US Department of Transportation Doesn’t Care About Alaska-Hawaii Merger

It’s been two weeks since the proposed $1.9 billion merger between competitors Alaska Airlines and Hawaiian Airlines cleared what’s traditionally seen as its biggest regulatory hurdle. What now?

The formal U.S. Department of Justice review period for the proposed merger under the Hart-Scott-Rodino Act expired without a hitch on August 19 at 12:01 a.m. ET. That was almost disappointing, given the mounting tension and speculation following three extensions of the review period, which was originally scheduled to end on August 5.

But an Alaska Airlines spokesman said in a statement this week: “Although the HSR Act waiting period has expired, fulfilling one of the conditions necessary for closure, the proposed combination of Alaska Airlines and Hawaiian Airlines remains subject to U.S. Department of Transportation (DOT) approval of an application for a temporary waiver to transfer international route authority. USDOT review of this application for a temporary waiver has not yet been completed.”

The Justice Department enforces Section 7 of the Clayton Act, which prohibits mergers and acquisitions that would substantially lessen competition or create a monopoly. However, the DOT, which once had primary responsibility for reviewing airline mergers, still retains the authority to deny applications for exemption of international aviation agreements from antitrust laws, the final required step before Alaska and Hawaiian merge.

A U.S. DOT spokesman said in a statement Thursday: “Alaska Airlines and Hawaiian Airlines have submitted a transfer application to merge under a single certificate and cannot combine their operating authorities without the approval of the U.S. Department of Transportation. The department is reviewing the application and may approve the transfer only if it is in the public interest.”

Transportation officials declined to comment further, but a key difference is that their review period is not subject to a published timeline, unlike the Justice Department’s review, which is assigned an expiration date.

The Aircraft Personnel Association (CWA) said in an Aug. 19 press release that the Department of Transportation’s authority to verify international routes and overall merger compliance with Department of Transportation requirements “has typically been cursory in nature and approved in a cursory manner.”

But aviation historian Peter Forman says it could be several months before the Department of Transportation conducts a review of the deal, which he believes will clear any regulatory hurdles.

While the DOT has taken a less compliant stance toward the Justice Department under the Biden administration, Forman said, “I just don’t see a history of the DOT standing in the way of a merger. The DOJ has always led the way since 1989. I just really don’t foresee any problems here.”

Forman said that looking at Wall Street, it doesn’t seem like Hawaiian investors are worried about the deal, as the stock was trading at $17.32 per share on Friday. Alaska said it will pay $18 per share in cash as part of the deal.

“We’re close enough to $18 a share that Hawaii investors think it’s going to go through,” he said. “Before the DOJ decision, it wasn’t that high, so there was a big boost in confidence after the DOJ decision, and since then, not much has happened, it’s still very high.”

Potentially, a lot rides on the merger, given Hawaiian’s current and past few years of financial troubles. Hawaiian reported a second-quarter net loss of $1.30 per share, or $67.6 million, compared with a net loss of $12.3 million a year earlier. After one-time costs, the second-quarter loss was $1.37 per share.

The uncertain timing of the DOT’s decision has some in the community concerned and raised concerns that a delay could harm Hawaiian’s already strained financial situation, as well as reduce employee retention and the quality of life for Hawaiian’s 7,400 employees.

Hawaiian and Alaska must remain competitors until the regulatory process related to the proposed merger agreement, which was reached Dec. 2 after the boards of both airlines approved the transaction.

There is broad support for the merger, which would make Alaska the fifth-largest U.S. airline after American, Delta, Southwest and United, which together control about 80% of the U.S. aviation market.

Forman said, “I argued that creating a midsize airline is actually pro-competitive because now you have an airline that is more able to compete with the Big Four. I think the Department of Justice has recognized that as well. It will create a more competitive environment, not a less competitive environment.”

United Airlines officials, however, have expressed concerns that the merger would hurt its business. The Transportation Department placed a memo in the filing saying that Robert Rivkin, senior vice president and general counsel of United, on Aug. 27 expressed concerns about the potential impact of the merger on “United’s interline, codeshare, special prorate and loyalty agreements with Hawaiian Airlines.”

U.S. District Court Judge Derrick Watson filed a motion to reconsider an Aug. 12 decision to dismiss a lawsuit that sought to block Alaska Airlines’ plan to buy Hawaiian Airlines on the grounds that the merger would lead to higher fares, lost jobs and fewer flights, and hurt Hawaii’s economy.

The lawsuit was filed in April on behalf of eight passengers: Warren Yoshimoto, Kristin Barroga, Sean Kettley, Carolyn Fjord, Don Freeland, Don Fry, Bill Rubinsohn and Clyde Stensrud. The passengers, including three Hawaii residents, were represented by antitrust lawyers Joseph Alioto and Tatiana Wallace of the Alioto Law Firm in San Francisco and Terence O’Toole, Andy Lautenbach and Kukui Claydon of the Starn, O’Toole, Marcus and Fisher Law Firm in Honolulu.

Alioto told the Honolulu Star-Advertiser that “The judge was of the opinion that the plaintiff had no standing. We filed affidavits that showed the plaintiff was a frequent flyer in all markets.”

Support came from Washington Gov. Jay Inslee, Oregon Gov. Tina Kotek and Hawaii Gov. Josh Green, who sent a letter to the USDOT with strong support for the merger and added on Friday, “I continue to advocate for our state at the highest levels.”

In a statement released Aug. 19, Green said he and his administration have been working with Alaska officials over the past several months to address concerns about potential impacts.

“Alaska has strengthened its commitment to our state and will maintain the Hawaiian Airlines brand, preserve and grow union jobs in Hawaii, and continue to provide essential air passenger and cargo services to, from and within the islands,” he said.

An Aug. 30 DOT memo shows that Hawaii Attorney General Anne E. Lopez spoke with Mohsin Syed, chief of staff to Transportation Secretary Pete Buttigieg, and Brian Stansbury, DOT deputy general counsel, about commitments made by Alaska Airlines to the future of Hawaiian Airlines and Hawaii consumers.

The filing said, “Attorney General Lopez emphasized the importance of protecting the interests of the people of Hawaii in connection with this merger,” and noted that Lopez shared several observations and concerns, including:

— The role that affordable inter-island travel plays in the lives of (Hawai‘i residents), including access to health care, advancing education, reuniting families and moving cargo.

— It is important to keep inter-island flights affordable.

— Concerns that Alaska Airlines plans to convert Hawaiian Airlines Airbus planes to replace Boeing aircraft on routes not serving Hawaii.

Talks suggest the Department of Transport is looking at the matter closely and is not limiting itself to just submitting applications.

The majority of documents in the file support this proposal, a significant proportion of which come from airline unions.

Capt. Larry Payne, chairman of the Air Line Pilots Association International Hawaiian Airlines, said in a statement Thursday: “After careful evaluation, and if executed properly, we believe the merger of Hawaiian Airlines and Alaska Airlines is not only beneficial to our combined pilot group of 4,600 union pilots, but also serves the best interests of our passengers and the Hawaiian communities.”

On Wednesday, the International Association of Machinists and Aerospace Workers announced its support for the merger. The union highlighted existing collective agreements with both airlines that provide job security, competitive pay and industry-leading health care for IAM members.

In an Aug. 9 letter to DOT, the Association of Flight Attendants–CWA also urged Transportation to approve the merger “so that flight attendants, other employees, and consumers can realize the benefits of the merger as soon as possible.”

The Aircraft Mechanics Fraternal Association said in a letter that “the combined carrier will have a larger and more diverse fleet, which will create additional jobs and opportunities for our members. The combination will enhance our ability to compete, support employee careers and grow unionized jobs across our network.”

Transport representatives did not provide details on how this opinion will affect the assessment or how many more analyses are planned.