2000 through 2006 while also increasing 
employee productivity. Could you please discuss how your airlines 
achieved some of these efficiencies? Could you please explain how the 
merged airline will achieve additional efficiencies? Do you anticipate 
consumers to benefit from these reduced services and expenditures?
    Answer. Northwest's restructuring, completed in 2007, achieved 
substantial annual cost reductions, including: $1.4 billion in labor 
cost reductions, $400 million in annual fleet ownership cost savings 
and a $150 million reduction in annual interest expense related to 
unsecured debt. Unfortunately, these important efficiency 
achievements--and employee sacrifices--have been largely consumed by 
skyrocketing fuel prices. In 2003, 17 cents of every passenger dollar 
went to fuel. Today, fuel consumes over 40 percent of every revenue 
dollar.
    As detailed above, the merger creates cost and revenue synergies 
valued at more than $1 billion. The success of the merger depends on 
using our aircraft and hubs more efficiently, attracting additional 
customers, and lowering costs. Hub-andspoke systems depend on 
collecting traffic from across a broad network and taking passengers 
where they want to go. Together, Northwest and Delta can offer their 
customers a better and more efficient network through the end-to-end 
combination of complementary hubs.

    Question 5. It is my understanding that fuel costs now exceed labor 
as the primary cost for air carriers. It is also my understanding that 
air carriers are paying more than $140 per barrel due to refinery 
issues to produce jet fuel. On an international route competitive stage 
are U.S. carriers at a competitive disadvantage to foreign 
international carriers due to oil prices (value of dollar)?
    Answer. European carriers, which receive the bulk of their revenues 
in Euros are paying for oil in stronger currency, whereas U.S. carriers 
are paying in weaker dollars.

    Question 5a. What measures are you currently taking to counter 
recent spikes in fuel prices (luggage fees, seat preference fees, 
etc.)? What are you doing to increase fuel efficiencies in aircraft?
    Answer. Northwest is trying to price its services to recoup as much 
of its expenses as possible. In 2008, U.S. airlines are forecast to 
spend $61.2 billion on jet fuel, $20 billion more than in 2007, and are 
projected to incur losses totaling close to $10 billion. If the current 
pricing dynamic does not change, our industry will be severely 
challenged and will continue shrinking. There have been a number of 
rounds of general fare increases, as well as additional service fees 
imposed for consumer discretionary items such as checked baggage. At 
the moment, Northwest charges some domestic customers $25 for the 
second checked bag, but does not charge for the first bag. Moreover, 
Northwest has announced that it will be 8.5-9.5 percent smaller in Q4 
2008 versus Q4 2007.
    Since 2000, Northwest has reduced its annual fuel usage by 575 
million gallons (while also reducing CO2 emissions by 5.5 
million metric tons). NWA has accomplished this substantial improvement 
in fuel efficiency through a number of different initiatives, the 
cornerstone of which is our $6 billion fleet renewal program. Northwest 
operates thirty-two (32) Airbus 330s. The A330s are approximately 30 
percent more fuel efficient than the similarly-sized McDonnell Douglas 
DC-10s, which were retired from the NWA fleet in 2007. In 2007, 
Northwest ordered seventy-two (72) new regional jets. These 76-seat 
aircraft are approximately 30 percent more fuel efficient than the 
similarly-sized McDonnell Douglas DC-9. Since 2003, NWA has operated a 
fleet of over one-hundred and thirty (130) Airbus A319s and A320s. The 
A319s and A320s replaced the less fuel efficient Boeing 727-200s and 
DC-9s and are 30 percent more fuel efficient. In 2007, the average fuel 
efficiency of Northwest's fleet was fifty-three (53) passenger-miles 
per gallon.
    NWA is the North American launch customer for the new Boeing 787. 
We anticipate delivery of eighteen 787 aircraft beginning in 2009, 
thereby replacing some of NWA's Boeing 747-400s. The 787s are 
anticipated to perform with a greater than 20 percent fuel efficiency 
improvement over the 747-400s.
    NWA has also instituted a number of fuel-savings initiatives where 
operationally feasible including:

   single engine taxiing and no engine taxiing (high speed 
        tractor towing);

   engine washing;

   conversion from mobile to stationary fueling vehicles;

   addition of aircraft winglets;

   adjusting aircraft speed and altitude; and

   removal of excess weight from planes.

    According to 2007 DOT data, Northwest ranks second among U.S. 
network carriers in terms of revenue passenger miles per gallon:



    Question 5b. What would a combined Delta/Northwest plan for dealing 
with high fuel prices look like?
    Answer. Delta and Northwest cannot change the price they pay for 
fuel. However, as explained above, the combined carrier will realize 
over $1 billion in cost and revenue benefits. The stronger and 
financially more resilient carrier will be better able to cope with the 
challenges of high fuel prices.

    Question 6. I note that without a merger, you believe you may be at 
a competitive disadvantage to other foreign carriers in international 
carriers under the upcoming, new ``Open Skies'' agreement between the 
United States and European Union. Could you explain these disadvantages 
and why a merger will benefit you and consumers on international 
service? What are the benefits and drawbacks of the agreement?
    Answer. European carriers are stronger and better financed. For 
example, the current market capitalization of Lufthansa is greater than 
that of all the U.S. legacy carriers combined. Moreover, as noted 
above, European carriers enjoy a cost advantage in paying for fuel in 
Euros versus dollars. Northwest and Delta need to be able to meet this 
growing foreign flag challenge by combining into a stronger and more 
robust international carrier.
    7. What is the current state of your aircraft fleets as far as age 
and fuel economy? What does the merged airline plan on doing with aging 
aircraft and less efficient aircraft in your fleet?
    Answer. The Age of Northwest/Northwest Airlink fleet is set forth 
in the following table:

----------------------------------------------------------------------------------------------------------------
                                   747   A330  757   A320   A319  DC9   CRJ900   CRJ200   E175  Saab 340   Total
----------------------------------------------------------------------------------------------------------------
up to 1994                          25      0   32     45      0   88        0        0      0         0     190
1994-2002                            6      0   20     26     45    0        0       48      0        48     193
2003-2006                            0     25   19      2     12    0        0       89      0         0     147
2007 or newer                        0      7    0      0      0    0       19        0     11         0      37
----------------------------------------------------------------------------------------------------------------
Total                               31     32   71     73     57   88       19      137     11        48     567
----------------------------------------------------------------------------------------------------------------

    The fuel economy of the Northwest/Northwest Airlink fleet with 
respect to revenue passenger miles and available seat miles (based on 
2007 DOT data) is set forth in the following table:


    The merged company would seek to optimize fuel efficiency of the 
combined fleet by matching capacity to demand, and using the largest 
and most fuel efficient aircraft practical for a given market. For 
aircraft of a given size class, the oldest and least fuel efficient 
will be considered for retirement, subject to the capacity requirements 
of the network. The combined company also hopes to invest in newer, 
more fuel efficient aircraft, including up to 20 new Boeing widebody 
jets, as permitted by economic circumstances.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                          Douglas M. Steenland
    Question 1. What will happen to the around 1,100 employees who work 
at Northwest Airlines headquarters in Eagan? The press release 
announcing the merger noted that the combined carrier intends to keep 
``executive offices'' in the Twin Cities. But you also indicated at 
both the House and Senate Judiciary Committee hearings in April 2008 
that there would be job cuts--of around 1,000 employees--at both 
Delta's Atlanta headquarters as well as Northwest's Eagan headquarters? 
Of the approximately 1100 employees who work in the Eagan headquarters, 
how many of these employees will lose their jobs?
    Answer. The number of jobs that will remain in Eagan has not been 
determined.

    Question 1a. Do you plan to eliminate these headquarters jobs 
through natural attrition, or do you plan to actually layoff employees?
    Answer. There will be natural attrition, retirements and 
potentially other opportunities in the system. There will likely be 
layoffs associated with headquarters jobs.

    Question 1b. Will you offer any of these Eagan headquarters-based 
employees who are slated to be laid-off the opportunity to move to 
Atlanta or will these jobs be eliminated outright?
    Answer. Some employees will be offered the opportunity to move to 
Atlanta, some will be asked to continue with the merged carrier in 
Minnesota, and some will not have an opportunity with the merged 
airline.

    Question 1c. In an effort to streamline the combined carriers' 
headquarters operations, will you offer the effected employees 
voluntary ``buy out'' packages?
    Answer. Severance packages will be offered to employees who do not 
have a job opportunity with the merged airline.

    Question 2. At the Senate Antitrust Subcommittee hearing in April 
2008, I asked about the ``staying power'' of the combined carriers' 
commitments to maintain jobs, service and hubs. Mr. Anderson's response 
was: ``The issue is going to be fuel. Tell me where fuel will be.'' 
What if the cost of jet fuel remains around where it is today? Are your 
commitments premised on the current environment of high fuel prices or 
are your commitments--to maintain jobs, service and hubs--based on a 
more favorable fuel environment?
    Answer. Under any scenario, Delta and Northwest will be more 
resilient and better able to maintain jobs, services, and hubs 
together, as a combined company, than they can on a stand-alone basis. 
On the date of our merger hearing on April 24, oil was at $116 per 
barrel. As of July 1, oil stood at over $140--$24 more. Each $10 per 
barrel increase adds $420 million to Northwest's annual costs--over $1 
billion since April. So, today, we can't do as much flying as we 
thought we could in April. It is imperative that the merger be approved 
and approved quickly so that we can realize the benefits and 
efficiencies and mitigate against the challenges that are afflicting 
the industry.
    In the time since the hearing in April, all six U.S. network 
carriers have announced significant capacity cuts and service 
reductions, as well as difficult headcount reductions, to take effect 
after the summer travel season. American Airlines intends to reduce 
fourth quarter domestic capacity 11-12 percent, retire at least 75 
mainline and regional aircraft and may eliminate thousands of jobs. 
United Airlines said it will ground at least 100 airplanes and is 
looking at shrinking staff including 950 pilots. Delta is reducing 
domestic capacity by 13 percent in the second half of 2008, eliminating 
4,000 positions and shedding aircraft. Continental Airlines announced 
that it would reduce fourth quarter domestic mainline capacity by 11 
percent, will eliminate 44 routes and cut 3,000 jobs. U.S. Airways will 
shrink domestic capacity in the fourth quarter by 6-8 percent. 
Northwest plans to reduce fourth quarter capacity by 8.5 percent to 9.5 
percent.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                          Richard H. Anderson
    Question 1. I would appreciate you providing me in writing details 
of current service for Arkansas passengers on your airlines, and what 
your specific plans are for the future service for Arkansas passengers. 
Some things I am concerned about include: Will the Memphis hub remain 
open? Are there plans to expand or reduce current flight operations at 
Memphis?
    Answer. Yes, the Memphis hub will remain open and an important part 
of the new Delta's network. The Delta/Northwest network formed by our 
seven geographically balanced U.S. hubs is the combined carrier's 
greatest asset. We have no intention of dismantling any hubs as a 
result of the merger, and have committed to maintaining Atlanta, 
Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-JFK, and 
Salt Lake City. These hubs exist because there was a strong local 
market that justified the development of hub service, and an air 
carrier with the resources to develop it. Delta and Northwest made 
different--but sound--business decisions in developing hubs in the 
cities where they exist today. Furthermore, each hub has unique service 
points, which add value to the hub and to the network. The merger 
provides the opportunity for Delta and Northwest to make better use of 
their hub infrastructure investments by generating additional traffic 
flows throughout the broader combined network. Because this is an end-
to-end merger and because sound economics underlie our hub operations 
today, there is no need for hub closures as a result of the merger. 
Memphis will continue to play an important role for the combined 
carrier, as will both the Cincinnati-Northern Kentucky International 
and Detroit Airports.

    Question 1a. Will access to all current hubs currently served by 
Delta and Northwest from Little Rock National, Northwest Arkansas 
Regional, and Fort Smith Regional remain available?
    Answer. The combined carrier will not eliminate service to any city 
in Arkansas as a result of the merger. While there may be some 
adjustments to frequency and equipment (capacity) in certain markets, 
we believe the overall effect of the merger will be favorable relative 
to service levels in Arkansas. There may well be some reductions in 
service as a result of the meteoric rise in fuel prices but those 
decisions are unrelated to the specific effects of this merger. It is 
our hope that we will be able to increase service to Arkansas 
communities in the future as we connect the two networks to take 
advantage of the growth and revenue synergies that we expect from this 
merger.

    Question 1b. Will the same frequencies of flights continue? Will 
the same number of seats from and into each airport remain available?
    Answer. While there may be some adjustments to frequency and 
equipment (capacity) in certain markets, we believe the overall effect 
of the merger will be favorable relative to service levels in Arkansas 
as the combination of Delta and Northwest will create a stronger 
company with route systems that complement each other and provide 
opportunities to offer travelers a global network that neither airline 
could offer independently. There may well be some reductions in service 
as a result of the meteoric rise in fuel prices but those decisions are 
unrelated to the specific effects of this merger.

    Question 1c. Can consumers count on adequate service at airports? 
How many cuts to employees at our airports will you make?
    Answer. We believe the overall effect of the merger will be 
favorable relative to service levels in Arkansas, and we do not plan to 
eliminate any front-line employee positions as a result of the merger. 
As a result of the meteoric increase in the cost of fuel, we have 
announced a voluntary early-out and early-retirement program that we 
anticipate will result in a reduction of approximately 3,000 employees 
across the entire Delta system, both front-line and administrative/
management positions. Any additional changes to our employee counts 
will result from fuel-cost driven changes to service levels, not the 
merger.

    Question 1d. Will prices be reasonable and competitive? Who will be 
your competitors in these airports?
    Answer. We believe the overall effect of the merger will be 
favorable relative to service levels in Arkansas, permitting the 
combined company to offer customers greater choice, more competitive 
fares, and a superior travel experience. Of the more than 800 domestic 
non-stop routes that NW and DL collectively fly, there are only 12 non-
stop city-pair overlaps. The vast majority of these non-stop overlaps 
enjoy substantial competition from other carriers, and all consumers 
will benefit from the significant cost savings that the transaction 
will create. Little Rock is served by every major legacy carrier, plus 
Southwest Airlines, the largest U.S. domestic carrier, which is know 
for its LCC (Low Cost Carrier) business model. Specifically, the 
carriers at Little Rock are: American, Continental, Delta, Northwest, 
Southwest, United and U.S. Airways. Northwest Arkansas Regional is 
served by American, Continental, Delta, Northwest, United, and U.S. 
Airways. Fort Smith is served by American, Delta, and Northwest. 
Notably, Delta began service to Fort Smith just last year with regional 
jet service to Atlanta. Fort Smith will likely continue to have 
competitive service by American.

    Question 1e. What metrics do you use to determine comparative hub 
performance and will you please provide me with your latest hub 
performance data?
    Answer. Comparative hub performance is measured by profit and loss 
at each hub. We believe hubs in the Delta system to be performing very 
well.

    Question 1f. Can you provide revenue per passenger miles data for 
flights originating in Little Rock National, Northwest Arkansas 
Regional, Fort Smith Regional Airport?

   U.S. DOT O&D Dynamic Table Report for all Airlines for flights from
                Arkansas to ALL for YE 4Q07 (Directional)
------------------------------------------------------------------------
  Domestic Carrier RPMs       FSM         LIT         XNA        Total
------------------------------------------------------------------------
American Airlines            163,201     743,847     700,005   1,675,136
Aloha Airlines                               101                     101
Alaska Airlines                  367       7,480       1,628       9,827
Continental Airlines             413     276,735     152,824     448,983
Delta Air Lines               34,026     614,968     278,932     929,329
Frontier Airlines                 32     141,523         189     142,223
Hawaiian Airlines                 98       1,416         294       1,809
America West Airlines,                     1,228          58       1,429
 Inc.
Northwest Airlines            53,658     293,103     145,847     492,936
Horizon Air                                   87                      87
Sun Country Airlines                                     370         665
ATA Airlines                     127       2,124         678       2,975
United Airlines                1,260      45,938     143,008     191,747
US Airways                       548     145,911      79,197     226,468
Southwest Airlines                       759,939                 759,981
Mesa Airlines                                                     16,502
Midwest Airlines                  16         121          84         274
Unknown Carrier                              168                     168
------------------------------------------------------------------------
Total                        259,381   3,108,838   1,563,713   5,042,018
------------------------------------------------------------------------
Notes: ``https://www.apgdat.com/apgDat/reports/OandD/hlpOandDTaxes.jsp''
  for Airfare taxes and fees calculation overview.


    Question 1g. Can you please provide me with current yields in the 
Little Rock National, Northwest Arkansas Regional, Fort Smith Regional 
markets? How do those yields compare to other similarly situation 
markets?

   U.S. DOT O&D Dynamic Table Report for all Airlines for flights from
                Arkansas to ALL for YE 4Q07 (Directional)
------------------------------------------------------------------------
         Domestic Carrier Yields            FSM    LIT    XNA    Average
------------------------------------------------------------------------
American Airlines                           0.20   0.17   0.22      0.20
Aloha Airlines                                     0.13             0.13
Alaska Airlines                             0.06   0.11   0.07      0.10
Continental Airlines                        0.17   0.17   0.20      0.18
Delta Air Lines                             0.21   0.19   0.24      0.21
Frontier Airlines                           0.23   0.14   0.25      0.14
Hawaiian Airlines                           0.14   0.10   0.11      0.10
America West Airlines, Inc.                        0.14   0.15      0.14
Northwest Airlines                          0.27   0.18   0.23      0.20
Horizon Air                                        0.10             0.10
Sun Country Airlines                                      0.12      0.11
ATA Airlines                                0.29   0.09   0.10      0.11
United Airlines                             0.19   0.14   0.21      0.20
US Airways                                  0.29   0.21   0.25      0.23
Southwest Airlines                                 0.16             0.16
Mesa Airlines                                                       0.43
Midwest Airlines                            0.00   0.42   0.40      0.34
Unknown Carrier                                    0.00             0.00
------------------------------------------------------------------------
Total                                       0.21   0.17   0.22      0.19
------------------------------------------------------------------------
Notes: ``https://www.apgdat.com/apgDat/reports/OandD/hlpOandDTaxes.jsp''
  for Airfare taxes and fees calculation overview.


    Question 2. While one of the main arguments you make in support of 
your merger is a lack of route overlap, I see many NWA/DAL hub or 
``connection'' overlap concerns for Arkansans traveling from Arkansas 
to destinations in the eastern U.S. and other regions of the country. 
For instance, when I travel from Little Rock to Washington, I 
traditionally look at both Northwest Airlines and Delta Airlines to 
compare schedules and prices (that is because they are the most 
sensible connections, and currently they offer many options). Under a 
merged airline, I will essentially only be looking at one airline. I am 
concerned that the connection competition in this case will likely be 
reduced or eliminated under a single airline. How can you assure me 
that this will not occur? How can you guarantee the current competition 
that exists will continue and prices will remain competitive in these 
types of instances?
    Answer. Since Delta and Northwest have focused their attention on 
different regions, there are few overlap routes and customers will gain 
the benefits of a larger combined network without any material 
reduction in services. Similarly, on connecting route overlaps, 
potential competitive effects are mitigated by the presence of low cost 
carriers, the relatively small market shares of Delta and Northwest, 
the availability of alternative airports and the likelihood that legacy 
carriers will expand into these markets. In addition, the transaction 
will generate significant efficiencies through such factors as more 
efficient matching of aircraft to routes that will enable the combined 
carrier to be financially stable and to offer a better product to 
customers, such as a broad global network and enhanced airport 
presence.

    Question 2a. What is the current status of your discussions with 
flight attendants, machinists, other administrative employees and 
``front-line'' employees?
    Answer. Delta and Northwest took the unprecedented step early on in 
our merger discussions of asking the two pilot groups, who were 
represented by the same union, to try to reach agreement on a common 
contract and operational integration plan before the merger transaction 
was completed. The two pilot groups have undertaken discussions to 
reach agreement on those issues. Upon completion of the merger, the 
status of the union representation of the various Delta work groups, 
along with the status of the various Northwest groups, will be resolved 
through a fair and equitable process under procedures administered by 
the National Mediation Board based on the requirements of the Railway 
Labor Act.

    Question 3. I understand that you estimate savings of a merged 
airline to be approximately $1 billion. I assume you will attain some 
of these savings through both revenue increases and cost reductions. 
Could you be more specific as to where you anticipate having new 
revenue under the merger and where you anticipate reducing costs 
through such a merger?
    Answer. The $1 billion in benefits is derived from separate costs 
and revenue synergies. The revenue benefits are created by expanded 
schedule opportunities, broader networks and an expanded fleet that 
better optimizes capacity to demand. These benefits are estimated at 
$700-$800 million. The cost synergies are also estimated at $700 
million and are attained from common information technology platforms, 
reduced overhead, improved productivity and efficiencies gained from 
increased scale.

    Question 4. Domestic airlines have reduced their total labor costs 
by about 13 percent from 2000 through 2006 while also increasing 
employee productivity. Could you please discuss how your airlines 
achieved some of these efficiencies? Could you please explain how the 
merged airline will achieve additional efficiencies? Do you anticipate 
consumers to benefit from these reduced services and expenditures?
    Answer. Employees in the airline industry have sacrificed time and 
time again. The dramatic rise in fuel costs has resulted in much of the 
cost savings our employees have generated through productivity 
improvements and benefit losses being used to pay for fuel rather than 
to improve the product. In effect, it has eroded most of the sacrifices 
they have made to make their company viable and sustainable in the 
future. Merging Delta and Northwest will create a much more financially 
stable company with approximately $7 billion in liquidity and $1 
billion in annual synergies. The combined airline will be able to 
withstand an 80 percent greater increase in fuel price than either 
airline standing alone, and still maintain profitability. This 
financial strength and flexibility, much greater than either airline 
standing alone, will provide additional resources to help weather this 
unprecedented fuel cost environment and a softening domestic market, 
and equip us better to invest back in our people, our fleet and our 
customers.

    Question 5. It is my understanding that fuel costs now exceed labor 
as the primary cost for air carriers. It is also my understanding that 
air carriers are paying more than $140 per barrel due to refinery 
issues to produce jet fuel. On an international route competitive stage 
are U.S. carriers at a competitive disadvantage to foreign 
international carriers due to oil prices (value of dollar)?
    Answer. Because of the relative weakness of the dollar, U.S. 
Carriers pay between $55 and $63 more per gallon of jet fuel than most 
of our European competitors.

    Question 5a. What measures are you currently taking to counter 
recent spikes in fuel prices (luggage fees, seat preference fees, 
etc.)? What are you doing to increase fuel efficiencies in aircraft?
    Answer. Delta has responded to the meteoric rise in the price of 
fuel by, among other measures, reducing approximately 10 percent of our 
domestic capacity, offering an early retirement or early-out package we 
anticipate approximately 3,000 employees (front-line and management/
administrative) will elect to take, and initiating certain new fees 
related to the cost of providing commercial air service. We have been 
improving our fuel efficiency steadily over the last few years with 
initiatives like developing satellite based approach and departure 
procedures single-engine taxi in Atlanta, procedures to reduce fuel 
consumption on the ground, repositioning of aircraft with ground 
equipment, a cabin refurbishment program that reduces weight, and 
adding blended winglets to more than 60 aircraft.

    Question 5b. What would a combined Delta/Northwest plan for dealing 
with high fuel prices look like?
    Answer. The merged carrier will see a much stronger balance sheet 
resulting from revenue and cost synergies that should enable us to 
withstand additional increases in the cost of fuel.

    Question 6. I note that without a merger, you believe you may be at 
a competitive disadvantage to other foreign carriers in international 
carriers under the upcoming, new ``Open Skies'' agreement between the 
United States and European Union. Could you explain these disadvantages 
and why a merger will benefit you and consumers on international 
service? What are the benefits and drawbacks of the agreement?
    Answer. Today foreign flag carriers carry more passengers to and 
from the U.S., Europe and Asia than U.S. flag carriers. They are 
frequently funded by their governments and benefit from regulatory 
policies that promote consolidation into a handful of strong 
competitors. The Open Skies agreements recently transacted offer U.S. 
domestic carriers excellent opportunities but also pose new challenges 
in that these strong foreign airlines will be able to fly new routes 
to, from and beyond the United States in head-to-head competition with 
U.S. carriers. In that this merger will result in the new company's 
having a strong presence throughout the globe--combining Northwest's 
comprehensive Asian network with Delta's strong transatlantic and 
south/central American international networks--it will position the new 
company to be a very strong competitor to such foreign carriers.

    Question 7. What is the current state of your aircraft fleets as 
far as age and fuel economy? What does the merged airline plan on doing 
with aging aircraft and less efficient aircraft in your fleet?
    Answer. During Delta's bankruptcy restructuring process we reduced 
the number of aircraft types we fly, including eliminating the most 
fuel inefficient older aircraft from our fleet. With the stronger 
balance-sheet we anticipate will result from the merger we anticipate 
being able to exercise existing Delta options on purchase of 
approximately 20 new widebody aircraft, and will consider investments 
in other new, more fuel efficient aircraft to replace older, less fuel-
efficient aircraft as capacity needs warrant. In addition, the merged 
company would maximize use of combined fleets by matching capacity with 
demand more effectively than the two carriers can do separately, using 
the largest and most fuel efficient aircraft practical for a given 
market.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                          Richard H. Anderson
    Question 1. What will happen to the around 1,100 employees who work 
at Northwest Airlines headquarters in Eagan? The press release 
announcing the merger noted that the combined carrier intends to keep 
``executive offices'' in the Twin Cities. But you also indicated at 
both the House and Senate Judiciary Committee hearings in April 2008 
that there would be job cuts--of around 1,000 employees--at both 
Delta's Atlanta headquarters as well as Northwest's Eagan headquarters? 
Of the approximately 1,100 employees who work in the Eagan 
headquarters, how many of these employees will lose their jobs?
    Answer. It is too early to determine.

    Question 1a. Do you plan to eliminate these headquarters jobs 
through natural attrition, or do you plan to actually layoff employees?
    Answer. There will likely be a combination of attrition, 
retirements and other opportunities in the merged company, in addition 
to some layoffs associated with headquarters.

    Question 1b. Will you offer any of these Eagan headquarters-based 
employees who are slated to be laid off the opportunity to move to 
Atlanta or will these jobs be eliminated outright?
    Answer. We anticipate that there will be opportunities for some 
employees in Minnesota to move to Atlanta, and for some to stay in 
Minnesota.

    Question 1c. In an effort to streamline the combined carriers' 
headquarters operations, will you offer the effected employees 
voluntary ``buy out'' packages?
    Answer. Delta has actually already offered employees in our system 
an early retirement or early-out program. After that process has 
concluded, severance packages will be offered to headquarters employees 
not asked to stay on with the combined company.

    Question 2. At the Senate Antitrust Subcommittee hearing in April 
2008, I asked about the ``staying power'' of the combined carriers' 
commitments to maintain jobs, service and hubs. Mr. Anderson's response 
was: ``The issue is going to be fuel. Tell me where fuel will be.'' 
What if the cost of jet fuel remains around where it is today? Are your 
commitments premised on the current environment of high fuel prices or 
are your commitments--to maintain jobs, service and hubs--based on a 
more favorable fuel environment?
    Answer. Our commitment is that the merger transaction itself will 
not result in elimination of service, front-line jobs or hubs. We will 
take the steps necessary to provide service levels commensurate with 
economic conditions, but believe that the enhanced network and stronger 
balance sheet of the combined carriers will enable the combined company 
to withstand increases in the cost of fuel better than the two stand-
alone companies, including providing service, jobs and maintaining 
hubs.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                               Ray Neidl
    Question 1. A merged Delta/Northwest airline is expected to have a 
total of 20 percent market share in the domestic marketplace. What 
impact will additional mergers that are currently anticipated have on 
nationwide market share domestically and internationally?
    Answer. Because of the high price of oil we do not believe that 
there will be any additional major airline mergers at this time. With 
merger costs to be incurred up front and benefits accrued at a later 
date, airline management believes that it is too risky at this time to 
proceed. Airlines are now trying to conserve cash to face the current 
fuel cost crisis. Bankruptcies and possible liquidations of certain 
airlines as a result of the oil price crisis may cure the problem of 
too many airlines and relieve future pressure on mergers. We believe 
that three large full service network airlines supplemented by a few 
large low cost airlines would provide adequate competition and service. 
Once things settle down, we believe new entries will once again spring 
up even at permanently higher fuel costs but will remain niche in 
nature.

    Question 2. Some proponents of consolidation in the aviation 
industry argue that consolidation is necessary for air carriers to 
remain financially stable, deal with rising fuel costs, keep consumer 
prices relatively low, reduce duplicative capacity, and creating 
stronger route structures that will help U.S. carriers better compete 
in a global market. Do you think you could explain how consolidation in 
this case will achieve some of these goals? What do you view as the 
major benefits and major drawbacks?
    Answer. Consolidation may not be the answer; the answer is that we 
have too many airlines with too many expensive hub operations offering 
too many seats in a high fuel cost environment and this is what has to 
be addressed. This problem would be fixed by reducing the number of 
airlines and this can be done either through consolidation or letting 
some carriers go out of business. The former is probably the more 
humane way of handling the situation from an employee, passenger and 
investor viewpoint. In consolidation, more market mass resulting from 
mergers could actually generate additional incremental revenues through 
enabling the carrier to offer a broader market line and possibly 
through stealing revenue from smaller competitors. A larger airline 
should also be able to reduce cost overhead and operate more 
efficiently if structured correctly.

    Question 3. The U.S. airline industry has experienced a major 
transformation over the past decade. LCCs have grown to represent 
approximately a quarter of the Nation's market share, up from about 15 
percent in 2000. What led to this LCC increase in market share? What 
impact do you think consolidation will have on LCC market share within 
the domestic marketplace? Will it be easier or more difficult for LCCs 
to grow in a consolidated industry?
    Answer. The LCC's were able to gain market share after 9/11 when 
the network carriers cut back their capacity by about 10 percent. The 
LCC's rushed in to fill the vacuum. If there is consolidation by the 
network airlines we believe that LCC's will move in to fill the vacuum 
if it can be done profitably with their lower cost structure. However 
in the current high fuel cost environment, we do not expect as rapid an 
expansion as there was after 9/11.

    Question 4. We are all aware of the poor quarterly financial 
reports that were recently announced by the domestic legacy carriers. 
What do you attribute the cause to be? Has the industry fully felt the 
economic impact of the economic slowdown and the increased fuel prices? 
What are you expecting for the upcoming quarters for airlines?
    Answer. The industry financial crisis and large losses is due 
primarily to run away fuel costs. Airline ticket prices cannot be 
increased fast enough to meet the skyrocketing fuel price increases. We 
do not believe that the industry as yet has felt the full impact of 
increased fuel prices and the economic slowdown. Upcoming quarters will 
produce large losses for the industry which we expect will lose over $5 
billion this year.

    Question 5. If DOJ is to approve this merger, it is almost certain 
that they will require divestiture of key assets as a condition of 
approving the consolidation in order to ensure viable competition. What 
do you anticipate as being necessary or potential divestiture 
requirements resulting from this merger? Do the airlines have plans to 
divest under the current agreement?
    Answer. Since there is little overlap between the Delta and 
Northwest systems, we do not expect the DOJ to mandate any significant 
divestiture of assets.

    Question 6. Will a consolidated aviation industry focus more 
heavily on their hubs for providing air service across the nation, or 
are there more plans to provide point-to-point service?
    Answer. We expect the network carriers to continue to increase 
their concentration on their key hub cities to flow traffic between 
domestic cities and onto their international routes in the most 
efficient and cost conscious manner. At current high fuel costs, it 
makes it difficult to do much point-to-point service except between 
major business centers.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                               Ray Neidl
    Question. I am concerned that the DOJ will evaluate this merger in 
isolation and not take into consideration its larger effects on the 
airline industry as a whole and the American flying public, in 
particular. Should Congress consider strengthening the DOJ airline 
merger review process, and require DOJ to consider the impact of such 
mergers on employees, communities and the industry at-large?
    Answer. In theory I believe each proposed merger should be looked 
at individually by the DOJ. It is more in the realm of the DOT to look 
at the big picture affects of mergers since that department is more 
aware of developments in the industry and worldwide trends. Any review 
process concerning merger effects on employees, communities or the 
industry at large should be done by the DOT. Primarily airline mergers 
have to be looked on as a business proposal unless we want to re-
regulate the industry and be prepared to have the tax payer subsidize 
it (AmAir?). Investors should not be forced to subsidize losing 
business propositions and if other social factors are put in the 
equation we should be prepared to have the taxpayer subsidize it.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Pryor to 
                           Patricia A. Friend
    Question. I appreciate hearing of your concerns about management 
within the aviation industry. From your testimony you state that the 
aviation industry is currently failing employees, consumers, and 
communities. You state that the industry in recent years has been 
handed over to management teams with little or no understanding of the 
interest and are focused primarily on pay and benefits rather than 
company performance, customer service, or employee morale. Could you 
please explain your thoughts in more detail and cite specific examples 
of where such corporate management decisions have led to a weakened 
airline industry? What is your current view of this proposed merger? 
Please list your top 5 concerns with regard to employees affected by 
this merger.
    Answer. With only a couple of exceptions (Continental and 
Southwest) management in the airline industry failed to prepare and 
execute a business plan that would have protected against the severe 
economic results of the events of September 11, 2001. They didn't hedge 
fuel and they didn't make any effort to preserve cash reserves. As a 
result they were totally unprepared for the severe economic hardship of 
a post September 11 industry and the uncertainty of the market.
    A number of airlines--United and Northwest are the most well known 
examples--used the bankruptcy courts to reorganize and renegotiate 
contracts with workers, vendors and airports. However none of the 
bankrupt or near bankrupt carrier CEOs took any less of a salary or any 
fewer bonuses or stock options. In fact many of them used the 
bankruptcy process to manipulate their salaries and bonuses.
    The most blatantly obvious CEO is Glen Tilton of United. While 
eliminating employee pensions and slashing wages in bankruptcy, he 
managed to keep his $4.5 million pension and has handsomely rewarded 
himself with numerous bonuses since emerging from bankruptcy. He came 
directly to United from the oil industry, took the Company through 
bankruptcy and instead of focusing on keeping the company profitable 
and planning for the long term, he has since then hung out the For Sale 
sign and focused on nothing but selling the airline or merging with 
another airline. This shortsightedness has prevented the airline from 
focusing on surviving this downturn.
    In regards to your questions around the current Delta/Northwest 
merger, the merger as it has been proposed has no protections for 
employees and certainly no guarantees for the communities currently 
served by the 2 separate airlines.
    Our top 5 concerns for employees are----

        1. Job Loss

        2. Forced Relocation

        3.No provision for severance package, retraining or relocation 
        expenses

        4. Places the collective bargaining rights of the Northwest 
        flight attendants in serious jeopardy

        5. Delta management using the merger to destroy union 
        representation at Northwest Airlines
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                           Patricia A. Friend
    Question. I am concerned that the DOJ will evaluate this merger in 
isolation and not take into consideration its larger effects on the 
airline industry as a whole and the American flying public, in 
particular. Should Congress consider strengthening the DOJ airline 
merger review process, and require DOJ to consider the impact of such 
mergers on employees, communities and the industry at-large?
    Answer. We too share your concerns about the DOJ's review process. 
We agree that Congress should definitely strengthen the DOJ airline 
merger review process and require that the impact of mergers on 
employees, communities and the industry as a whole must be considered. 
Just as the repercussions of this merger will not take place in a 
vacuum, the DOJ should not review the merger in a vacuum.

                                  
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