WASHINGTON (AP) — 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, sources said Monday.
Justice officials have been talking for several days with representatives of the airlines and Air Partners LP, an investment group that agreed to sell Northwest an equity stake in Continental representing 51 percent of its voting stock.
The department could file a lawsuit 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 hurriedly put together partnerships of their own, leading to fears that the consolidation could reduce service and drive up fares.
Responding to those concerns, President Clinton pledged this spring that his administration would “analyze each of these on their own merits.”
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 Eagan, 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.
While there is little overlap in the airlines’ routes, the Justice Department has “a view on the use of voting trusts … that transcends this industry. That is their biggest concern,” said a source outside government familiar with the discussions.
Spokesmen for the airlines declined to comment on the discussions.
Air Partners, which saved Houston-based Continental from bankruptcy, would get $300 million in cash and 4.1 million shares of Northwest.
The looser partnerships between American Airlines and US Airways, and between United Airlines and Delta Air Lines, have so far been limited to joining frequent-flier programs.
But concern has been growing in Congress and the Clinton administration about consolidation in the airline industry. The Transportation Department earlier this year proposed new rules intended to help new carriers compete in markets dominated by the major airlines.
Northwest dominates service out of Detroit, Minneapolis-St. Paul and Memphis, Tenn., while Continental has major hubs in Houston, Newark and Cleveland. By connecting the carriers’ networks, Northwest officials argue, the alliance would make it easier for travelers to get around the country.