Administration : Stiffer Rules for Airline Takeovers OKd

A House subcommittee agreed Monday to impose tough new standards on takeovers of major airlines after witnesses testified that the debt that accompanies leveraged buyouts could threaten airline safety and viability.

The bill would give the Transportation Department authority to block an airline takeover if it would financially weaken the airline and jeopardize safety, cause a major reduction in assets or transfer control to a foreign interest. The bill would apply to any purchase involving at least 15% of a major carrier’s voting stock.

The House Public Works subcommittee on aviation passed the legislation by voice vote despite the objections of the Bush Administration. The bill was sent to the full Public Works and Transportation Committee, where approval is virtually certain, probably this week.

Subcommittee members impatiently dismissed financier Donald J. Trump’s assertion that mere consideration of the measure helped kill the pending buyout of UAL Inc., parent of United Airlines, last Friday, causing stocks generally to plunge.

Another airline takeover--Trump’s proposed $7.5-billion buyout of AMR Corp., the parent company of American Airlines--helped prompt quick action on the bill in Congress. However, Trump on Monday withdrew his $120-a-share offer as AMR’s stock dropped to less than $80 a share on the New York Stock Exchange. Trump indicated that he might make another proposal at a lower price.

“We are not going to be intimidated by Donald Trump saying that we caused the downturn in the market,” said Rep. Peter A. DeFazio (D-Ore.), a key sponsor of the proposed new takeover restrictions, along with Rep. James L. Oberstar (D-Minn.), chairman of the aviation subcommittee.

The day after similar legislation was approved Oct. 5 by the Senate Commerce, Science and Transportation Committee, the Dow Jones industrial index and the associated transportation average both hovered near historic highs.

Because of recent mergers, Oberstar said, the country’s top eight airlines now control more than 90% of domestic air traffic. “There is a widespread feeling that leveraged buyouts ought to be subject to review and some degree of regulation so they do not jeopardize the potential for competition,” he added.

Rep. Martin Frost (D-Tex.) said takeovers “can result in debt so great that even the healthiest of airlines may be forced to take drastic actions, such as selling off assets . . . delaying or abandoning needed growth and modernization of its aircraft fleet, and neglecting personnel operations important to the safety and maintenance of the airline.”

However, a letter from Deputy Transportation Secretary Elaine L. Chao hinted at a veto by President Bush if the bill passes in its present form.

The Administration “strongly opposes enactment” of the proposed legislation, Chao said. “The Department of Transportation currently has sufficient authority to act where an acquisition raises questions about an air carrier’s fitness.”