At the beginning of the week it appeared that the Alaska Airlines acquisition of Hawaiian Airlines was cleared by the Department of Justice over anti-trust concerns and all that was needed was Department of Transportation signoff, which seemed more likely to come and reasonably quickly.
Hawaiian Airlines shares were trading at $4.86 before Alaska Airlines agreed to pay $18 per share for the company plus assuming $900 million in debt. Hawaiian shares closed Thursday at $17.36, down slightly from Wednesday, but still reflecting high certainty that the deal would close.
As I wrote Monday,
- The deal seemed likely, as long as the parties could find a compromise. There’s not a fundamental competition problem, and there wasn’t political clamoring against it. Hawaii politicians supported it, and labor unions didn’t actively oppose it. Alaska doesn’t compete today on inter-island routes, and the mainland – Hawaii market is highly competitive. There’s a zone of possible agreement.
- But I didn’t expect the Department of Justice to simply approve the transaction – there did seem to be a likelihood that they would insist on conditions, like service commitments on routes between the islands.
- This was especially true after Alaska and the DOJ twice agreed to extend the statutory review period – that made it seem like they were in the midst of negotiations, not that DOJ needed more time to review the deal and decide whether they wanted to oppose it.
[I]t is very odd that DOJ simply approved the deal after multiple delays rather than demanding anything in exchange. If they were going to approve it, it would have seemed that what they would have done a couple of weeks ago.
The DOJ, formally speaking, hasn’t ‘approved’ the deal. They can still challenge it (they can sue to break up a deal after it closes, the parties simply couldn’t close during the review period).
And Alaska has quietly altered its press release to say “the government’s review is ongoing.”
Here is the original language: “The time period for the U.S. Department of Justice to complete its regulatory investigation of the proposed combination of Alaska Airlines and Hawaiian Airlines under the HSR Act has expired,” according a copy of the original press release.
Here is the language in the release today: “The time period during which the parties were prohibited from closing under the HSR Act has expired. The government’s review is ongoing.”
Everything is securities fraud? If DOJ sues to block the deal prior to close there will almost certainly be a shareholder lawsuit. Nonetheless, Hawaiian shares haven’t fallen in after-hours trading and remain well north of $17 per share, suggesting an expectation that the deal will still close despite this change in language.
thank you for highlighting this update.
The DOJ allowed its period to challenge the AS-HA merger to expire but the DOT does get a swing at approval. Shortly after the merger announcement, the DOT said it would block it to cries of support from a few liberal NE senators.
The DOT has historically not been the agency that takes the lead in crafting merger or asset acquisition policy in the airline industry but that could change with this merger.
Those who were so quick to argue that I was wrong – and indirectly you were too – might want to sit tight for a tad bit longer.
Well, well, well. It doesn’t seem as if it is over.
They shouldn’t overpay to get a failing airline with a bunch of extra restrictions going in to what’s looking like a bad recession. It might be better to walk away
Tim, can you provide a source for your insights regarding the DOT moving to block the merger? I have only read that the DOT has not commented as well as the DOJ. After scouring the internet for accurate information all I can say is it appears Alaska clarified their original statement release. I think it’s fair to say that the DOJ let the review period expire without any objection which is a defacto approval according to how the process works. Remember that if either agency has any objections and wishes to block the merger they have to file an injunction and the defending parties have a right to defend themselves in court if they choose to fight it. Court cases are always messy and risky for both sides. You could seemingly have a clear cut and dry case and still lose in court. Both sides (the airlines and the government) have only said that they are cooperating with each other which in my mind could still mean a deal can be reached before it gets that far. A compromise, if there is one to be had, is almost always better than duking it out in court. Just as everyone was speculating on the extensions of the DOJ review it was very telling that nothing was said after that process finished. In my opinion I think the DOJ didn’t want to outright approve the deal but also didn’t have a good enough case to say it violates the HSR act. I think passing it to the DOT was easier as the DOT handles the process from a different angle. The DOT might have a stronger case to block and/or asks for concessions and they are not under a timeline like the DOJ was. Usually in a case like this you have different parties affected that object to the merger in conjunction with the government, like the state of Hawaii or the state of Alaska for example. In this instance the state of Hawaii via the governor and AG have both given their blessing to and worked with Alaska and Hawaiian airlines in this process. The parties that are most affected are on the side of the airlines. The federal government (DOJ and DOT) might not want the merger to go through but realize they probably have a weak case. It’s too soon to jump to conclusions (unless you have a good source Tim) and even if the DOT were to move to block it that would not be the end, the airlines could fight it.
@Nick… Will this coming Recession be as bad as the Trump economic crash?
No one needs to argue that you’re wrong, Tim. You’re just flat out wrong and it’s obvious to everyone but yourself.
I hope this recession continues because I’m getting rich:)
@tatothemax your statement “Remember that if either agency has any objections and wishes to block the merger they have to file an injunction and the defending parties have a right to defend themselves in court if they choose to fight it.” regarding the DOT is incorrect. For the merger to happen, DOT has to approve of the route transfers. If it doesn’t, the merger doesn’t happen absent ALK/HA successfully litigating this in court which would be a long shot . This is one of the points Elizabeth Warren made in her letter to Pete Buttiegieg last year when she pointed out the DOT needs to take more of a leading role as gatekeeper for airline mergers.
For those disagreeing with Tim as far as the DOT not taking a more active role in deciding which mergers go thru in the airline industry I would encourage you to read Elizabeth Warren’s letter to Pete Buttigieg dated September 15, 2022. She makes a strong case that the lawmakers who crafted Statute 49 intended the DOT to play the primary role as the gatekeeper for mergers in the airline industry. You can read it here : https://www.warren.senate.gov/imo/media/doc/2022.09.15%20Letter%20to%20DOT%20re%20merger%20authority%20and%20Spirit-JetBlue.pdf
@Scott Why do you think that litigating a denial of the transfers in court is a long shot if that even happens? There is a reason this is handled in the courts at that step. I would think the DOJ or DOT would have to have a legal reason to deny the merger. They cant just arbitrarily deny the route transfers, they have to justify it. This is just my guess based on my admitted little knowledge of this process.
See completely opposite as to the article that just came out 30 minutes ago on the Spokesman Review.
https://www.spokesman.com/stories/2024/aug/23/alaska-air-hawaiian-deal-closer-as-doj-ends-antitr/
@Scott Also if Tim was referring to that letter from 2022 that was about Jetblue and Spirit. He said on here and Seeking Alpha yesterday that the DOT had said they would block THIS merger specifically. I was asking what his source for that was. I don’t remember the DOT saying they would block this merger as soon as it was announced. Not saying Tim is wrong, just asking where he saw that. Everything I have seen about THIS merger has the government and airlines cooperating or no comment. They are going through the process. That Seeking Alpha article from yesterday cited the CTFN with an insider. Probably the same source that said a couple weeks ago (again a CTFN insider) that the DOJ was moving to block it causing the stock to drop in anticipation. 2 extensions later and the DOJ let it pass though while also not endorsing it. It’s fun to speculate and take educated guesses but let’s also stay grounded in facts as they come (me saying that to myself in the mirror as much as to anyone on here).
@Bob G – that’s a reprint of a 3-day old Bloomberg piece
@tatothemax the 2022 letter was about JBLU/SAVE but it pointed out among other things that DOT’s purview wasn’t limited to international route transfers which had been a previously misunderstood interpretation of statute 49 within DOT. I can say having read thru the statute more than once that I believe Elizabeth Warren to be correct and that the intent of lawmakers who crafted this was for DOT to ultimately decide what combinations would be deemed anti-competitive or consumer friendly and to sign off on route transfers accordingly (Not the DOJ). As for the statement DOT told someone they planned to deny the route transfers and effectively block the merger? I can tell you I have scoured the internet for months on this thing and have never seen any mention of that. Additionally I also find it difficult to believe they would have made that statement selectively to a group of politicians when they hadn’t had enough time to analyze the merger. As to why I think there are real anti-competitive issues the DOT will take issue with? There is huge overlap amongst the Hawaii-mainland routes (56%) which no doubt will result in fewer flights with a merger with little divestiture options to mitigate the anti-competitive nature of the transaction….LUV is losing money in Hawaii, SAVE probably headed for Chapter 11 and JBLU has problems of its own. The Herfindahl-Hirschman Index (HHI) goes from 2796 to 3448 for the Hawaii – mainland routes. The presumptive anticompetitive threshold is 2500 points and an increase of more than 200 points is deemed to “substantial lessen competition or tend to create a monolopy” .As as far as the worries the combined entity will cut flights in the inter-island market its a real concern and no regulator settles for a verbal pledge which is basically what was offered nor do I think there is any legally enforceable solution that would mitigate this problem. I can’t say for sure DOT denies the route transfers but if they do it will be very difficult if not impossible to make the case to a judge this combination is in the best interest of consumers…it isn’t. Not to mention HA doesn’t have the luxury of waiting around instead of looking for another merger partner…its probably going to have to file in the next few years if it doesn’t find one and fyi the judge in the JBLU/SAVE case dismissed the “failing business argument” as irrelevent for allowing that merger to proceed in spite of SAVEs having a worse financial situation than HA so I wouldnt expect it matters here either
@tatothemax one last point…its easier for DOT to just declare the merger non-competitive…I don’t think any formal analysis needs to be made public but if they agree to the transfer they do have to adhere to following and JUSTIFY to congress why it is in the public’s best interest and I think they are going to have a bigger problem with that option given the issues here:
§ 41105. Transfers of certificates
(a) GENERAL.—A certificate issued under section
41102 of this title may be transferred only
when the Secretary of Transportation approves
the transfer as being consistent with the public
interest.
(b) CERTIFICATION TO CONGRESS.—When a certificate
is transferred, the Secretary shall certify
to the Committee on Commerce, Science,
and Transportation of the Senate and the Committee
on Transportation and Infrastructure of
the House of Representatives that the transfer is
consistent with the public interest. The Secretary
shall include with the certification a report
analyzing the effects of the transfer on—
(1) the viability of each carrier involved in
the transfer;
(2) competition in the domestic airline industry;
and
(3) the trade position of the United States in
the international air transportation market.
@Scott All valid points with sound reasoning. Guess we’ll just have to wait and see. I am not an insider so I can’t say what’s actually happening behind the scenes. Both sides are talking and saying publicly that they are cooperating. That goodwill goes a long way. In Gary’s other article published earlier today the DOJ does appear to be finished with their review as a practical matter. Even though not an approval it suggests that they were satisfied with their review and are not expected to take action (although they still could). I think Alaska was smart in their approach to this merger. They went out and swayed some influential people like the state of Hawaii politicians. Although not necessary for the merger it certainly couldn’t hurt. I am pro merger here and hope it is allowed to proceed.
@tatothemax I should ask, what are the real benefits to consumers here, because I just haven’t seen what they would be??
There should be no transfer of certificate. I would suspect HA will surrender their certificate upon AS getting the HA operation under the AS certificate.
Seeking Alpha is a pump and dump site.
The DOT, at the insistence of a number of key senators wants to take a bigger role in regulating airline economics. The DOJ does not find sufficient reason to block the merger but there are concessions the DOT will likely ask.
And it is amazing that the people who claim they read my work and writing continue to say that I thought either the DOT or DOJ will block this merger; I have never said it would be blocked.
I have said, as Gary has, that both agencies could ask for concessions. Given that the DOJ is apparently passing the baton on this case to the DOT, the ball appears to be in the DOT’s court. It is possible that the DOT will simply sign off in full as the DOJ ended up doing but there are some concerns including about ensuring that access for all airlines that have interline agreements to HA’s interstate service remains available.
There are studies that show that Seeking Alpha content beats market averages and most professional analysts
@Tim Dunn might the DOJ have significant issues which proved insurmountable given the lack of divestiture options and instead of pursuing a long drawn out court battle decided to just pass it to the DOT so it could more expeditiously stop the merger by denying the route transfer? I can’t believe the DOJ and DOT don’t have some level or corroboration between the two…..
I don’t think the DOT will block the merger entirely but they are more focused on tactical issues like codeshares (which still could also include the AA/AS codeshare issue which Gary and I have suggested) or gates and international routes.
It isn’t over ’til the fat lady sings but the DOT has historically not played near as major of a role in mergers as the DOJ but the script might be flipped with this and future mergers and may be because the DOJ believes there are few remaining airline combinations that can work so things like B6/NK will be rejected outright or the DOT will fine tuning anything that has potential but isn’t everything it could be.
Let’s see… we are all speculating until the DOT decides what it will do, if anything.
Why is everyone missing the facts of Hawaiian’s poor financial condition, etc.? Hawaiian is in a price war with Southwest for inter-island flights. Southwest isn’t making money pricing so low, but to compete, Hawaiian loses even more money on every inter-island seat. Maybe the Feds realize it is better to let this merger occur in order to “save” competition? Everyone loses in a bankruptcy. Preventing that from happening by letting the weaker carrier merge with a stronger carrier could be a lesser issue than competition in this merger.
@ Tim Dunn
You may not have used the word block but you did say object. Here is your quote from that Seeking Alpha article last week:
“The DOT said shortly after the merger was announced that it would object. The DOJ might not be filing suit but the DOT will be the bad guy.”
I was asking where you heard the DOT would object or block or whatever term you use to say they will file suit. I was only really asking for your source, not that you were wrong in saying they would file suit. But to say that you never said the DOT would block the merger is being dishonest. The DOT wouldn’t file suit if they didn’t want to block it correct?