United, Delta Gain Allies on Outsourcing, Antitrust
United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL) are among U.S. carriers that will gain as Republicans use their new majority in the House to scrap proposals to limit the outsourcing of maintenance work and to subject global alliances to antitrust enforcement.
“Those types of issues will go away,” said David Schaffer, a consultant in Vienna, Virginia, and a former House aviation subcommittee Republican counsel, in an interview. Under Democratic control, lawmakers had approved provisions restricting the airlines’ overseas activities.
Republicans gained at least 60 seats in the House of Representatives, their biggest increase since 1938 and their first majority since 2006.
The resulting shift in lawmakers setting House transportation policy also may benefit FedEx Corp. (FDX) in its effort to fight off unions, Macquarie Group Ltd. (MQG) through its investments in toll roads and Toyota Motor Corp. (7203), whose executives faced grilling over auto recalls from a Democratic-run committee. The airlines seek a “do no harm” approach from the new Congress, according to the Air Transport Association, the industry’s biggest trade group.
“The current Congress has been anti-airline,” said William Swelbar, a research engineer specializing in air transport at the Massachusetts Institute of Technology in Cambridge. “There will be a new set of ears to listen to the industry.”
Republicans also gained at least six seats in the Senate, though Democrats retained control of that body.
House-approved legislation to finance the Federal Aviation Administration, still pending, would require drug testing and additional inspections at overseas maintenance centers used by U.S. carriers, potentially raising costs and making them less attractive to the airlines, Swelbar said.
27% of Work
Carriers use the centers in part to reduce expenses, Transportation Department Inspector General Calvin Scovel said in congressional testimony last year, without saying how much the companies save. Foreign centers performed 27 percent of heavy maintenance work by contractors for nine airlines in 2007, up from 21 percent in 2003, Scovel said.
U.S. airlines spent about $14.9 billion on maintenance in 2009, and passenger carriers used contractors at home and abroad for about 43 percent of the work, according to the U.S. Bureau of Transportation Statistics. Maintenance materials and outside repairs averaged 5.1 percent of operating expenses for United Airlines and 4.4 percent for Delta in 2008 and 2009, according to Bloomberg data.
The FAA funding measure also would restrict global airline alliances by ending their exemption from antitrust prosecution after three years. Carriers such as AMR Corp.’s American Airlines and British Airways Plc, and Delta and Air France-KLM (AF), use alliances to act as single entities in setting prices and schedules on international routes.
American began an antitrust-protected venture on Oct. 1 with British Airways and Spanish carrier Iberia Lineas Aereas de Espana SA on Atlantic routes that will bring the companies $7 billion in combined annual revenue, AMR said Oct. 20.
The airlines posted their biggest profits since 2007 last quarter after reductions in seating capacity allowed them to raise fares once travel demand rose following the recession.
“We need a new Congress who agrees with us on the simple principle of do-no-harm,” Air Transport Association President James May said in a speech Oct. 25. “Allow us to compete in the global marketplace so we can regain financial stability.” May’s Washington trade group includes Chicago-based United Continental, Delta of Atlanta and AMR Corp.’s American Airlines based in Fort Worth, Texas, the three largest U.S. airlines.
The legislation fought by airlines was written by Democratic Representative James Oberstar of Minnesota, the chairman of the Transportation and Infrastructure Committee chairman, who lost his re-election bid yesterday.
Republican Representative John Mica of Florida, who last year faulted some Democratic aviation proposals as “half-baked,” is in line to replace Oberstar as chairman. Representative Tom Latham of Iowa, who has criticized the government for failing to reduce aviation congestion, is in line to become chairman of the House Appropriation Committee’s transportation panel.
FedEx of Memphis, Tennessee, the world’s biggest cargo airline, is a corporate winner from the election because House Republicans will abandon Oberstar’s legislative campaign to ease union organizing at the company’s Express unit, Schaffer said. “With the Republican majority in the House, it’s dead,” he said.
The legislation, backed by the Teamsters Union and United Parcel Service Inc. (UPS), would let FedEx Express ground workers vote locally to form unions rather than be forced to hold a nationwide election. UPS is the biggest employer of Teamsters, with about 240,000 members.
“It is hard to believe that a new Congress would want to engage in that kind of special legislative favoritism,” said Maury Lane, a FedEx spokesman.
UPS spokeswoman Kara Ross said, “This Congress still has important decisions to make before 2010 ends and it would be premature to write this Congress off.”
House Republican opposition to tax increases may lead to more private investment in federal roads, bridges and tunnels, according to Peter Peyser, principal at Blank Rome Government Relations LLC in Washington and a former House member from New York.
The shift may benefit Sydney-based Macquarie, Australia’s largest investment bank, which “continues to seek investment opportunities,” the company said in a statement. Macquarie said it is contributing half of the equity in a state freeway and tunnels project in Norfolk and Portsmouth, Virginia.
Morgan Stanley, Carlyle
Morgan Stanley (MS) of New York created a $4 billion infrastructure fund in 2008 and “continues to actively invest,” said Erica Platt, a company spokeswoman. Carlyle Group, the Washington-based private-equity company, has a $1.2 billion fund and seeks more investments, said John Flaherty, a principal for the firm. Carlyle last year entered into a 35-year partnership with Connecticut to redevelop, maintain and operate highway service areas.
Automakers will face a friendlier Congress, said former Transportation Secretary Norm Mineta, a Democrat who served under Republican President George W. Bush.
“Republicans are much more sensitive to what would be the cost implications of new requirements from a safety perspective,” said Mineta, vice chairman of Hill & Knowlton in Washington.
Automakers such as Toyota of Toyota City, Japan, which recalled 8 million vehicles in the past year, may face less scrutiny now that the House Energy and Commerce Committee is likely to be led by Fred Upton, a Michigan Republican, said Michael Stanton, president of the Association of International Automobile Manufacturers.
Upton replaces Democratic Representative Henry Waxman of California, who led hearings into Toyota’s handling of the recalls. Members of Stanton’s trade group, based in Arlington, Virginia, include Toyota, Honda Motor Co. (7267) and Nissan Motor Co. (7201)
Amtrak, the U.S. passenger railroad that relied upon a $1.49 billion federal subsidy in fiscal 2009, may have its federal aid gradually reduced by House Republicans, said Mary Peters, transportation secretary under President George W. Bush.
“Amtrak does need to be self-sufficient,” said Peters, a Peoria, Arizona-based consultant. The carrier in fiscal 2009 reported a $1.26 billion net loss on revenue of $2.35 billion and expenses of $3.5 billion, according to its annual report.
User growth and service gains make Amtrak cuts unlikely, said Ross Capon, president of the National Association of Railroad Passengers. “I don’t see us rolling back progress.”
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