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United-Continental Merger May Face Bumpy Ride on Hill

The prospective union of United and Continental airlines could run into turbulence in the coming weeks as Congress prepares to hold hearings on the proposed mega-marriage, which already has plenty of critics on Capitol Hill.

With the merger approval in the hands of the antitrust division of the Justice Department, Congress is relegated largely to an oversight and advisory role.

Nevertheless, experts in such deals say that the airlines want to ensure that the hearings do not turn into a public relations nightmare that could indirectly factor into the Justice Department decision.

They add that while Justice officials are supposed to focus on economic and not political considerations, it would be hard to ignore widespread disapproval on Capitol Hill or negative headlines generated by confrontational hearings.

“It’s worth it to them to damp down the opposition expressed at the hearings,” said Michael Goldman, an expert in transportation law and a partner at the firm of Silverberg Goldman & Bikoff. He said the airlines should be lobbying to ensure that the witness lists at the hearings include experts who support the merger and are not dominated by consumer and labor groups in opposition.

The Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights has scheduled a hearing called “The United/Continental Airlines Merger: How Will Consumers Fare?” for May 27. The House Transportation and Infrastructure Subcommittee on Aviation has already announced it will hold a hearing June 16 on the possible effects of the merger on consumers and the industry.

While the merger has been overshadowed by other events such as the BP oil spill, it has sparked criticism from some key players, notably Rep. James Oberstar, chairman of the Transportation and Infrastructure Committee.

In a May 5 letter to Christine Varney, assistant attorney general for the antitrust division, the Minnesota Democrat wrote that the increasing consolidation of airlines will result in less service and rising fares.

Some Texas lawmakers have expressed concerns that the merger will result in the loss of corporate jobs in the Lone Star State. Under the tentative agreement, the headquarters of the merged airline would be in Chicago, where United is based, and not Houston, Continental’s home.

“The proposed merger with United raises understandable concerns about the impact on the Houston area economy as well as broader issues with competition and choice,” Senate Commerce ranking member Kay Bailey Hutchison said in a statement. The Texas Republican said she will review the short- and long-term effects of the merger.

Laboring On

The combined airline has drawn mixed reviews from labor unions. The union representing United pilots has praised the deal, arguing that because the two airlines have minimal route overlap, that would mean more job security.

But officials with the International Association of Machinists and Aerospace Workers, which represents 26,000 employees at both airlines, including flight attendants and baggage handlers, fear the merger could lead to job losses.

Robert Roach Jr., the union’s vice president of transportation, said labor officials have been making the rounds on Capitol Hill expressing their concerns. He said union leaders are also scheduled to meet with airline executives in Washington, D.C., today to get a better grasp about what the merger would mean.

“There has been a lack of information forthcoming,” he said.

Rep. Jerry Costello, who chairs the Transportation and Infrastructure Subcommittee on Aviation that is holding merger hearings next month, has conflicted views about the deal. The Illinois Democrat said in a statement that he is concerned that such mergers lead to less competition. At the same time, he welcomed the fact that the combined airline would be based in his home state.

“Certainly, there will be benefits for Illinois,” said Costello spokesman David Gillies, who added that he expected representatives from both airlines to testify at the House Transportation hearing.

Officials from neither United nor Continental would comment on their legislative strategy.

But the companies, with large and experienced lobbying teams, have been touching base on Capitol Hill.

After they announced the proposed merger, the CEOs from both airlines, Glenn Tilton of United and Jeff Smisek of Continental, met with Oberstar and Costello in Washington, according to Oberstar spokesman Jim Berard.

The companies also launched a website that includes information about the deal, and they bought advertising in Capitol Hill publications.

Flush With Influence

Between the beginning of 2009 and the end of March this year, the federal lobbying tab for United was $2.8 million and almost $2.5 million for Continental, according to lobbying disclosures filed with Congress.

Continental had a particularly large jump in lobbying expenditures this year as its spending rose to $894,000 in the first quarter from $285,000 in the fourth quarter of 2009.

United has relied on a bigger team of outside lobbying firms than Continental. Among the company’s eight outside firms were the Duberstein Group, Singer Consulting, Palmetto Group, Holland & Knight and Covington & Burling.

Continental employed two outside firms, Williams & Jensen and Winning Strategies Washington.

Both airlines have been active campaign contributors, although they had starkly different giving patterns. In the current election cycle, Continental’s political action committee and employees contributed $200,000 to federal candidates and parties, with 57 percent going to Republicans, according to the Center for Responsive Politics. United contributed $140,000, with 77 percent going to Democrats.

The top recipients of contributions by Continental’s PAC were the National Republican Congressional Committee, which received $17,500, and the National Republican Senatorial Committee, which took in $15,000.

United’s PAC made its largest contribution, $10,000, to the Democratic Senatorial Campaign Committee. The PAC also gave $8,000 to Sen. Patty Murray (D-Wash.), who heads the Appropriations Subcommittee on Transportation, Housing and Urban Development. United contributed $6,000 to the campaign of Senate Majority Leader Harry Reid (D-Nev.) and $5,000 to Costello. Continental gave $4,500 to Reid and $3,500 to Murray.

Kenneth Button, a transportation policy expert at George Mason University, said the airline lobby is “really strong,” but he said Justice officials shouldn’t pay attention to the lobbying and should instead judge the market impact of the merger.

Goldman, the aviation lawyer, said theoretically Justice officials shouldn’t be swayed, but he added, “Like the Supreme Court, they read the newspapers.”

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