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Airline merger viewed skeptically
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Rosemount, 55024
Rosemount Minnesota P.O. Box 192 / 312 Oak St. 55024

ST. PAUL - A mega-airline could be a mega-problem or a mega-opportunity for the Upper Midwest.

It all depends upon who analyzes a planned merger that would create the world's largest airline.

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"Fewer flights, more expensive flights, more expensive airplanes and more stops in between." That is the summary of a planned Northwest Airlines-Delta Air Lines merger by Alfie Marcus, professor of strategic management and organization at the University of Minnesota. "I think it is not good."

On the other hand, Chief Executive Officer Doug Steenland of Northwest said that Midwest travelers will benefit.

"We both have had historic commitments to serve small communities," Steenland said. "We believe that's a valuable and beneficial activity, and we expect the merged entity to continue to do that."

The debate likely will continue for months, as the federal Justice Department and Congress conduct separate investigations into the merger.

The Minneapolis-St. Paul airport will remain a major hub, but the airline headquarters will move from Eagan, Minn., to Atlanta under the Delta-Northwest deal. Minnesota officials are worried that Northwest will leave its suburban Twin Cities headquarters owing hundreds of millions of dollars the state paid to keep the operation.

Marcus and most Upper Midwest political leaders were skeptical - or worse - of the merger.

Small airports will be especially hurt, Marcus said. "Those flights are the least profitable for an airline."

U.S. Rep. Jim Oberstar, a Chisholm Democrat and chairman of the House transportation committee, said small airports away from hub operations "would be the most disadvantaged."

However, Steenland said that when his airline and Delta merge, small communities - any that do not have hub status - will receive better service than today.

The service "will be enhanced with providing them with more service to more communities worldwide," Steenland said during a New York City news conference.

Two Upper Midwest reservations centers should not be affected.

In a Minnesota Public Radio interview, Steenland said Northwest's northeastern Minnesota reservation center will remain open.

"We have a fantastic reservations center up in Chisholm, which obviously will stay," he said.

Oberstar's office reported he has received a commitment to keep the Chisholm operation as is. It employs 517 people.

A Northwest-owned Minot, N.D., based reservation center - for MLT Vacations - also should remain unchanged, the company said.

Steenland offered no specifics and raised more questions when talking about Northwest-owned regional airlines such as Mesaba that serves many Upper Midwest cities.

"We will be optimizing the number of carriers we have and where they operate," Steenland said.

Marcus said that "optimizing" is a code word for reductions. With flights to and from smaller airports much less profitable, Marcus said, Midwesterners should expect to see fewer of them once the merger receives federal approval.

Oberstar, D-Minn., said future airline mergers will hurt the Midwest.

"You will wind up with three mega, global air carriers," Oberstar said. "And then what voice does an air traveler in International Falls or Minot, N.D., have? None."

Added Oberstar: "It is probably the worst development in aviation history."

Marcus said congressmen like Oberstar "can yell at them," but airline officials will discontinue whatever routes they want.

Steenland said he thinks regional carriers like Mesaba and Compass, which serve area throughout the Upper Midwest, will do well.

"They're best in class with respect to their operating performance and their cost structure," Steenland said.

"And the merged entity will continue to own Mesaba and Compass and I think for them, it will largely be a turn-key operation, and life will continue as it does today. And, if anything, this may present them with the opportunity for them to get bigger and expand in a post-merger world," he added.

Minnesota Republican state House members said they will introduce a bill today to provide Delta tax breaks, an attempt to convince the airline to change its long-stated decision to keep the airline's headquarters in Atlanta.

But in an afternoon Twin Cities news conference, Steenland said there is no chance of that.

Three Democratic lawmakers propose a law requiring Northwest to repay all loans and other financial aid provided by Minnesota.

"Throughout the years, the people of Minnesota have been extremely generous to Northwest Airlines, providing them with many financial incentives to support its business," Sen. Scott Dibble, DFL-Minneapolis, said.

"The state lent this money in good faith. In return for Minnesota taxpayers' support, the airline made many promises, including a commitment to remain in Minnesota and retain jobs. These promises can't be abandoned in light of the merger," he added.

Republican Gov. Tim Pawlenty said he would look over merger details, then decide how to deal with the $440 million Minnesota provided Northwest.

"It is our expectation that the merged entity will honor these commitments," he wrote in a letter to Steenland and Delta leader Richard Anderson.

Special session?

Minnesota Senate Finance Chairman Richard Cohen said the governor should be willing to call lawmakers back to the Capitol later this year if there is a need for legislative action following the airlines' merger.

"I'm not a fan of special sessions," said Cohen, DFL-St. Paul. "I would be a fan of a special session to try to do what we can to eliminate the harm of this merger."

Minnesota Economic Development Commissioner Dan McElroy said that it is too early to know whether legislative action will be needed as a result of the merger.

"The possibility of a special session (later this year) has not, to my knowledge, been discussed," McElroy said.

Minnesota State Economist Tom Stinson said he doesn't know if the economy will change in any way as a result of the merger.

"The big question is, what are the side agreements?" Stinson said. "We had Norwest bank corporation buy out Wells Fargo, take Wells Fargo's name. The headquarters moved to San Francisco, but employment held up really well here. So you could have that model, or you could have a model where all the high paid executives move to Atlanta, and all that's left in Minnesota is a hub and some maintenance activity. And until it works through for awhile we aren't going to know if it's really harmful to Minnesota or whether it's just business as usual."

Stinson said he is not necessarily worried about the impact of the merger

"The hub itself is a very profitable enterprise and so all the activity associated with the hub, that's not likely to change very much," said Stinson. "I'm interested to see how the business unfolds, with the reservation centers, and see how all that works out. And that is something we'll be considering when we do our next economic forecast in November."

Lawmaker Support

Upper Midwest federal lawmakers generally do not favor the merger.

"I am skeptical that a merger between Delta and Northwest would be in the best interest of North Dakota," Sen. Kent Conrad, D-N.D., said. "The headquarters of the new airline would move from our region to the South. And smaller markets like North Dakota may be the first to feel the squeeze of higher fares."

Like most Upper Midwest federal leaders, Rep. Earl Pomeroy, D-N.D., worried about rural service.

"Many of our rural communities are particularly dependent on the availability of air service, and they're often the first ones to get squeezed by a decrease in flights," Pomeroy said. "I will monitor the results of this merger closely to make sure that North Dakota is getting a fair deal."

Sen. Byron Dorgan, D-N.D., said larger airlines are not the answer to problems the industry faces.

Dorgan said the merger raises many questions, including how it would affect prices and schedules.

"Won't this merger reduce competition and therefore result in higher ticket prices?" Dorgan asked.

Dorgan and Sen. Amy Klobuchar, D-Minn., held a Minnesota hearing earlier this year. Both demand a Senate Commerce Committee hearing on the issue.

"I will hold their feet to the fire to live up to their commitments and show that any merger is, in fact, in the best interest of Main Street and not just Wall Street," Klobuchar said.

In discussions with Northwest and Delta officials, the senator said that she has emphasized her desire to maintain jobs and to maintain consumer airline choices.

Sen. Norm Coleman, R-Minn., agreed with his colleagues that the merger demands close scrutiny.

"With four airlines filing for bankruptcy in the last two weeks, (the merger) announcement is a reflection of an industry responding to the new economic realities of our time," Coleman said.

Oberstar called the new airline "a globe-straddling mega-carrier."

He said he doubts what airline executive say. When American Airlines bought TWA, for instance, St. Louis was assured it would be kept as a hub airport. Two years later, Oberstar said, St. Louis flights were cut by half.

Minnesota provided Northwest loans to keep its headquarters in Minnesota. Oberstar said the airline also agreed to keep 17,000 workers in the state, about 5,000 more than are here now.

"This merger has a potential for significant jeopardy for communities in Minnesota, for airlines jobs in Minnesota and the Upper Midwest for communities served by Mesaba and Pinnacle," Northwest affiliated airlines, Oberstar said.

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Upper Midwestern states depend upon Northwest, especially, for air travel.

Northwest has 12,500 employees in Minnesota, its headquarters state, and up to 522 flights a day. Delta has 125 workers and 17 flights.

Northwest and Delta officials promise the Minneapolis-St. Paul International Airport will continue to serve as a major hub.

Besides the Twin Cities, Northwest serves International Falls, Thief River Falls, Hibbing, Bemidji, Duluth, Brainerd, St. Cloud and Rochester.

In North Dakota, Northwest serves Fargo, Grand Forks, Jamestown, Bismarck, Devils Lake and Minot with up to 28 flights a day. The airline has 30 North Dakota workers.

Northwest owns MLT Vacations, which has a reservations center in Minot, N.D.

Northwest and Delta both serve Sioux Falls and Rapid City, S.D., while Northwest also provides flights to and from Pierre, Aberdeen and Watertown. Northwest has up to 21 and Delta 4 flights a day in South Dakota.

In western Wisconsin, Northwest serves Eau Claire and La Crosse.

State Capitol reporters Scott Wente and Marisa Helms contributed to this story.

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