Government's Decision Looms Over Northwest Airlines' Bid for Continental

Talks between the Clinton Administration and Northwest Airlines ended inconclusively yesterday, with the Administration's antitrust division of the Justice Department still deciding whether to block the airline's bid to buy a controlling stake in Continental Airlines. The deal, announced in January, has had a significant impact on the domestic airline industry, prompting a series of alliances between other major carriers. Northwest's bid, worth $311 million plus 4.1 million shares of Northwest stock, aims to form a broad alliance with Continental, combining frequent-flier plans and selling seats on each other's flights while maintaining separate managements, boards, and employees.

Key Takeaways:

• The Justice Department has until the end of the day to file a lawsuit to block the deal, but a person close to the negotiations said the Government has some wiggle room and assured Northwest that it would not take action.
• Northwest, the nation's fourth-largest airline, aims to acquire a majority stake in Continental, the fifth-largest carrier, from a Texas investment group.
• The airlines intend to enter into a broad alliance, combining frequent-flier plans and selling seats on each other's flights while maintaining separate managements, boards, and employees.
• The so-called virtual merger has touched off a series of deals between other large airlines, with United, the nation's largest airline, entering into an alliance with Delta Air Lines, and No. 2 American Airlines linking up with U S Airways.
• The alliances were announced at a time when concern in Washington about the power of the big airlines to dominate major airports was already on the rise.
• The Justice Department has been investigating several carriers, including Northwest, for antitrust violations, and several bills designed to promote more airline competition were introduced in Congress.
• If the Government does go to court, Northwest and Continental could decide to walk away from the deal, but a person familiar with their plans said they are ready to fight and believe the Government's case is weak.

Statistics:

• The bid is worth $311 million plus 4.1 million shares of Northwest stock.
• Northwest is the nation's fourth-largest airline.
• Continental is the fifth-largest carrier.
• The airlines intend to combine frequent-flier plans and sell seats on each other's flights.
• The deal was announced in January.
• The Justice Department has until the end of the day to file a lawsuit to block the deal.

Sources:

• Talk to a person close to the negotiations
• Officials at the Justice Department declined to comment
• Spokesmen for Northwest and Continental declined to comment