At a time when most industry executives are seeking the ability to tap into new capital markets with cross-border ownership deals, something most other global businesses are allowed to do, Representative James Oberstar chair of the House Transportation and Infrastructure Committee wants to take the industry in the opposite direction with his month-old HR-831 antitrust bill.

Now the Air Transport Association has finally responded, echoing European Union fears that the legislation will derail the year-old open skies pact between the U.S. and E.U. In a letter to Department of Transportation Secretary Ray LaHood, the coalition – made up of European partners represented by the Association of European Airlines, as well as other aviation and travel organizations – seeks help in forestalling the measure. But, since Oberstar’s legislation was folded into the FAA’s reauthorization bill, they could end up campaigning against the reauthorization legislation they have been seeking for nearly three years

The move comes as the department considers two anti-trust immunity (ATI) applications – Continental’s plan to become part of the Star Alliance with United and Lufthansa, and American/British Airways bid to broaden the Oneworld relationships. In addition, it has been asked by Alaska Airlines to review the ownership of Virgin America, which the Seattle-based airline says now violates foreign ownership rules. Oberstar does not want to see airline competition concentrated under three global partnerships, the third being the SkyTeam Alliance led by Air France/KLM and Delta Air Lines.

The Air Transport Association of America (ATA), along with a broad coalition of aviation industry stakeholders, urged the administration to oppose HR 831, which would sunset existing international airline alliances. ATA reported yesterday that passenger revenue fell 19 percent in February 2009 versus the same month in 2008 – the fourth consecutive month in which revenue has fallen from the prior year. Twelve percent fewer travelers paid 8 percent less to fly one mile on U.S. airlines, with declines extending beyond the mainland United States to transatlantic, transpacific and Latin markets. Year-over-year results were also adversely affected because February 2008 consisted of 29 days.

Compounding the softening demand for travel, U.S. airlines saw cargo traffic – as measured by revenue ton miles – decline 21 percent year over year in January 2009, after back-to-back 17 percent declines in November and December 2008. Notably, transpacific cargo traffic fell 32 percent. February 2009 cargo data is not yet available.

“The sharp decline in spending by passengers and shippers demonstrates how the global recession is taking an increasing toll on the traveling public, as well as on time-sensitive cargo shipments,” said ATA Chief Economist John Heimlich. “The worldwide slowdown is forcing further capacity reductions, despite the meaningful drop in fuel prices.”

While Oberstar, who spoke before the International Aviation Club yesterday, charges that such alliances are “defector mergers” that hurt competition and cost jobs, the coalition indicated it they offer key efficiencies, foster competition and create jobs. "Is that what I voted for when I voted for deregulation in 1978?" Oberstar asked. "Hell no." He added that such alliance work in corporate, not consumer interests. Tripso.com’s Charles Leocha used the Northwest/KLM partnership to prove Oberstar’s point.

“Historically, I can’t think of a single good thing for consumers or airline workers that has come from airline alliances,” said Leocha. “Workers have lost jobs and consumers have seen competition and choice erode. But the new versions of alliances that airlines want to have approved by the Department of Transportation are far more far-reaching than anything considered 20 years ago when KLM and Northwest received the first grant of anti-trust immunity to coordinate schedules. That ‘coordination of schedules’ eventually resulted in the merger of their marketing departments. Today’s anti-trust immunity requests are so intricate that the airlines have actually kept most of the details secret from the public, releasing details only to lawyers, not even journalists and congressional staffers.”

But ATA and its coalition partners disagree. “International alliances are a vital element of a global economy and produce enormous benefits for travelers, businesses, shippers and others,” said the group in its letter to LaHood. “DOT has historically approved international airline alliances because of the substantial benefits that they provide both to passengers, and to European and U.S. airlines. H.R. 831 could destroy important service and public benefits such as competitive fares and new routes by withdrawing previously granted rights for carriers to participate in alliances.

“In addition, arbitrarily terminating antitrust immunity will have a harsh impact on airline employees and cause a ripple effect across the travel and tourism industry, at a time when U.S. unemployment is escalating rapidly,” it continued. “ Based on data from ATA member airlines, this legislation could cost as many as 15,000 U.S. airline jobs alone, not to mention the indirect effect on employment at other companies both in the United States and abroad. U.S. airlines have already cut 28,000 jobs last year and announced thousands more cuts for 2009. This legislation would unnecessarily add to that total.

The KLM/Northwest deal was “a transatlantic route merger without the messiness,” said Leocha. “Passengers saw once robust competition between Northwest on its Boston to Amsterdam routes with the KLM New York to Amsterdam routes disappear,” he continued. “’More convenient’ non-stop flights from Minneapolis, Detroit and Memphis all using Northwest aircraft began feeding KLM’s European network….Airline cries of thousands of additional lost American jobs are disingenuous. Their claims of better service have not been borne out by two decades of alliances. Their requests to negotiate together is anticompetitive and tantamount to a merger without swapping stock, which would cripple competition for business and leisure travelers as well as suppliers and travel agencies. From a consumer’s point of view, there is little good in the a world of alliances that would give the control of the skies to three giant, stateless, international entities. Rep. Oberstar’s concern is well-placed and his instincts that this is a raw deal for the flying public is spot on.”

The European Union is also increasing its pressure to forestall the bill saying it threatens the year-old open skies pact between the U.S. and E.U. as well as further liberalization talks scheduled to begin later this year. It also opposes provisions in the bill concerning foreign repair stations and requirements for increased inspections, saying it contravenes the EU/US Aviation Safety pact signed last year. EU Ambassador John Bruton, scheduled to speak later this week on the issue, sent a letter to LaHood this week expressing concerns. The European Commission weighed in against the legislation last week.

Mesa Terminates Mokulele, RJET Ups LCC Investment
In the wake of the recapitalization of Mokulele Airlines by Republic Airways Holdings (RJET), Mesa Air Group Inc. terminated its code-share agreement with Mokulele Airlines, accelerating a previously announced termination date. Mesa’s is now code sharing with Hawaii Island Air dba Island Air with its 37-seat de Havilland Dash 8-100s and -200s.

"Given the direction Mokulele has taken we believe it is in the best long term interests of both companies to end our partnership," said go! Vice President Paul Skellon.

Mesa Air Group Chair and CEO Jonathan Ornstein said, "go! Express passengers will now be flown in greater comfort on Island Air's larger, pressurized twin engine aircraft." Mr. Ornstein added, "In the coming days we expect to begin offering our customers an even greater choice of inter-island routes as part of our new code share agreement with Island Air."

Last week, Republic converted $3.0 million of its $8.0 loan and injected $3.0 million of cash in exchange for 50% of Mokulele’s common stock. In the deal, Republic Vice President for Strategic Alliances Scott Durgin succeeded CEO Bill Boyer as interim president and will focus on sales and marketing efforts.

In the same SEC filing, RJET said US Airways, Inc. notified its regional partner it would avail itself of a $25 million term loan, already part of the current loan agreement between RJET and LCC. The loan was funded on March 19. The Company made an unsecured term loan to US Airways of $10 million on October 20.

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