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Judge Recommends USAir Group, Piedmont Airlines Merger Be Denied

September 22, 1987|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — A Transportation Department administrative law judge recommended Monday that the proposed purchase of Piedmont Airlines by USAir Group be rejected because "it would substantially reduce competition in numerous relevant markets" and thus "is not in the public interest."

Judge Ronnie A. Yoder's recommendation now goes to Matthew Scocozza, assistant secretary of transportation for policy and international affairs. After consulting other officials of the department, Scocozza will issue the final ruling by Sept. 30.

Edwin I. Colodny, chairman and president of USAir, immediately termed Yoder's recommendation "incomprehensible." The Transportation Department's public counsel and the Justice Department had "examined the same facts and found no competitive problems," Colodny said.

The consolidation would be one of the highest-priced such transactions in the spate of airline mergers that has taken place in the last two years. USAir, based in Arlington, Va., agreed in March to acquire Piedmont for $1.59 billion.

The two carriers' operations would dovetail well, analysts say, because Piedmont, headquartered in Winston-Salem, N.C., operates mainly in the Southeast while USAir's routes are concentrated in the Midwest and Northeast. Earlier this year, however, USAir Group completed its $400-million acquisition of Pacific Southwest Airlines, giving the holding company its first major presence on the West Coast.

Yoder's recommendation Monday, made after a series of hearings, concluded that "the proposed acquisition would substantially reduce competition in numerous city-pair markets."

He conceded that no interested party had proved "that the proposed merger would likely reduce competition substantially in the national market."

But, Yoder went on, "the proposed acquisition raises serious concerns about substantial reduction of competition in the applicant's (USAir's) Eastern U.S. niche."

Airline observers and USAir officials said they believe that the judge opposed the merger because of competitive, scheduling and safety problems that have resulted from other recent mergers and because some members of Congress are eager to re-regulate the airline industry.

USAir Chairman Colodny noted that the same administrative law judge had recommended the approval of the larger merger of Northwest Airlines and Republic Airlines last year. "It would a travesty," he said, "if USAir and Piedmont were not allowed to merge after the DOT has approved far larger mergers that created some of the airline industry giants that are USAir's and Piedmont's major competitors."

He went on to express confidence that the merger would eventually win approval.

Louis Marckesano, airline analyst with Janney Montgomery Scott, a Philadelphia brokerage, said that if USAir and Piedmont are allowed to merge, "they would have a fighting chance to compete with the major airlines. Without a merger, their future is in great danger."

Profitable Piedmont is an all-jet airline competing for traffic with Eastern Airlines and Delta Airlines as well as USAir.

Over the past few years, USAir has been one of the nation's most consistently profitable airlines. It has little competition on most of its route system and its largest operation has been in Pittsburgh. It also has a major presence at Washington National Airport, where new competition is restricted.

A USAir-Piedmont consolidation--including USAir's PSA subsidiary--would create the nation's seventh-largest airline company in terms of revenue passenger miles. (A revenue passenger mile is equal to one paying passenger carried one mile.) It would be slightly smaller than Trans World Airlines, which merged with Ozark Airlines last year.

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