WASHINGTON (NYT) — The proposed merger of Continental and United airlines got a cool reception Thursday from senators who questioned its potential impact on aviation safety and service to smaller airports.
"I have never been a big fan of mergers," Sen. Byron Dorgan, D-N.D., told Continental Chief Executive Officer Jeff Smisek and United CEO Glenn Tilton, who were witnesses before the Senate Committee on Commerce, Science and Transportation. "I have never felt that we have solved problems in (the airline) industry by getting bigger."
But the CEOs continued to insist that the consolidation would ensure their companies' survival in an unstable economy and benefit the public in the long term.
Smisek recalled Continental being on the verge of bankruptcy in the mid-90s and its loss of $1 billion following the 9/11 terror attacks.
"If we are one company, we are going to be much better prepared to deal with whatever the next shock is, and everybody knows that it's coming," said Smisek.
The testimony of the CEOs deviated little from their positions before a House panel on Wednesday.
But senators took a far dimmer view of the proposed merger, which is under review by the Justice Department.
Dorgan told the CEOs he was concerned about passenger safety, citing the airline practice of outsourcing flights to smaller subcontractors.
He pointed to the fatal crash of Colgan Flight 3407, marketed as a Continental Connection flight. It crashed on approach to Buffalo, N.Y., in a winter storm on Feb. 12, 2009.
"The crash, in many ways, was an issue of (the network airlines') size," said Dorgan.
Sen. Kay Bailey Hutchison, R-Texas, told the CEOs she was concerned about the merger's impact on Houston, Continental's current corporate home base. Under the proposed merger, Continental would move its operations to United's headquarters in Chicago. Resulting job losses in Houston could run as high as 15,000.
Hutchison also feared the merger would mean loss of service to smaller community airports. Low-cost carriers such as Southwest airlines seek out smaller markets and utilize mid-size airports as well as major outlets to gain a competitive edge, Hutchison said.
Smisek argued the merger would stabilize the airlines, bringing "economic predictability and survivability."
However, Dan McKenzie, an industry analyst for an independent investment firm, testified that airline business is on an upswing, despite the tough economic climate.
McKenzie estimated that the airline industry will turn $4 billion in profits this year and $5 billion next year. "I think that the industry is on the road to recovery, but that recovery is vulnerable and fragile," he said.