do we want to see our airlines go under? do we want to see our employees go by the wayside so foreign airlines can hire more of their people? i think so while it will have a big impact on new jersey, the official impact will be on the united states of america. it will open up many other destinations around the world and i think will allow for all kinds of economic growth and job opportunities. i have 23 letters from businesses and organizations in support of the merger. mr. chairman, i ask for consent that these be allowed into the record. i think you. and, mr. smisek, you talked about this, as did mr. tilton.

to effectively compete against the large, combined european carriers, if this merger were not to take place, what are the implications for you? >> congressman, we are very proud at continental of the carrier we have created. our culture has allowed us to work together and provide great customer service and a great product for our customers. however, we are simply too small to compete effectively on the global stage that we find ourselves. we are finding greater and greater difficulty attracting and retaining our business customers and our other customers. we are facing increasing competition, not only in the united states, but as you mentioned, abroad with powerful foreign competitors who are well

financed. sometimes, subsidized by government, and who are profitable and can invest in their products and services, outstripping our own. it is very important for us to merge with united and put ourselves in the position jointly to be able to compete effectively on the global stage. at continental, although i am very proud of continental, i think we have done a good job, but, congressman, we are eking out a hand to mouth existence, and that is not a future i want for my employees or my customers or a future that i want for the community that i am -- that we serve. it is not what i want for the united states. >> thank you for that answer. in closing, mr. chairman, i think it is right to be asking the tough questions, but i think if we have blinders on and are very short-sighted about the opportunity that we have here to create a stronger company,

protecting jobs, protecting safety, keeping jobs here, that some future aviation subcommittee is going to come back in the future and look at why united and continental, if the merger were declined, had to witness some great demise, and i do not think that is an understatement based on the aviation industry. i think you all for being here, and i urge my colleagues to look at the positive benefits -- i all.= ank you >> we now recognize mr. oberstar. >> my dear friend from new jersey. the airways are the common heritage of all americans. the purpose of the deregulation act of 1978, and i was in this

room, where it was voted on, was not to consolidate aviation but to expand competition, to take government out of the business of determining rates and market and in the first five years after this, there were 22 new entrants, but by the end of eight years, there were only five of those new entrants left. then there was only one, and it, too, has been 0 absorbed by u.s. airways. -- has been absorbed. what we saw just recently was a further step in that consolidation, when the previous justice department look to the other way -- looked the other way, sort of brushed aside my objections that this delta and northwest would result in a

cascade of mergers. you did not object to delta- northwest because you were waiting in line with your own hat in hand. the third will be american airlines and a domestic partner. the result will be with your international code-sharing partners, three global mega carriers -- co-chairing partners. i pointed this out in my letter to the justice department. i will quote from my letter that the networks from united and continental overlap 13 routes in some of america's largest markets, washington, d.c., san francisco, los angeles, denver, and cleveland among other. the two carriers also compete in

a number of other markets, and that competition will be gone. the justice department expressed its concerns about the reduction in competition. last year, you apply for antitrust immunity. -- you applied for antitrust immunity. the justice department concluded that fares were likely to increase with the number of nonstops decreasing. competition will be significantly diminished, and in some cases, they represent the only choices. the purpose of the regulation -- deregulation was so that there

would be competition, and what has happened is shear avoidance, manic avoidance. you said it in your testimony. there is too much capacity in this market. you guys hate competition. you guys want to be the one who dominates the market. each one of you, not just you. northwest, delta, american. i have seen in all the years of deregulation. -- i have seen it all the years of deregulation. it will result in an increase in fares and costs, and the purpose of the regulation was not to line the pockets of the big carriers -- purpose of indeed regulation -- the purpose of deregulation was not to line the

pockets of big carriers. millions paid in baggage fares last year. for goodness' sakes. this is a terrible injustice to the purpose of the deregulation act, and i will continue to oppose it. thank you, mr. chairman. >> i think you made your position very clear. the chair now recognizes the general -- joan and from north carolina, mr. coble. >> a story of local interest back home. both served by united, delta, and continental. how will this affect airports that have seen an increase in passenger service as a result of the current dismal economy, and if approved, with this merger

provide the opportunity for communities, such as the one i represent, to attract additional service? >> congressman, as jeff and i both said, we serve 148 small communities, and they have made their case for service. at the economy improves, both of us are always mindful of opportunities that new markets might provide, in here very recently, certainly speaking on behalf of united, -- and hear very recently, certainly speaking on behalf of united -- an here very recently. as was mentioned by mr. oberstar recently, we are now finding ourselves in markets such as south carolina which is not a

market that would qualify as hub status, and they are competing vigorously, as well. as the economy improves, in markets such as you represent, greensboro, n.c., they will find themselves with opportunities from both of our companies. >> i thank you for that. you concur, i presume, mr. -- >> i do. we always respond to market demand, but, certainly, markets in all communities are better served by healthy carriers that have a future than carriers that are eking out a hand to mouth existence. >> i thank you for that. has is that a, positive or negative impact on pricing -- has that had a positive or negative impact on

pricing? let me ask that a different way. r three alliances enough or sufficient to ensure future competition -- are three enough? >> as one of the founding members of the alliance, the purpose of giving consumers the opportunity to fly across the globe with a multitude of different carriers who happen to belong to the same alliance but able to do so seamlessly on the basis of the entry of one thater's ticketing into alliance, so united could be your entry into the star alliance, and a business could make a multi-segment journey and on another. i think it has been good for

others. whether or not it will be free i think goes back to jeff's point. it is a very, very dynamic market, and we things changing. -- and we see things changing. to actually accept an invitation from united to depart an alliance where continental was seen to be a small participant in the alliance and come to star alliance, in two years ago, -- and two years ago, they came to star, to the benefit of star. trying to bring the best carriers into the alliances. >> do you concur? >> i do. alliances have been very good for the industry, and the star has been good.

we compete with each other even though we are inside the alliance. the alliance assist us in offering destinations on a that we,icket ourselves, could not offer. we recently announced nonstop service from houston to new zealand. we did that in a couple of context. new zealand is a member of the star line. secondly, the traffic flow the korea expect from our merger give us -- the traffic flow that we expect from our merger and give us things. >> thank you. i was going to was asked about the employees of each company, but i think that was addressed, and i yield back. >> they keep. the chair know where -- recognizes the gentleman from hawaii -- the gentlewoman from

hawaii, ms. hirono. >> on the issue of competition, it is the department of justice that has the major responsibility to determine the impact of this hit on the lower rate of competition. -- of this on the lowering of competition. >> congresswoman, we expect a very professional and very thorough review from the department of justice. they are a very professional organization. we would anticipate to be in a position to close this merger by end. an- >> considering that this is going to be one of the largest

aviation mergers ever, do you have any concerns about their approving this kind of a large merger? >> well, congresswoman, i cannot speak to the department of withce's thought processes our application for a unity -- immunity -- for immunity, but i will say that the joint ventures deliver some degree of revenue benefits and cost savings but not the efficiencies of a merger, and, therefore, from the department of justice's perspective, i would imagine the concern there had to do with the difference between a joint venture in a merger, where you can obtain some efficiencies

from a merger that are not obtainable from a joint ventures -- from a joint venture. >> the testimony was that antitrust immunity would provide much of the benefit of a merger without the financial risks. that which your testimony only one year ago, i mean, by your company -- that was your testimony. what changed? all of a sudden, you are sitting in those risks are not there? >> no, the risks are there. without question, the risks are there in any merger. the joint venture and our entry into the star alliance has been very good and has provided sufficient -- additional revenue but not sufficient. we have continued to lose money and are in a position of being concerned about our future.

the merger will add significant revenue benefits, principally from our ability to improve our business mix. there is nothing in the merger synergies that is contingent on fares. also, optimizing our two fleets across the 10 hubs in that we have -- will have. we were hoping the star alliance would be sufficient to return us to profitability. it clearly was not. last year, we lost to a hundred $82 million, -- we lost $282 million, after having lost money the year previously. >> before i continue, i would like to ask the permission of the chair to submit for the record of for your letters to from hawaii supporting this

merger, including one -- i would like to submit for the record four letters. i do expect that the department of justice will be very, very vigilant in this antitrust analysis. i am reading the testimony of the american antitrust institute, and they pose a very interesting possibility, and that is that this committee should hold some hearings, retrospective hearings, on the delta-northwest merger, because when that was brought to the committee, there were various kinds of positive impacts. i am not sure if these impacts have been realized. perhaps then to hold off on going forward with this merger or supporting this merger until we find out what the delta- northwest merger resulted in.

do you have any comments about that? >> i do, congresswoman. i think every transaction that if you were asked to consider is considered in the context of a particular time and place, in in a particular economic reality of the moment. -- and in a particular economic reality of the moment. an appropriate concern of all of the members who have asked us about the effect about a proposal that jeff and i make that will bring some measure of economic stability to the new company, as the new company has to confront the extraordinary, extraordinary economic shocks that this industry has had to confront, either post deregulation or post-9/11, in an

environment that is certain to change within 30 days of your making such a commitment, it is a challenging proposition. what jeff and i are saying is that this combination will be positive for consumers. it will be positive for communities. it will be positive for employees. it will be positive for shareholders. what jeff and i cannot tell you is what the next unexpected event might be and what the next economic shock might be and how the new company will respond to that. in making a representation here, -- our representation here -- you would have to say, what else changed? >> yes, we realize that circumstances change, and that

is why your coming in reassuring us that everything will be positive, circumstances can change, and that is where my concern arises. >> we would be better to meet this with this merger. >> thank you. we now recognize the chairman -- the gentleman from tennessee. >> thank you for calling this hearing on this very important matter. i am sorry that i did not get to hear your testimony. i was in another committee, but i think almost everyone agrees that the country would be better off if more airlines instead of fewer and more competition instead of less. on the other hand, if the refusal to grant this merger is going to result in one or both of these airlines going out of business, then that was certainly not be a good thing you, -- that would certainly not

be a good thing, but i have these concerns. two papers, one from the majority that says concerns have been raised about a merger that could result in a substantial increase in fares, and the minority briefing says that the department of justice's most recent antitrust analysis with the support of empirical data, economic studies, and president generally assumes the air fares increased by approximately 15% -- and precedent generally assumes airfares increase by approximately 50%. -- 15%. we do not have any so-called low-cost carriers, so we get some extremely high prices,

particularly on the flights from knoxville to washington, and i remembered a few years ago when i chaired the subcommittee, we had a hearing in wichita, and the staff told me later that it cost $1,000 for me to fly round- trip from knoxville to wichita, and that same weekend, in "the washington post," they had in advertisement advertising a round-trip ticket for madrid, spain, with hotel for less than $400. people have a hard time understanding how a lot of these fares come about, and i just wonder, maybe you have already given assurances about these fares, but i would like to hear what you have to say about the lack of competition in some of these smaller and medium-sized cities, but, also, several years ago, i was told that each one

penny increase in jet fuel or aviation fuel costs the aviation industry as a whole $200 million korean -- million. now, many people feel there is going to be restrictions put on drilling so that the price of fuel is going to go way up, and i am wondering if you all have taken that into consideration, and what effect with a doubling of jet fuel or aviation fuel have on your companies? >> it is rather a multi part question. i will take you back in. -- take the back-end. , the incipient recovery

in the markets, we are seeing a return of travelers, but were that to happen, it would have such a collateral effect on the overall gdp that in all probability, it would put a cork in the bottle of recovery and business trouble, and we would be back to what i mentioned to your colleague a moment ago, the only stronger economic enterprises can actually survive, -- that only stronger economic enterprises can actually survived. -- survive. if our hedge price is $70 per barrel of crude oil, that is not inexpensive consideration. one way of thinking about that, when we heard about those bags 50 poundslet's say,

per piece, they consume a terrific amount of jet fuel, and the idea that they should be transported for freed when they are using that machine jet fuel is debatable. -- when they are using that much jet fuel is debatable -- the idea that they should be transported for free. >> as to pricing, first, let me be clear that this merger is not predicated on fare increases. the synergies are not predicated on fare increases. the merger is not predicated on capacity reductions. this is a brutally competitive industry, particularly in the united states, where low-cost carriers have taken 40% of the market and continue to grow. air fares have dropped over the past decade on an inflation-

adjusted basis. we have lost over $1 billion since 9/11. we are currently charging amounts that are clearly below our costs. we need to change the business mix at continental, bring more business travelers into our system who do pay a higher price because they consume inventory that we hold open unto the very last moment, and we run the risk of that inventory spoiling. that is, taking off without anyone in that seat. that is a tremendous risk. that person wanting to book at the last minute or wanted to change at the last minute it pays for that -- or wanting to change at the last minute pays for that. i can assure you that this is a very competitive business. we do not have a single market

in the united states where we overlap. there is not a single market where the number of competitors is reduced to just one, so that is not going to occur in this merger. >> all right, well, thank you very much. i think your business has to be one of the most difficult in the world with so much that is beyond your control, the natural resource problem, and so forth, but thank you very much. >> thank you, mr. duncan. the chair will now recognize himself for five minutes. a top priority of mine is working to enhance and improve the region's to imprecation network -- the region's transportation network. what is good for chicago, since it is a hub, is in many ways

good for the nation. if implemented correctly, this will benefit the chicago region. in addition, it has the potential to be good for o'hare airport and the o'hare modernization program, which is good for our nation's air- traffic. however, there are a number of critical issues that need to be examined. for instance, we clearly need to consider the merger's impact on consumers, including how it would impact pricing and service, and chairman oberstar went through these issues, and i am sure we will hear more about that. by your testimony, some answers on that. we also need to look at the impact the merger would have on jobs, especially with respect to job loss and benefits, and, finally, we also need to make

sure -- i believe there is a commitment by the new united, the merged airline, to increase capacity, especially through modernization program, so i want to start on that last point. right now, but the modernization program -- right now, the modernization program would provide runaways and would reduce delays by 75% at o'hare. two runways of already been completed. -- have already been completed. one is being worked on, and there are three more runway projects that need to be done. so i will ask mr. tilton, if this merger goes through with this new airline, or are you committed in general, to move this critical program ford?

specifically with respect to the three remaining runway projects at o'hare? >> we have been supporters of the project from the beginning, the modernization and expansion of o'hare. we are supportive of the runway development, the two developed and the additional capacity. it goes significantly to something that just mentioned in his remarks, that we have been the no. 1 on time carrier in the united states. much of that has been enabled, congressman, by the modernization and development of those new runways at o'hare. before we get to perhaps the follow-on question, there are issues associated with o'hare that we think are no longer necessary, and those are terminal facilities and expansion of terminal facilities in the current economy, but as you also know, we are at the

table negotiating those issues with mayor daley and another, and i think those will be good for chicago and good for a hair -- o'hare. >> the impact on employees. certainly, you understand the concern would be the uncertainty that employees' base at united and continental -- employees face at united and continental. with other mergers, certainly impact on employees was not what was expected and detrimental to the employees. in a bankruptcy, the employee is

certainly pay a high price for allowing united to continue to operate -- the employees certainly paid a high price. this has been touched on a little bit already, that the defined benefit plans no longer could exist at united airlines after the bankruptcy. now, continental -- some continental employees do have a defined benefit plan. there are going to be problems with putting all of the employees together in a merged airline. will it be possible for the continental employees to keep their defined benefit plans, or is this prohibited by the bankruptcy settlement? >> congressman, let me speak to that. yes, continental's defined

benefit plans will continue after the merger, and we have heard something to that effect. as we go forward, as we negotiate joint, collective bargaining agreements, as we do with our units, we will obviously be discussing a broad range of ways and benefit items, including pensions and the amount of pensions. those defined benefit plans could change. for example, the pilots union in negotiations decided to go to a contribution plan, which we have been funding since that was negotiated. last year, we at continental lost $282 million dollars, but we put over $200 million into the employee plans. >> if the merger goes through,

former united and former continental employees now in the merged airline will have different pension plans? or -- i just want to get a better understanding. >> it does, congressman. if you think about it, we were saying earlier on, we have, for example, a represented employees, a multi employee plan -- our represented employees, a multi-employer plan. this represents employees at both companies. how the employees choose to be represented, just using their multi-employer plan as an example, it will determine whether or not more or fewer employees are given the opportunity to be beneficiaries

of that plan, but that is a function of, at the end of the day, which union represents which employees at the end of the decisions made by the employees on the matter -- that matter, so there are significant differences among employee groups, and that will be made transparent to the employees when they make their selections. >> i certainly believe as we move forward with this in consideration of the merger, this will be a critical piece of it. the more things, if possible, that can be worked out with the employees, the better off we will be. certainly, i think greater the likelihood of this merger moving forward. that is something that we have to keep our eye on. with that, the chair will now recognize the gentleman from

arkansas. we will go back over to the democratic side here. the chair recognizes -- will recognize the chair of " a subcommittee -- of a subcommittee, mr. defazio. >> thank you, mr. chair. i will read some statements. how can we solve this problem? the industry has demonstrated a susceptibility to destructive competition then some were prepared to concede or predict. and then, a former american airlines c.e.o., "market-based approaches have not and will not produce the system of our country needs, and some form of

government intervention is required." a race to the bottom industry? >> congressman, i am not sure it will solve all of the ills. i do not hold it to such a standard. what we are trying to do -- that can offer a future to where employees at, and that can reverse the trend of the employment laz.-- to our employees, at the end -- and that can reverse the trend of the employment -- the cutthroat competition that she mentioned,

such as the a. barriers to entry -- such as the apparent barriers to entry. to fail repeatedly, but in the process of so doing, destroying enormous value. even shareholder value and for that matter community value. >> ok, so there might be something in the statement that some form of government intervention might be needed. i am sorry. i have very little time. mr. smisek, i would reference both of your chairs of your executive council when they're talking the passengers want safe

and reliable transportation provided by a network carrier of their choice. and then, when a passenger buys a ticket from the airlines, -- this merger presents an opportunity to put an end to management's preoccupation with outsourcing. that was from a capt. will this merger lead to any reduction in outsourcing? or any improvements to you contract with? >> we really do not proceed at united that the regional carriers -- our partners and are really the entry-level -- as being outsourcing. >> we are paying someone 18th thousand dollars, $20,000 per year -- $18,000.

you are being pulled down by people -- you may well require a higher standard -- > i know you're in a hurry, congressman. we have spent time talking to our regional partners, and that is taking our safety practices, sharing them, and expecting them to abide by them. >> would we see, perhaps, we would not go to the lowest bidder for outsourcing in the future? we will require a higher standard? or will we have to wait to pass legislation to require more hours, etc.? >> we support all the improvements in safety in this business. safety is incredibly important, as you know. however, we will not be flying -- the service will always be provided by third parties. >> you could operate a subsidiary that provided that service.

there are different levels. >> i appreciate that, but i practiced at continental and a practice at united and our practice -- but our practice out continental and our practice at united and our practice together, we share best practices. >> i just want to say that i think there are a lot of people out there trying to run airlines safely, but what we have seen is this pattern of destructive competition. it may be a transient and a friend who goes away or maybe other people who persevere other -- it may be a transient who goes away or other people who persevere. i hope you both support that.

thank you, mr. chairman. >> thank you, mr.defazio. one congressman has been called away, but he wanted me to talk about an issue. at this point, the chair will recognize the gentleman from ohio, mr. boccieri. >> thank you, mr. chairman, and thank you. while i may not be as long in the tooth as others to experienced deregulation, -- who experienced deregulation, it has not gone well. dayton, columbus, cincinnati have all experienced significant job loss and an outsourcing of

these jobs, and i remain concerned, while i am not taking a position on this, i remain concerned that this business model that is being proposed would put added strain on the hub in cleveland, especially after so many taxpayer dollars have been used to expand the facility as well as corporate investment, but i remain concerned about that. i want to just hone in on one thing. i have not been convinced by the testimony thus far that by reducing the number of competitors currently that we are going to increase competition, and we may be setting up a situation of too big to fail. could you comment to that? >> certainly, congressman. i think what we are creating is a carrier not too big to fail but big enough to succeed. we compete with large foreign airlines. we compete with large domestic

airlines, for example, like delta or american, and we are putting ourselves in a position with this merger to be able to successfully compete. i do not believe that competition is reduced by this merger, because this is a brutally competitive industry as it is. it is today, and it will be after this merger. there are essentially no barriers to entry. there are high barriers to exit. we have lost billions of dollars. >> can you name one legacy carrier outside of bankruptcy that has emerged where they have actually produced lower costs, lower operating costs, have not had a significant reduction? >> let me speak to delta air lines and lead the capacity reduction to the side for a moment, because i believe -- leaving the capacity reduction to the side for a moment. -- and leave the capacity

reduction to the side. this gives me great hope at continental. i am not saying i will be able to deliver that in this merger, but their merger has been very successful both in coste efficiencies and in revenue generation. -- both in cost efficiencies. >> it will not reduce costs versus low-cost carriers for others, and a legacy does have problems, which will not be solved by suspending antitrust laws, so business strategies that have moved into obsolescence can exercise artificial market power. again, he is suggesting that the costs are not going to be reduced and that this will put an added strain on you to cut corners down the line.

>> congressman, it is sort of a contradictory statement. overhead redundancies that are clearly going to reduce costs. are you going to be concerned to those employees whose jobs are going to be eliminated because there is only one headquarters, and on the other hand, we have something that says something else. this has yet to be established. creating a company that is going to have the whole structure that we have an ability to optimize the hub structure that we have, and ability to optimize it, we think we will succeed.

it does not go to the point of the merger. >> international carriers are shoveling folks back from vacation in europe. but more specifically, we talk about outsourcing jobs. after having lived through testimony, under the ntsb report, it showed that they were not even trade in their own safety equipment that the airplane was required to have. right now, we have 1400 pilots furloughed by united. you are flying routes from washington, d.c., to spain with foreign pilots. can you guarantee me that those pilots are trained, educated, and have the same experience level that our own domestic air carriers have? >> so, the relationship is

analogous to our offering -- telling a passenger you can book on united, but you will fly on another, or you can book on united, where he will fly on lufthansa, where you can book on -- or you will fly on lufthansa, or you can book on another. we share metal. it is part of the joint venture we have across the atlantic with four participants, including united and lufthansa. are they as committed to safety as i am? it is a relationship that is some biotic between the two of us, and i assure you, they are -- some biotic -- sybmbiotic

between the two of us. >> those are mainly american pilots? >> no, sir. if they are flying on v.a., they are british pilots. >> that is my point. thank you, sir. >> mr. boccieri, thank you. the chair will now recognize mr. garamendi. >> synergies. i do have some questions that

are related to safety. it is my understanding that you are moving jobs away to china, singapore, and the philippines. is that correct? >> as i said, we have long had -- >> no, get directly to answering this. are you moving jobs of the san francisco to other countries for maintenance purposes? -- are you moving jobs out of san francisco? you did not answer my question. please do so. >> there are no plans to move any further jobs, if that is your question. >> are you moving jobs of the san francisco to ford facilities? yes or no? how many? >> no, we are not moving jobs out of san francisco to foreign facilities.

we have a maintenance facility in beijing, which is for one of our fleets, and it is a joint venture between lufthansa and air china. >> and does the faa regularly inspect the facility? >> it is their responsibility, without a doubt. >> that is not the question. >> that is a question better posed to the faa. the fda it fulfills its obligation and responsibility with respect to such facilities -- the faa fulfills its obligations. yes. >> the f.a.a. does not? >> i am not aware of that testimony. >> we will get that. >> i appreciate that. >> with continued outsourcing, the question about pilots, i want to follow up on that question. are korean pilots in the left

and right seats of united jets -- our foreign pilotsa -- rare foreign pilots? >> no. >> can you describe personal benefits that the two of you will receive, specifically golden parachutes and the like? >> anything i might receive is going to be converted into shares of the new company and when i retire from my board seat. >> the estimated valley? >> it will depend on how successful the new company is. >> i would like to receive that and would like to not have to receive it from the sec filings,

so if you could deliver it to me, thank you. >> congressman, my compensation is set by my human-resources committee, which consists of independent directors. my arrangements upon becoming ceo of united have not yet been negotiated. that is a process that is going to go through both the continental human-resources committee and that of american airlines. the amount of compensation i will receive the bus has not been determined. >> what is your present compensation? >> i received no salary whatsoever, sir. i wave to that until continental is profitable. i am eligible for a bonus. >> and stock options? >> i have no stock options, sir. >> you have not received any benefits? >> the payout is dependent on the amount of profit sharing we

share with our employees, as small as the stock price. >> i thank you. thank you very much, mr. chair and. -- mr. chairman. >> i will ask if anyone has additional questions? i understand that mr. boccieri does. >> you had suggested that there -- aer lingus carriers -- we have found this in constant ntsb records. we have found this over and over again. explain to me when your own

regional carriers cannot have the same experience. >> going back to the relationship between network carriers and our regional partners, as i said, our safety management organization works together with our regional partner to ensure that the safety, that we hold the best practice at united, share with the carriers. we spotted them, and we spotted them together with the f.a.a. -- we audit them, and we auadit them together with the faa. we are mindful of the risks of new anything, new employees. we are mindful of that. we understand that. but as jim said, they are

necessary. they are important bought -- as jeff said, they are necessary. they are important. you have to think about it. all of the partners, air china, singapore air, lufthansa, austrian air, all of the carriers with whom we share code across the entire star alliance, the global international association of carriers, all of the safety authorities that exist in all of those countries, we have to set a safety standard for the entire industry worldwide, regardless of the nationality of pilots. that is the essence of the alliance structure, and this is

why a passenger can go across four or five of those carriers. this is why, congressman, to get into the star alliance or to get into a code-sharing situation, you have to be approved. the actions of the ntsb, it shows that the regional air carrier does not teach the pilots how to recover from a fall stall. they are taught threw a stick shaker, not a stick pusher. -- they are taught through a stick shaker. when asked, they said it was not part of the fda requirements. f -- faa requirement.

they are now reaching for the minimums in terms of some of these regional carriers, and i am very concerned about this. but i want you to say for the record that you know that those aircraft that are flying out of washington, d.c., while we have 1400 grounded pilots at your airline, that they are trained, and you know for certain that they are " trained to recover from -- they are trained to recover from a full stall. >> they are trained to a level that is satisfactory to the faa, to ourselves, and to note those responsible in their country. .-- and to those responsible in their country. >> why did you keep them as one of your carriers? >> we were not aware of that deficiency.

we are very concerned with safety. we expect them to be safe. we expect that at a to do their job. >> we expect you to do your job, too. also to make your domestic carriers and the international agreement you will be making, outsourcing jobs and training, that will move this type of level of expertise off our coast, needs to be maintained. i cannot guarantee as a representative from ohio to fly on your airline, to be certain that this level of training will be maintained and we will be getting into these agreements to big to fail, with international carriers.

>> we are very focused on safety. the training of pilots across the globe is a crack -- is a great responsibility of united airlines. we participate and share our best practices, but if you look at star alliance, they have rigorous or cut -- requirements for joining and requirements for safety, and i am confident of all the carriers. what you point to was a problem. there's no question about it. everyone in the aviation business and that continental regret that training failure. that has been identified and will be corrected, and we need to make sure that we share all of our concern for safety. we cannot possibly be responsible with the limited resources we have for the safety of every carrier on the globe and every carrier out there.

we can repeat responsible for our safety, share best practices, and we support all improvements in pilot training and support a regulatory reform within the faa required for oversight for carriers. >> we will make sure it is mandatory and that pilots will know how to recover from awful stall -- from a full stall. >> that is why we passed the leg -- the legislation out of the committee and out of the house. we will have a reauthorization bill that has the airline safety and pilot safety improvement act, which will raise the standards for pilots at the regional carriers as well. the recognize both united and continental and some of the other major carriers did not hire at the lower standard, even

though they can, but many of the regionals do. that is what we have found with regional carriers. i would interject as well and agree with that gentleman that while it is the faa's responsibility, it is also your responsibility as ceo's of airlines to make certain these regional carriers are hiring pilots that have training in excess of the minimum requirements as opposed to the minimum, even after we have increased the minimum requirements in the conference report. that, the judge -- the gentleman from california -- with that, the gentleman from california is recognized. >> thank you for bringing up that last point. it gave me the opportunity to cool down a little bit. i heard the most astounding testimony i heard in my 34 years at the chief executive officer

of acres airline that contracts to service that airline, continental, and i did not hear this from united. that is not your responsibility to ascertain the safety of the pilots with him you contract. >> sir, i did not say that. >> can you tell me what your responsibility is with regard to the qualifications of those pilots with whom you contract -- , we do expect, we do require all our regional carriers to be safe carriers. colgan had a training failure. it resulted in a terrible accident which we regret tremendously. we are as focused on safety as you are, sir. we expect safety. we require safety. you have to understand that there are limitations on the resources.

since all airlines contract with large numbers of other airlines, for example on code shares, we rely on the safety audits of the federal aid the asian administration, we have our own safety audits that the star alliance conduct with respect to other carriers as well. >> i am particularly concerned with the domestic situation. i would like to have you specifically in writing present to me and the committee exactly what you and united due to ascertain the quality and safety record and training record of those pilots with whom you contract in your hub and spoke situation. >> we will do so. >> we will give the congressman

and report on the nature of our best practice transfer, on the nature of the relationship between the two safety organizations, the regional carrier's safety organization and the extent to which we have on occasion found them wanting and suggested that until something was addressed we would be suspending contractual services of a particular sort with them. we will be glad to do that. >> that would also include specific actions your airlines take to verify the individual pilots. >> we will do so. >> we will be glad to do that. >> we recognize the gentleman from michigan. >> thank you, mr. chairman, and i want to comment on the colgan tuition. i read the transcript, and i think beyond a training issue was the issue of the lack of

competence of the individuals. it made me shudder to read the cockpit transcripts and observed that the conversation back and forth. they were totally preoccupied occupied with personal issues and not with flying the plane. it is not just a matter of training. it is a matter of hiring responsible individuals. and i think anyone who reads that transcript would realize that is a good share of the problem. i just want to comment. we have had other airlines coming together, and i understand all the advantages of airlines combining and working together and the many different ways they do that. but i am afraid -- what i have seen is there something lost

every time we get some airlines going together. very recent case, i will not give specific names, but one airline that i thought was up -- was operating very, very well, and everyone in congress is an expert in flying airlines because we do it every week at infant item -- ad infinitum. there was an airline which operated well and combine with one that was not operating well, and now it is not working very well. i caution you to make sure that you are improving service for the public, and i know it is easy to say yes, yes, that is our business. that is what we should do. that is not what happens. i want to warn you about that, and i hope you will give us

assurances that you will conduct frequent surveys of your frequent fliers and of the general public as well to evaluate how well you are doing in that you are combining the two. i am astounded at the number of what i call poor judgments being made by executives who did not even bother to understand the culture of the company they were a absorbing and have lost some very good people. but of all, they have lost a lot of good spirits, and the public is the worst for it. i'm not convinced that all this combining of airlines is all that advantageous. to the passengers very slightly. it may result in you making very -- making more money, which is your role, but i am not sure that the overall picture is overall that great, and i just wanted to caution you on that from my perspective, but also give you an opportunity to

rebut what i have said. >> that may present a competitive opportunity for jeff and myself. >> i know continental has had a good history in the last decade of being extremely well-run under the ceo that renovated it, and i fly all the airlines. being in grand met rapids, michigan gun -- been in grand rapids, michigan, we have just about every airline under the sun flying out of there. you have anything to say, mr. smisek? >> we are well known for our customer service. i have been at continental since the turn around 15 years ago. we are very attuned to the customers. we have a corporate advisory boards. we bring in frequent fliers.

we participate in a flier talk for a month. we are tune into our customers, and that is how we get a reputation for customer service. largely, congressman, our reputation for customer service is built around a constant -- around the culture of continental airlines. we may have disagreements, and working together does not necessarily mean yes. it means listening respectfully to someone's position, treating each other and our customers with dignity and respect, and as a result, being honest and open and direct, and we do give a very good customer service. i anticipate the combined carrier with our combined cultures -- united has very good people. they are delivering good to amend -- tremendous operational performance today. the had the facilities. we will combine that into a culture of dignity and respect which they have today, which we can bring together, and we can

have a carrier that will have wonderful customer service. the reason i'm so confident is i am confident in the team i will build, i am confident in the culture we will have, and i am confident in the customer service will focus on. >> well, if you are so great, what are you doing this? >> because alone, we are too small. we are a small global carrier, and we need to be big enough to succeed against our large foreign and large domestic competitors. >> thank you to the gentleman from michigan. >> i want to offer my services to you at some point to go on planes and just ask people about what they think. >> that would be great. >> i did that last week. all the people in first work frequent-flierrs.

i said, this airline used to be good, what happened that it? >> we appreciate the offer of your services. >> ok, this one individual said, and the next individual said, i agree with that. pretty soon the entire first class section said it had gotten pretty lousy. that company has something to worry about. thank you. i yield back. >> that chair thanks the gentleman from michigan, and thank you for your testimony today before the subcommittee, and with that, we will dismiss his panel and ask the nesxt panel to come forward. thank you.

>> the chairman asks our witnesses to be seated and take their places please. i would do the introductions for this panel. captain wendy morsem and jay pierce, chairman of the continental airlines pilots association, patricia friend, president of airline pilots --

this is a nation of flight attendants. mr. albert for is the president of the american antitrust institute. mr. hubert horan, mr. william mcgee, aviation consultant, and mr. david strine, a portfolio manager of impala asset management llc. these and gentlemen, as you know, we will put your statement in the record. we ask that you summarize your testimony in a five-minute period, and that will allow both myself and other members to ask questions. with that, the chair will recognize captain wendy morse. captain wars?

-- captain morse? >> we have more than 7700 active pilots at united, and i appreciate the opportunity to look -- to speak to the subcommittee. over the past decade the airline industry has experienced the worst economic storm in the history of commercial aviation. an unprecedented series of financial shocks have taken their toll on airline service and on employees. bankruptcies, laos, concessions, and outsourcing have all been well chronicled. the proposed merger between united and continental represents not only an opportunity for both airlines, but a possible sea change. how this merger is handled will determine whether it is changed

for the better. this trust cannot be clear. in the recent history, there is a vivid picture of which path to choose. we are not traveling down uncharted territory. the obvious path to success has already been some established. the advantage of the knowledge of what has worked and what has not worked must be recognized. the delta-northwest merger in which the company worked out a contract with the pilots has been a resounding success. it has exceeded initial estimates for financial synergies, leading to a more viable company to provide greater service for the flying public and provide greater employment certainty for its employees. the america west-u.s. airways merger, in which management failed to negotiate terms in advance, is still run as

separate companies. mired in lawsuits, they have failed to realize the advertising synergies, even though the merger took place more than five years ago and continues to have its share of unresolved labor issues, which benefits neither the company nor the consumer. one axiom in the service industry stands as a beacon of truth -- take care of your employees and ultimately they will take care of the customers and business will take care of itself. it is imperative the combined united-continental established a management team not only capable of running the airline well, but also that cultivates a culture where the combined entity provides a revenue and capital generation for a great product. in order for this merger to be successful, there must be a joint collective bargaining agreement with assurances for wages, working conditions, and

job protection that are commensurate with the professionalism that our pilots exhibit each and every day. thanks to the professionalism, commitment, and sacrifice of pilots and other employees, our airline has weathered the worst challenges and now flourishes, but there are still challenges ahead. one of the biggest for united- continental is the industry's continued drive to outsource as much flying as possible to an ever shifting collection of the low-cost subcontractor. last year, united airlines laid over 1400 highly experienced pilots, their jobs outsourced to the lowest subcontractors. the average passenger now has a 50-50 chance that their flight is being operated by united

airlines. this philosophy which puts profits ahead of safety and the traveling public must come to an end. while the united airlines has been on the hill saying all the right things, seeking approval, i support -- i speak for the pilots in saying our contributions must be recognized in order for this merger to be successful. we ask that you consider the benefits this transaction will have as the industry and for consumers. you also measure whether managerial actions are consistent with their words. united and continental management now stand at the threshold of what could be a great airline, what it sees sustainable profits and will also provide unmatched service to our customers. the combined airline could establish a new paradigm in commercial aviation, when word management and labour work together to establish a solid profitable airline, where

employees are properly compensated and where job security is not a constant concern. as a key stakeholders, united pilots stand ready to embark on this opportunity. our fear will participation will lead to a sustainable airline. this will produce an unprecedented level of success for indicted stakeholders and an exemplary level of service for the flying public. i thank you. >> that chair thanks you, captain, and recognizes captain appearpierce. >> good morning, mr. chairman, and members of the committee. i am that chairman iacocca master council -- i am jay pierce. i am particularly thankful you have taken the time to consider

the fact -- the effect this mayor archer -- this merger may have on labor. i have been a pilot for over 25 years. i am in my second term serving as a continental pilot group chairman, and i can assure you i have been trained to recover from muffles all -- from a full stall. the questions that have to be answered our, will the opportunities for his success? who will assume the risks? who will reap the rewards to some, the initial bayou created by participating in the merger will allow for claims of success. if creating a story for wall street through participation is the goal, that war is set very low. none of us should accept the philosophy ofof

mediocrity. this is the opportunity -- our merger partner, united's financial performance has been in critical condition, and hours could be considered any. over the last decade, carriers have reported over $60 billion in net losses. since de regulation, there been any bank with many bankruptcies. many carriers have become extinct. thousands of employees have lost their jobs. communities have suffered. the industry is broken and is badly in need of an over all. continuing down the well- traveled path of the irrationality does not bode well for the traveling public, shareholders, or for the long- term interests airline

employees. it is incumbent on us define rational solutions. i believe a properly executed merger can be a better solution for the industry than consolidation by failure. calling third in this round of airline consolidation provides us an opportunity to examine what has worked and what has failed. it is clear to see the difference between marginal success and real success can be tied directly to labor, and more specific, pilot labor. in a merger, it is not the tavis, bankers, or lawyers that assume the risk. it is the employees and labor. if we must carry the risk, we must share in the rewards. i cannot guarantee this merger will be successful, but i can, with all certainty, predict its downfall if our pilots did not support the path the management has chosen. the merger is expected to produce over $1 billion in annual synergies. if successful, that success will

be determined by the strength of the new entity, the value added to shareholders, and by the pride of the airline's labor force. this pride can only be regained by first returning to labor what has been lost through years of concessions. it is equally as irrational to use the benefits derived from a merger to simply and rich those who put the deal together or continue to throw good money after bad with ill-conceived business plans the reward only those at top. it is important that this merger provides benefits for passengers. we should use this opportunity to reexamine subcontracting and outsourcing. when a passenger books a trip with continental from houston to a new work -- to new york and beyond, they have an expectation that the entity may purchase the ticket from is responsible for their travel experience. network carriers should be

operational air lines. our passengers a right to receive one level of service at one level of safety from the beginning of their journey to their final destination. to achieve that single platform experience, flights must be operated under the operational control of a network carrier, and, therefore, be run by pilots under contract. we bring an award-winning culture of customer service to an industry marked with sharp declines in customer satisfaction. we bring strong job protections that limit the outsourcing of flying to its low worst bidder. if done in the right fashion, this will bring that best of continental to the united name. in closing, i would remind you that continental pilots did not solicit this merger. if done correctly, this could be an opportunity to create a great

airline, one and rich by continental's culture of transporting customers almost anywhere in the world. thank you for your time and i look forward to your questions. >> i now recognize the member. >> thank you, german, and members of the committee -- chairman, and members of the committee. the voices of the workers often take a back seat in these hearings, and in the public pronouncements about the benefits of airline mergers. i'm here to give those workers a voice. as a united flight attendant for 43 years and the president of a union for 15 years, i have had a unique perspective on the dramatic changes that have shaped the commercial aviation industry and eliminated

thousands of jobs. lately, i've listened to airline ceo's testified before congress about the need to consolidate the industry in order to achieve a sustainable business model. after hundreds of airline bankruptcies, thousands of a poor cousin of the employee furloughs, pay cuts, destruction of pensions, and 32 years of deregulation, it seems like management has figured it out, that our nation needs a stabilized and rational aviation industry. the nation's flight attendants and all aviation workers also need a stable industry. the consumers are rightfully concerned that airline mergers will lead to higher fares and reduced service. we agree, but we also recognize the reality that airline fares must increase in order to stabilize this industry, provide a robust air transportation

system, and provide a more stable employment for thousands of aviation workers. to strike this balance between a stable industry and reliable air service, we assert that the increase in consolidation activity requires appropriate regulatory oversight to protect the interests of employees and consumers. while some protections are in place today for consumers and communities, since deregulation there are no protections for airline workers. a provision that establishes basic seniority protection in the event of a martyr. after the regulation, congress was concerned that a restructuring of the industry would the displaced large numbers of employees, so in order to assist these employees,

the candidate protection program to the de regulation act. unfortunately, the almost 40,000 employees lost their jobs in the immediate wake of deregulation, never received the benefit that congress promised. funding was never authorized for the benefits. as congress looks into the impact of our employees, it should look into the failed eep as a framework to provide meaningful protections to workers in the future. as we have testified in the past, we are not proposing to reregulate industry. something needs to be done to shield workers from the hard facts of this merger and all future mergers. what can the workers at united and continental expect as the combine their work force? while management has provided information that is otherwise

publicly available, management has not been forthcoming about critical and future business plans. i call on this committee to compel united and continental management to provide the information on their plans for current united, continental employee-base and how operations. in addition to a proposed merger, united is the architect of a new global alliance revenue sharing scheme. they had contracted with aer lingus to operate international routes with them. we call on this congress to stop this type of a joint venture scheme by enacting hr4788. we call on you to not let united and continental use this merger as a vehicle to outsource more good middle-class jobs. we also ask the committee to

consider the impact this merger may have on the contract negotiations under way between the association of flight attendants and united airlines. for almost six years, the flight attendants at united have been working under collective bargaining agreement that was negotiated why the company was in bankruptcy. they sacrificed nearly $2.7 billion in salary and benefit concessions in addition to the loss of their pensions. we're asking your help to ensure that the current contract negotiations are satisfactorily resolved before this merger is finalized. we will not allow the negotiation process at united to be delayed as a result of this merger. the employees at united airlines made a deep sacrifices to keep the company flying, and it is time for the workers to share in those two words. while much will be made of 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 families. we're the ones who had the most to lose, and we have the least protection. i thank you for your time, and i look forward to your questions. >> the chair thanks you, and now recognizes mr. roche. -- roach. >> i am the general vice president of the international association of machinists and aerospace workers. we represent over 27,000 employees at.

wie echo the chairman's statement when he wrote to the department of justice. this merger will move the country down the path of an airline system dominated by three carriers. if united and continental merge, other mergers will form and will be additional consolidations the concern by. already, the president of u.s. airways of a low-cost carrier, has announced that if this merger goes through his airline will soon follow suit. we cannot look at united- continental transaction in isolation. the industry has been interim while -- has been in turmoil. the regulation in this industry

and others as has disastrous effects. the housing meltdown was the result of corporate greed. looking daily at the news reports about the catastrophe in louisiana, the oil spilling out, we can tell that the regulated industries only operate in their own best interests. the airline industry needs to be stabilized because it drives one $1.40 trillion. it is too vital a industry to lead to its own destructive devices. it is clear the industry has failed to deliver on its promises. albert einstein said it was sad

to continue to do the same thing over and over again and expect the same result. -- and expect a different result. even a major architect of deregulation -- the industry is crying out for limited reregulation. does anyone believe with having only a few airlines will benefit country? if one of these mega carriers would fail, how will that impact the country?

although we have met the airlines jointly and separately, members still have many questions unanswered that need to be addressed. we estimate the merger would have to start out with $13.8 billion in debt. what is the plan to deal with that that structure? closing hobbs initiate a cascade -- closing hubs initiate a cascade of job losses. as detailed about the combined carrier business plan emerges, it must be scrutinized to see if it is going to be a successful airline or not. we asked for congress to determine if this is gonna to be good for employees.

although they have given it much thought, they do not know how it will be resolved. the machinists union will not allow this to become a casualty of the merger. united airlines has passed on billions of dollars in pension liability to the taxpayers already. it is premature for anyone to talk about combining the carrier's employees and each airline must recognize the responsibility to continue to bargain in good faith. all past mergers -- u.s. airways and american west -- have operated as carriers -- as separate carriers for five years. the that is working as a separate carrier in many of its classification. i am a product of one of these mergers. i was at twa.

we heard the same predictions, that these airlines would not lay anybody off and they would continue to serve. st. louis is a ghost town. the people of kansas city have lost customers as its base. it is time to put a stop to this. we need to rer airlines.se >> my first recommendation as shattered by the lady from hawaii is congress should hold retrospective hearings on the delta-northwest merger.

has it accomplished its stated objectives who has competition been adequately protected? is the consumer better off or worse off? i do not have the answers. there is no question that the answers would be inviolable and our efforts to predict what the implications of the united- continental marriage are going to be. it might make sense to actually delay the consummation of this merger until a fully credible study of a prior merger can be taken into account. the central point of my written statement are the following -- one, this is an industry in which there are substantial network effects, but the incremental costs of expanding an already large network may offset the network benefits. two, the industry is already concentrated on a national basis, but this generalization

under estimates the market power hubs.s president at most a merger of this magnitude will in all probably lead to one more merger of similar size, and that will leave the united states with three national network carriers, plus southwest, and a fringe of other low-cost carriers. this was also lead to brett representative -- to rationalizing the past the by scaling back hubs, which will harm consumers. these considerations or quark us to ask whether the four more likely three national networks that will emerge from this process will be sufficient to provide a satisfactory range of choice and service and sufficient competition to keep

prices close to costs. if an origin and destination route is served by only a few airlines and the merger will leave that particular market more highly concentrated, the knee doj likely and properly require another arrangement with respect to that route as a condition of approving the transaction. this is necessary, but it is not sufficient. especially if we look at competition among the systems and not merely within specific route pairs. much has been made over the role of low-cost carriers. southwest influences prices, and there may be an effect even when southwest is perceived as a potential competitor.

but southwest and the other low- cost carriers found their success by competing in directly rather than directly with the networks. their call low-cost carriers in large part because they cannot bear the cost of large networks. they did not offer the same type of one-stop shopping, frequent- flier benefits, or airport amenities as network carriers. decisions about the future of domestic air transportation should not rest on the concept it's -- that southwest will always play its current role. its strategy is could change. it could choose to relax under the price umbrella of a tight but network carriers. the ultimate care -- question is whether the public will be satisfied three domestic and three global air transportation systems. there is little if any empirical knowledge that says how many systems are needed to provide a workable degree of inter-system

competition. there is substantial data, and purple and theoretical, that suggests competitive problems increased as a market becomes highly concentrated. there is substantial experience with domestic mergers that's just out the vocal they are to execute successfully. how few deficiencies have resulted from big carrier bomber and how minimal entry has been at the network level. to the extent there is doubt about united-continental merger, it should be resolved as a public policy question -- are willing to interfere with private business decisions in order to preserve the few competing systems at the possible expense of what ever the efficiencies might realistically be lost? we suggest the magnitude and certainty of these proclaimed efficiencies should be analyzed

with great skepticism and must be weighed against inefficiencies due to other economies of scale and scope, the cost of consummating the merger, and a reduction of competition. from a public perspective, there should be no reason to rush to a decision on whether to allow united and continental to merge, and would -- and it would make good sense to examine the effects of recent mergers before opting for further consolidation. thank you very much. >> mr. horan? >> the ongoing consolidation process creates for major prop -- problems. i believe all problems have a common cause the committee needs to address. problem numberone is documented in exhibit one of my testimony, the overwhelming evidence that anti-competitive market power

has already created consumer welfare losses in excess of $5 billion a year. these consumer welfare of losses will be much worse in a few years after the inflammation -- after the implementation of united-continental. problem to is the process to consolidate the network said that a cartel of alliances control 80% of the overall u.s. aviation market, including 100% of trans atlantic and trans- pacific. dot had exclusive control of continental traffic the three companies. in face to, this to companies use that power to force the other domestic airlines out of business. phase three began last year with japan case that is designed to

create the same well for losses we have already seen on the north atlantic. continental-united is an integral part of all three phases and cannot be evaluated as an isolated event. problem three is the domestic market power threat. united continent will not cause immediate price increases in of local chicago, houston market, populations of u.s. consumers are at risk. when dot three companies x's of control over all this traffic, the dot issued a death warrant five, andny's fourt, six.

the destruction of competitors and forced mergers where companies can be acquired for pennies on the dollar are market power abuses. consumers also think that -- service reduction, a threat that will not be address or mitigated by low-cost expansion. problem number4 is that these mergers cannot be justified on synergy grounds and are strictly motivated by the potential for power. no previous merger between the large airlines has ever produced a material reduction in its operation costs. the previous merger has ever produced large enough synergies to justify the enormous implementation costs of these

mergers, and the vast majority of mergers at been dismal financial failures. there is no evidence that the pr claims of the belt clip- northwest merger are true. the simple route cause of these in efficiency problems is the refusal to obey or enforce longstanding antitrust law. antitrust law is not a barrier to any consolidation. it does not create or enhance artificial market power. the evidence in every previous case has been either nonexistent or fraudulent. dot refuse to get out the power testing in the previous case. dot is not only willfully ignored the evidence of competitive pricing that i have documented, but they failed to collect evidence on pricing or

entry barriers as well. dot a false assertion the north atlantic is a full incontestable market. every dot decision is based on fraudulent benefit evidence violating the horizontal merger requirement for evidence that is neither they nor speculative. the benefits in each case relied on a completely false dot claimed that eliminating competition reduces prices in certain markets and thus automatically regardless of market more competitive condition spiritthe dot has used this whenever it has to nullify the requirement for kate specific evidence of public benefits in all future cases. the committee and congress must address the nullification of evidence based antitrust conformance, meaning competition is no longer being concerned --

beeit is being determined by government bureaucrats working at the behest of political companies. the committee cannot allow this merger to proceed without assurance the will be independent scrutiny of the synergy and market power claims and that to review cannot proceed until the dot's ne antitrust enforcement has been rejected and the split that exist today between vdot and doj has been resolved. my last point, the committee must intervene in the current u.s.-japan ati case, where they have signaled they will not enforce law, will weaken u.s. competitiveness and use multibillion-dollar price increases in order to protect

inefficient for carriers such as japan airlines. >> thank you. the chair now recognizes mr. mcgee. >> good afternoon, and i appear as a consultant on travel and aviation issues consumers union. i thank you for the opportunity to express our concerns about the proposed merger. as we have seen with banking and other business, we see the airline industry evolves and, and some carriers are rapidly approaching the too big to fail threshold. a shutdown would have immediate and adverse effects throughout the country. when the industry grew -- received a bailout in 2001, it was argued that airlines are

essentials to america's economy. consumer union agrees. we have been witnessing a shrinking airline industry. we will have seen the demise of seven major brands in united states in 20 years. while others can speak to the adverse affects, i will put his comments on the effects on passengers. in february of 2001, g. a note reporter on consolidation and identified threats. we can predict how the united -- continental merger will affect consumers. the record for consumers is not good. in addition to the too big to fail argument, we identified

other problems root more details are available. less choice and your flights. we have not seen a merger among major car errors that has not meant a reduction in service. we know that other mergers between major airlines led to help closures and flight reductions despite promises to the contrary. considered st. louis saw a reduction in passenger traffic from 22 million to 12 million. america west in las vegas has shrunk as well. now the -- delta's hub in cincinnati has already experienced cutbacks. it seems the merger would mean

that some cities would lose air service. the higher the probability that additional cities will lose service. a 2008 report concluded mergers and acquisitions can be used to generate fare increases. some argue low-cost carriers will fill the void. prices fall only on selected routes. reductions in service. airline mergers tend to be contentious, in this case, involving two contentious companies. a clash of cultures is guaranteed. these terms, downsizing, outsourcing, really mean the work forces will experience more trauma. is will lead to employee moral

issues and. few workers startup. the report noted instances in which new airlines drove all went out only to later increase fares. since deregulation, we have seen how one major carrier will initiate an increase and others will match. if enough players resist, then the hike will be withdrawn. in a smaller industry the carrierood of a rival k does abate. with greater concentration, united states faces a much greater threat of travel disruptions. imagine the effects of the labor action. analysts would estimate this

--uld affect nearly an hou some proponents argue that fair is fair. this sudden leapfrogging has not been due to genuine growth. this leads to reductions in service. it seems only fair to ask what is the endgame? we're told the domestic airline industry can only support three large network airlines. further consolidation -- before consolidation is approved, consumers union in feels there should be more discussion about their goals. thank you and i look forward to your questions.

>> thank you. nike, investors in the capital markets have heard that her arguments about why or why not mergers should take place in the industry. the balance of these arguments and the resulting policy impact how the market prices risk and sets the cost of capital for the airline industry. to help you with your analysis, i will provide you with the perspective from the financial markets. so long as the airlines source from the debt and equity markets, their teams had fiduciary duties. in keeping with that the it is incumbent upon them to manage risk and work to enhance returns on invested capital. while managing costs and delivering products are important, making strategic decisions to changing conditions are critical. the airline industry is in need

of luring its financial risk. consolidation is one part of the solution. by several objective measures, the performance of the industry has been abysmal. the regularity of loss and failure those unrivaled in corporate america. for example, looking at the performance over the past decade, we can see the industry has reported a loss of about $68 billion. there have been 58 bankruptcies. in addition, the average age of the fleet has increased to 11 years. the value of the index has dropped 77% since 2000. the body of evidence supports the need for profound change. the leadership at united and continental are trying to address this need. the poor financial performance of the industry through a full business cycle can be activated

to higher barriers to entrance, and recently consolidated carriers in other parts of a row. these factors contribute to the higher cost of capital. over the past year airline that has garnered yields over 10%. in one transaction, united paid 17%. in the autumn the average cost of capital remains in the double-digit sought because of the over leveraged balance sheet. now you can only be created when the return on capital exceeds cause. this is a fundamental financial goal the airline industry has never been able to achieve

through a full cycle. consolidation is not a cure all, but it is self help. call the united-continental merger is far too small to significantly change the competitive dynamics of the issue, given that combined they produce only 18% of seat miles , this synergy is a step in the right direction toward financial stability. labor costs are likely to rise as they typically do in mergers and after reduction in bankruptcy, but the scale of the combined entity should combined purchasing power and a global network should be more attractive to high-yielding corporate customers. they may gain additional customers which will improve their yields mixed. it would be wrong to conclude that the merger would stop the domestic deal deterioration which has been glenn on for the last 30 years, if you to the continued growth of low-cost

carrier market share. over the last 10 years, and network carrier market share has dropped by 33%. in conclusion, as you weigh all the objectives for the outline -- for the airlines can make you make consider the benefits of a better position to return on invested tough capital in excess of their cost of capital through a full business cycle. those that promote growth in a free market will contribute to how the market prices and measure the required rate of return to justify growth. the ability to generate more consistent returns on equity and free cash flow or repaired balance sheets. only then will be which will there be at solid foundation for capital expenditures and rising services. thank you. >> thank you for your testimony. we will move on to members questions.

i will began with the distinguished gentleman from minnesota, the chairman of the full committee, mr. oberstar. >> thank you, mr. chairman. i would thank you for your splendid testimony. your own experience, i remember so well at twa. you are right, it did hollow out. st. louis, it did in the eye. kansas city, the result of the acquisitions meant the sale of their nonstop service between st. louis and london-heathrow. mr. icahn sold to american airlines for $400 million. he could -- if they never have acquired that in the public market.

this is public convenience and necessity and not for the personal enrichment of the carriers. america made that money back in about a year. but st. louis lost its connection to the world beyond. an awful lot of people lost their jobs in the process. ultimately twa, one of the great, proud carriers of decades past, was absorbed by american, and now hasted of that -- that o'hare for service. that is the encapsulated summary of mergers and vagueness. too big to fail -- united- continental, one of our witnesses just said, would control 20% of the domestic share, $115 billion of a rigid

115 billion available seat miles. that is enormous capacity patrol. -- control. i asked yesterday, and mr. forbes may recall this, why would anyone on any carrier spend $150 million on a 747, went for $50 million you can buy an entire fleet? >> opt-in carolyn -- into an airline in equity and turned it back. 180 degrees. less than $1 billion in equity. it put it on a path on the brink

of bankruptcy. they spent six months looking for other carriers to acquire. it all seem to happen in the industry. bigness leads and neglect and difficult labor relations and to lower quality service. mr. foer, your testimony -- i predicted along with many others that a merger for delta- northwest would lead to a merger between united and continental. that is what you meant.

and that is what has happened. is it likely that the next -- if this one is approved, american, u.s. airways, ba, iberia, n.j. a l -- 3 global mega carriers, right? >> right, that is basically right now the international theme. we have three airlines operating under a variety of brand names. i have been told by someone in a position to know that in those alliances, want the -- the antitrust exemption, the most companies can operate as if they are a single company. why not face the reality? the reality is that we're down

to three international global companies, supposedly competing against each other, but to the extent possible, they avoid head-to-head compotation. they're just carving up the international pie. and with antitrust immunity, which they are all desperately seeking, which i opposed for united, and which they will want now -- you cited the u.s.-japan case, ana once antitrust immunity for their alliance with united. there is no competition in an antitrust and new alliance. you'll see fares go up, service the down -- go down, more traffic concentrated on the most

profitable routes, and the smaller size -- the medium to small size hubs, and nonhub gets further downsized. that is what happens. told retrospective hearings on delta-northwest, i bet it would lead to baggage peace. $3.8 billion in baggage fees by the carriers, half of which are attributable to the delta operations. the next that is to figure out how did charges for printing out are boarding passes at home, our own paper that we use. they are very good at this. they have people who work day and night, little gnomes in their finance department,

working to squeeze more money out of this tournament they have got in their hands, and i am determined that that will not happen. stable and profitable does not mean ever bigger and fewer. airlines are looking for stability and profitability -- that does not mean that there should be fewer of them. they are always talking about rationalizing capacity. oran, you use that term. that was not the purpose of deregulation. we did not say we were going to take the government out of deciding market entry and pricing said that the airlines could consolidate and have more power. we won and more competition in the marketplace. mr. roach, the you remember having more options and more

choices in the previous era? the machinists union and the afa, have they ever had a dead face each other in a consolidation in an election? >> not yet. [laughter] >> not yet. well, if i had my way, you're never going have to. [laughter] i am doing my darndest to make sure that that outcome does not happen. if in a hearing in this room in 1990, and i was chair of the aviation subcommittee, and bill clinger was the ranking republican on the committee at the time. i ask that to the secretary of transportation, on his hearings

on airline finances. and mergers and acquisition. and i said, how many carriers rarely constitute competition in the marketplace? and the secretary said, i think tow. oh really? and he stopped. well, maybe three. that is where we are headed. and that is not good. what i hear from united and continental and american and the rest of them is that there's plenty of competition. just look at what southwest does for the marketplace. they drive the prices down, and legion are my constituents that they not to fly southwest. but they do not live there. they are not in the world competition. you are all right. thank you.

>> thank you, mr. chairman. >> thank you all for your testimony. i guess i have a couple of questions. .ne for mmr. strine i heard about low barriers to entry in the aviation industry, because you can lease a plane and have access to an airport and get into business. what are they high barriers to exit that your verdict? >> that reference is basically to the bankruptcy laws for the chapter 11 process. we see companies to pursue the path of a failing business model survive. about heard a lot

destructive competition. that law in itself is something that keeps the company are alive and keeps capacity in the market that was failing capacity. that is a high barrier to exit. >> and when you analyze the industry and prepared this and so on, you stand back and look at it, this is an awful industry not for the airlines but for the tickets based operators, they airports, the hotel business, for all kinds of people who had figured out and make money from people traveling. the airlines do not. and people leasing to them are making a lot of money. but there is this $68 billion a

year, and generating profit for everyone else on a systemic basis. what is different about that segment of this overall aviation transportation business that causes it to lose when everyone else is doing pretty well or seems to be doing a lot better or the margin if there several factors that contribute to the poor performance. one is that the industry has a very high fixed costs structure. as we inevitably move through economic cycles, they cannot call for their cost with the revenue taken generate given the amount of supply and demand in the market. it is as simple as that. if you look at the capitol industries that are required in the debt baked into these companies, they have over leveraged themselves, and the interest expense that they pay on the assets, if the aircraft or the aircraft rental fees that they pay, it contributes to the

high fixed costs structure. to finance a business which requires high asset intensive is difficult. when you have a structure that does not generate enough revenue to cover the cost of capital, meaning the interest expense, that goes up. that is the irony of all this. everyone would like to see a stronger industry. one of the drivers would be the cost of capital, more financials staple, and the lower the cost of capital will be, which will then provide a lower hurdle for growth. >> one last thing. if there had been a huge consolidation in the industry and a few big global players, that they would have more pricing power and ticket prices would go up and they would make money. but what seems to be happening is that prices are steady or even declining, and an increasingly better bite for the public. what is wrong from the point of

view of these people trying to create monopolies? will there be a pot at the end of the gold? will they extract monopoly profits? >> to apply that specifically to this merger, the aim -- if you listen to what the companies are arguing -- is that they think they will bets yet to get a better share of the corporate travel, a higher yielding customer, which will improve their mixing yield. if when you look at the competitive structure, from a financial standpoint, look at it holistic clean and globally. certainly domestically there is low-cost competition. there are companies that come and go. internationally we see consolidation. in europe there has been a lot of consolidation. british airways and iberia, and latin america there is only one airline outside of brazil that basically controls the whole region.

in asia and china, there are only three major carriers in china. you have air china in beijing, china southern, and china eastern. and they have been consolidating. part of the analysis has to be the companies here are going to be competing for international travelers against those foreign entities. i think that is something that we should not ignore. >> that you, mr. petri. the chair recognizes itself. during the testimony of mr. tilton and mr. smisek, i raised the question of the employees. and judging by the prior experience with airline mergers, and what has happened to employees, mr. roach raced the experience that he has been through. i understand that there is

uncertainty about the future of on merged airline, what will happen to the employees. i raise the point that if there were consideration as this merger moves forward, yet there are agreements that can be worked out -- if there are grim as they can be worked out with the union, that would make this a much smoother path to the merger being approved. i want to know thus far -- i want to ask capt. s and mr. roche -- captain pierce and mr. roach, what are the answers that you are waiting for?

i want to for that general question out there and we will start with the captain and go down the line. what has happened so far and what do you want to see happen? >> i began by saying we started the process. we have negotiated an expense reimbursement provision that is not quite enough but is a step in the right to region. we do not think the employer should have to pay for the expenses of the merger -- the employees should have to pay for the expenses of the merger. that was a step in the right direction, but a very small staff. we see indications that the managements are interested in doing the right thing, but until we actually see what they propose at the negotiating table on a transition agreement, and that would be more of a standstill type of agreement. as we progress down that path, our next step would be a joint collective bargaining agreement.

and whether we get to that quickly and not will be indication of how well this merger will go. if we do not get to it quickly and to quote captain pierce, if management does not learned the word yes rather quickly, the merger will not be successful. as we proceed down the path, was a great opportunity here to lead. but we cannot lead by ourselves. we must lead with the managements of the company's to make it a successful merger. we see the right steps, but time will tell whether those steps are really taken. >> and i would agree with captain morse that so far,

since may 3, we have seen steps by management that would lead to cautious optimism in terms of information sharing, in terms of working toward a transition agreement. i will say that the two pilot groups, united and need continental groups, are working very well together. i think with house that our management counterparts in doing due diligence in creating an environment for success. it has to be a sequential order, a certain order of things to occur that we have agreed upon. we will negotiate this transition agreement. once that is complete, we will move to the joint collective bargaining agreement, and once that is complete, we will move to finalization of the seniority list integration. each of those steps will be tested for our management groups

to ensure that they are participating in good faith. if they do not participate in good faith, then things will not progress, and if things do not progress, then they do not get their synergy, they do not meet their obligations, they do not meet their commitments. it is very much in hands of labor and our management counterparts working together if this is going to succeed. >> this trend. >> i am afraid that we have no optimism at all. we have been at the bargaining table with his management team on an open and a minimal agreements for well over a year now. we have made no progress. the company has not moved on their opening concessionary proposal. since they have announced the merger, that have been unwilling to discuss with us the expense reimbursement for what it will

cost the employees to participate in putting this merger together. they have been unwilling to talk with us about what we refer to as a sense of agreement which allows four separate operations while we work through this issue. they have been unwilling to talk with us at all about the merger. other than to provide us with an affirmation that is publicly available, that we could simply read in the newspaper. a very difficult labor- management relationship has not improved, nor has the incentives of united airlines give us any indication that they would like to improve it. in the synergies that they hope to get -- and the synergies that they hope to get from a combined work force are very far on the horizon and will not happen unless there is a change in attitude. >> thank you,.

mr. roach, you are shaking your head immediately when i was asking questions. i s and you have a similar response to ms. friend. >> we have similar situations on both carriers. we have met separately and with both management teams, and we have asked a lot of question. and they do not have any answers. they're willing to meet and continue to give us the answers. our concerns are about pensions. we worked very hard during the bankruptcy to maintain pensions. we worked very heard on continental to maintain a single employer plan. and what a lot of work, we have met and they have expressed that there is a lot of work to go through that process. they said that they have started back -- they have thought about it and they do not have any answer. we represent -- they operate on

united and continental, what happens to other subsidiaries. we're concerned about the overall business plan, that this is not too big to succeed. we create this monster airline with separate cultures that cannot be put together. northwest asked delta are not together. there are big problems over there. morale is down. the employees are not happy in their had been no integration, although it is portrayed in the public as it is. but that is not the case. we want to see the business plan. we want to see that this carrier can survive. we'll ask for that information and they say it is forthcoming and we are looking forward to it. if be on the collective bargaining agreement, we want to see that the carrier survives and is successful. having a good carrier and no jobs means nothing. if the carrier failed because they are unable to pull it together, we do not intend to

what. to want to see this thing sinc survive. we need information. >> i can emphasize how one port and is that these issues are worked out -- i cannot emphasize how important is that these issues are worked out. i will recognize the gentleman from ohio. >> thank you, mr. chairman. i just had a quick question for the to a gentleman -- the two gentlemen who seem to be opposing testimony. if you could balance the south -- balance of this out with your comments. mr. strine, you said that the ability to increase consistent returns will help repair past balance sheets and ensure long- term stability.

mr. moran has different testimony, says that without major growth of their hubs, significant sustainable revenue synergies are impossible. can you balance those comments out? >> when you look get returns of a company. you have to start with revenue and you need to think about what drives revenue. what drives revenue is supply and demand and price. what is clear to us all is that the revenue has not been sufficient to cover the costs, the operating cost of the engines, and the interest expense of the business, so have there been losses in retained earnings have been negative. companies continue to borrow money over the years. as those balance sheets become more laden with that and over leveraged, the cost of borrowing and the cost of equity

prices. that constrains broke, so that further problem on growth becomes higher. >> i will do not want to get into a theoretical debate. please explain how reducing the number of competitors actually increases competition. >> i am not arguing that. >> mr. moran. >> i teach you have summarized my argument quite well. the court claimed that these companies are making -- the core claim that these companies are making that this is good for the public and consumers and the long-term health of the industry because it will create measurable economic benefits in terms of networks synergies and cost reduction. i believe both of those claims are fundamentally false. i believe each you look at the historical record, there is no

evidence of anyone else ever having found this. if you look at the historical record of how networks work, you can create networked synergies in a case where you build up a large hub, when twa and ozark merged, they were networks synergies. you can create networks synergies in an environment where the merged carriers' suddenly creates the new ability to expand into new markets and things like that. i know where to look and there is no evidence in this case or from any public statement that they are going to do things that would enhance legitimate networks synergies. on the cost side, the cost of putting these companies of the size and levels of complexity together runs into the billions. plenty ofady had

testimony on collective bargaining issues that need to be resolved. those are expensive. equally important, integration of maintenance systems and the safety concerns raised by many people today, the financial infrastructure -- all of those costs are 100% certain. they occur right away. the use say because you do not need two general counsels -- yes, but that is trivial and down the line. >> you do a simple cash flow, all united has claimed after three weeks of negotiation is that we will have cost reduction equal to 0.6% of our combined operating costs. i am just saying, any person with common sense would look at that and say, that is what the pr guys are saying before the collective bargaining process has started and before you have done all hard messy work of integrating maintenance systems

and reservation systems. the cost synergies will be a big negative number. >> you think previous mergers with the unintended consequences of this unforeseen costs that have been added have led to farming out some of these routes, domestic routes to low- cost carriers? >> people were discussing american-twa, which was justified on the exact same kinds of synergies we're talking about today. there were no new hubs created, no expansion that was going to happen, it was somehow one plus one would equal three. and no one in the government scrutinize that. he pointed out the difference in the arguments and what i am saying first is what the ceo as saying. the issue for the committee -- you have have absolute confidence that the doj will be

doing critical synergy glance. if they are proven to be true, and mr. tilton and mr. smisek have found opportunities that continental management, who had been saying they did not won a merger because it is risky for shareholders, and that is not worth the benefits are and it would be a bad thing, he found things that his previous management could not find? caught bless him. if the synergies are honestly there and verifiable, they should be able to proceed. that would improve the efficiency and that stuff house. but if those efficiencies are not there, it begs the basic question, if what about all the other problems? is it all this energy stuff just a smokescreen? >> can we take a simple example to leverage on this? let's say you're running an airline and you're going to purchase 50 aircraft from

boeing, and a much larger airline and you're going to purchase 100 aircraft from boeing. you think you would get a, a better deal on your service and maintenance? in terms of the purchasing power, that there should be some benefit. >> too big to fail -- let me quickly reply to that. the idea that an airline the size of united airlines is not big enough to compete and needs to be bigger to be efficient is one of the more ludicrous claims that anyone has made in this industry in the last half century. the example i keep going to -- mr. tilton and mr. smisek ought to fly to moscow and sit down with russians, when you broke up the soviet union, if you broke up this thing. you broke it up with the silly notion that what you would not have the scale economies on

legal pads, competition and spur innovation would greatly offset the idea that you had many smaller companies again, it comes back to the factual point. if the scale economies, the synergy claim that mr. smisek and mr. tilton are making, are really there which no one else has found, great. if they are not -- this is a factual question that objective people consorts fairly easily. >> in that it already did go bankrupt and they are still here. >> look at the and tangible performance of united airlines, there is almost a perfect negative correlation. smaller airlines have earned the kind of sharron returned that he is talking about and big entrenched ones do not. >> i appreciate that and they did receive some government taxpayer dollars right after

september 11. i just want to comment -- i know you talked about training that would have prevented or should -- would have prepared you to prepare for muffles all. the legacy carriers have done a great job with training in the expertise that they have added. i want that same level of commitment from the regional airlines. not all have been deficient, but we want to see that higher standard be maintained. we're going to require the faa, but we want to make sure that the company to sell as well, because they are ultimately in charge of the training requirement. >> the chair thanks the chairman and recognizes the gentleman from california. >> thank you very much, mr. chairman. chairman over star has gone on and on about efficiencies at northwest and delta. i had my own story, mr. chairman.

due to the lateness of our session, and the cancellation of united flight out of national, i had to jump on a northwest asked delta flight. i was in minneapolis on may through a flight to sacramento. it was about $190 for that one way ticket. when i got to your part of the world, mr. oberstar, i found out that it was stopping. i was dumped in indianapolis -- minneapolis-st. paul for the night. all well and good. i went to pick up my ticket and got on to the flight and i was not booked, to my surprise and thanks. eventually i was able to get on the very best things which may have been a pilot's seat that would cause a delay somewhere else. the way that the system worked was that telephone call. the computers did not work at all.

which it had been obvious this the project since i did not have a seat. the only way they did it was by telephoning someone that they've found in, i guess, atlanta. so much of the efficiency issues of mergers. but that is a personal problem. if my real concern is one of safety all the way around. i was astounded by the information given by the ceo's of out who was going to make sure that the maintenance in china, singapore and the philippines, was of quality. as though they had no responsibility themselves, that it was an faa responsibility. no, that is not the case. similarly with regard to the quality of the pilots and other personality on regional airlines that contract in this case with united or with continental. it is the response ability of the management of both units --

the responsibility of the management of both to provide assurances that the highest quality of maintenance, where every maybe, set for a cisco or shanghai or wherever, is done. those are my comments. i can toverything holder management responsible for the quality of the pilots as well as the quality of the maintenance facilities. finally, with regard to the issue going forward of the financials on the merger, and whether in fact that just a part and is looking at it -- mr. chairman, i might recommend based on what we've just heard that we invite the justice department to come and testify as to what they have found with regard to the issue of synergies of all kinds. and if they are not even looking

at them, we might want to beat them over the head and asked them to look at those and are there real synergies or is it just one way to put smoke up in the air? i do not have any further questions. if any of the participants would like to jump in with my remaining one minute and 35 seconds, you can do so. >> i think we both would. with regard to the outsourcing of flying, you both spoke so eloquently about that earlier. we have a very good mentoring program that has worked for more than the 25 years, says our inception in 1926. that meant three program is where a senior captain mentors of more junior first officer. now we have to read scenario where we have 14,000 -- many highly experienced pilots that are not working, when instead we have less in perrier -- less experienced pilots -- you cannot

train for that. we should have a slowdown and a slow up. as the ceo's indicated, we do not care plans to put on those fronts. -- on those runs. there is no reason why we cannot live as air. . we're very capable of flying the airplane. to say that as a solution to the problem is ludicrous. the people that mentored us with a people whose very pensions were taken away -- were the people whose very pensions were taken away. we have to solve for the outsourcing problems and the pensions as we move forward. >> and allen and on top of captain morse -- and i would add on top of captain morse, it basically sets of baseline of acceptability. alpa contracts have increase

those levels of safety and training. always sought to evict concessionary period it those areas got degraded and our contractual or -- in our contracts. now was rebuild those contracts -- as we rebuild those contracts, we have to pay more attention to reparations, trading standards and flight time and duty time. i hope we have user report as well in pushing through these training standards language that alpa supports, and do not seem to be making much progress. >> mr. chairman, other a brief comment. -- a very brief comment. we have to ceo's here. i've been sitting on the i s like this for 30 years and i dias forzed -- on maa

30 years and i recognize b.s. there is a big problem with safety, and when they tell me it is the faa's responsibility, if and when a claimant back away from it that it is not their responsibility to the quality that they contract with, the airlines and the people then hired by those regional carriers, i know that something is seriously wrong. i have been too long at this game, not in this particular chair, but in chairs in california, to listen to that and find it acceptable. they've said they're going to respond to me. the better. make you, mr. chairman. >> the chair thanks the gentleman, and let me mention to the gentleman that we invited the justice department to send representatives over to testify today. it's a standard process when

they are reviewing a case that they declined to testify. they have sent a letter to us explaining procedure that they will follow in reviewing the proposed merger. i will tell the gentleman that we will take your comments from the record and write a letter to the justice department telling them that we specifically want them to concentrate on the synergies that are claimed by the ceo's of the proposed merger. >> thank you, mr. chairman. she then the chair would ask members if they have other questions, comments, and if not, the chair would recognize the chairman of the full committee, chairman oberstar, for closing comment. >> thank you, mr. chairman. it has been the most in lightning and a valuable hearing -- enlightening and viable hearing, especially this

panel with specific issues involved and raised by mergers, other than the standard testimony that we could expected from the ceo's, i could almost have written. but for make a closing nd mr.ation, mr. foeran abnd horan. he said that standard analysis focuses on horizontal over lavs. it is necessary but should not be considered sufficient. mr. horan, you observed the committee needs and observe the root cause of these problems. nullification of a longstanding antitrust laws. both comments go to the heart of the issue that we're dealing with here.

the delta-northwest merger, acquisition, however you want to phrase it. what are your suggestions -- i just want your verbal response and then put something in writing if you think about it -- how can we restructure the dot role in the antitrust proceedings to give it more weight, more force in the calculations done on these antitrust proceedings? the antitrust law is limited, as you say, to horizontal overlaps. i had the last the justice department -- i had to ask the justice department in the delta that northwest situation whether they would consider the nominal

at that, the downstream effect of delta-merger on other possible mergers -- the delta- northwest merger on other possible mergers. and they said that they would give that the consideration. the antitrust role is like a straight jacket, very limited. dot has wider latitude in these matters, but they nonetheless have gone on to approve antitrust immunity for international alignment. what are your thoughts for how we can rephrase that authority? what provisions can we include in future legislation? >> mr. chairman, i do not think the answer is getting dot a larger role. they had the role themselves after deregulation and they blew

it. that congress said, ok, let's let the antitrust division handle these matters. dot provides information that is very important. it is not just the antitrust law necessarily that narrow. it has been interpreted in a very narrow way for 30 years. the justice department and the ftc have put forward for public comment a revised horizontal merger guidelines. in that they recognize the role of incipiency, for instance. section seven is in incipiency statute. it is supposed to stop mergers before they become dangerously anti-competitive. that is a trend, it is a prediction. i don't think that that has been the way, either of the agents at

interpreting the laws sufficiently in the past, but the law is there. pressure from congress to utilize the law to its fullest is what is needed. i think that the agencies are capable are looking at not only the merger before it, but recognizing tactics, and that companies interact on a strategic bases. when one goes forward and changes the structure of the industry, the others have to respond. i think that can be taken into account by antitrust, but it had not been >> and it should be. mr. horan, is there not much more that we could do with dot? >> i agree that the law as written is not the problem. considering the actual economics of the people applied for

murder, but they refused to do that. deregulation of the airline industry was designed specifically on the concept that other laws that apply to all other deregulated industries, designed to protect consumer interests such as at the trust laws, consumer protection laws, and labor loss for all is intended to apply to the deregulated industry. the problem is that the department of transportation has been gutting the antitrust laws in response to the lobbying efforts of companies like united, double, and continental. those companies would like to distort competition to hurt the u.s. airways, earth and northwest, hurt southwest, hurt , and the department of transportation is a willing participant. and consumers of already planned

$5 billion a year in higher fares slowly a trivial to artificial pricing power, and the department of transportation's if major objective right now is to make sure those anticompetitive pricings impact in the pacific. they're doing everything to stop scrutiny of those cases. they do not want evidence presented. if application saying, but court claim of the japan cases is the network synergies. i used to run the biggest hub in tokyo at northwest. i was the person who developed and the trust immunity networks. i understand -- i can evaluate this claim. if i'm not the best qualified person on the planet to look at it, i'm in the top five. the department of transportation said absolute and not. we cannot have anyone looking at this. they said that only lawyers could do it. mr. horan, you may not evaluate

this claim. that is saying that they do not want scrutiny of these claims. just go back and allow verifiable scrutiny in accordance with the horizontal guidelines, and you would solve 67% of the problems. you also bring the airline merger problems to a screeching halt. >> you're quite right. somewhere where i sat in 1978, i rubbed my worry beads about this deregulation, what would be the outcome here. we anticipated that the justice department would ride herd on any mergers. we did not count on carter losing the election, reagan winning, and the reagan

department never meeting a merger they did not like. they said that they really needed to be big enough market to be successful. the notion that united is not big enough to combat -- compete on domestic and international markets is ludicrous. the language of the antitrust code -- any actor to be affecting commerce in any effort at -- section of the country, yet that is to lessen competition or tend to create a monopoly. there is a large budget how shall i say -- judgmental opportunity in those words. it has not been used in so many

years by the justice department has to be a placid -- has to be -- as to be flaccid. they need to be encouraged and that is -- i am looking for some way to strengthen the hand of the department of transportation in this process. what it has led to is bigness. and it leads to the billions of dollars a baggage fees in 2009. that is an carriers. of those 10 carriers, delta and northwest combined for 33% of the total. that is what bigness has given

you. more market power in the domestic marketplace, more suppression of passengers and travelers and communities. it has not given you more choices. maybe a few more choices on united or delta of, but not more choices overall. it has led to job loss, the shift of employment from one city to another, and downsizing. now i am being repetitive. i want to save that this is a terrible, awful, no good thing. and that justice department -- i will continue to do everything in my power to make that happen because this is the very antithesis of deregulation, and will lead to the moment this thing is approved, i will draft and introduce legislation to reestablish market regulation by

the government of airlines. >> the chair thanks the gentleman. >> maybe you should not. >> i was going to mention that maybe what deregulation has led to, because of the justice department, is possibly " read- regulation. -- re-regulation. we will have collected that depending on what the justice department does. we appreciate your offer in your testimony today. i think chairman oberstar and others have summarized the issues. you heard in my opening statement and in many of the opening members, deep concerns concerning safety and the work force and a number of other issues. we will urge the justice department to specifically

looked at those issues in reviewing this proposal. again, we appreciate your testimony. the subcommittee stands adjourned. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

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