House Panel OKs Limits on Airline Deals

A bipartisan majority of the House Public Works and Transportation Committee ignored a presidential veto threat Wednesday and approved a bill to restrict leveraged buyouts in the airline industry.

The bill would require the Transportation Department to block purchases of 15% or more of an airline’s voting stock if the debt created by the buyout might threaten safety or weaken the airline’s competitive position, or if the stake is owned by foreign interests. Current regulations restrict foreign ownership of a U.S. airline to less than 25%.

Opponents claimed that the bill could be the first step toward congressional regulation of all debt-financed takeovers.

California Rep. Ron Packard (R-Carlsbad) said the bill goes beyond what is healthy for the airline industry “and the whole process of leveraged buyouts” and sets a precedent “that could be devastating to the whole process of acquisitions.”

Peter A. DeFazio (D-Ore.), a strong supporter of the bill, retorted that government interference into buyouts and takeovers is precisely the intention of many of the bill’s Democratic sponsors because mergers are “hollowing out” U.S. industry.

“I hope this is a foot in the door to long-term restrictions (on leveraged buyouts),” DeFazio said. “I hope Wall Street sees this as a first step toward halting these disgusting practices.”

Airing the Administration’s viewpoint, Rep. Arlan Stangeland (R--Minn.) said the bill “sends the wrong signal” to the nation’s financial markets by suggesting that movement toward airline deregulation would now be reversed.

“This looks exactly like a retreat from deregulation,” Stangeland said. “The government does not have a role determining individual transactions and second-guessing the marketplace.”

The Administration has also argued that the Department of Transportation already has sufficient power to block takeovers that could threaten airline safety.

Speaking in support of the bill, of which he is the author, Rep. James L. Oberstar (D-Minn.) said, “There is clearly a connection between financial fitness and the safety of an airline.” He noted that mergers and acquisitions in the years since deregulation have resulted in the number of major carriers dropping to eight from 22.

The committee defeated a union-backed amendment by DeFazio that would have barred a takeover if it would result in a major reduction of wages, benefits or workers. The bill itself, however, was approved by a 23-5 vote. Similar legislation has already been approved by the Senate Commerce, Science and Transportation Committee, and floor action in both houses will probably come within a few weeks.

The bills had originally been on a “fast track,” with passage rushed in part to derail a bid by real estate tycoon Donald J. Trump to take over AMR Corp., the parent of American Airlines. On Monday, however, Trump withdrew his $7.5-billion AMR offer.

NEXT STEP

Legislation that could be used to block airline takeovers has been passed by committees in both the House and Senate. Floor action in both chambers is expected within a few weeks. However, the Administration is opposed to the bill, so it faces the threat of a presidential veto.