U.S. May Block Northwest’s Alliance With Continental
The Justice Department has raised concerns about Northwest Airlines’ plan to buy a controlling stake in Continental Airlines and may go to court to block the alliance, federal officials said Monday.
Justice officials have been talking for several days with representatives of the airlines and Air Partners, an investment group that agreed to sell Northwest an equity stake in Houston-based Continental representing 51% of its voting stock.
The department could file suit later this week, said federal sources who spoke on condition of anonymity.
Although the airlines would remain separate operations, the department has been reviewing the alliance as if it were a merger. The Northwest-Continental deal, announced in January, spurred the rest of the nation’s six biggest carriers to put together partnerships of their own, leading to fears that the consolidation could reduce service and drive up fares.
Northwest and Continental, the nation’s fourth- and fifth-largest airlines, plan to combine their route networks and frequent-flier programs while maintaining separate fleets. Northwest, based in St. Paul, Minn., said it would place in trust its voting control. The trust would in most cases vote according to the recommendations of Continental management. In case of a merger bid, Northwest would vote the shares.
Although there is little overlap in the airlines’ routes, the department has “a view on the use of voting trusts . . . that transcends this industry. That is their biggest concern,” said a source familiar with the discussions.
Representatives for the airlines declined to comment.
Air Partners would get $300 million in cash and 4.1 million shares of Northwest.
Separately, Continental Airlines reported a 32% increase in third-quarter operating profit to $150 million, or $1.94 a share, a penny higher than analyst estimates. Revenue rose 12% to $2.12 billion.
Continental shares gained $2.81 to close at $42.13 on the New York Stock Exchange, and Northwest shares rose $1.81 to $27.19 on Nasdaq.
