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Delta Seeks Fair Slot Divestiture

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Premier U.S. passenger carrier Delta Airlines Inc. (DAL) insists that the Department of Justice (:DOJ) should not be biased toward low cost carriers while divesting airport slots and assets related to the proposed merger of American Airlines and US Airways Group Inc. (LCC). Recently, both American and U.S. Airways cleared all competition-related litigation raised by the DOJ along with attorneys general of six states and the District of Columbia in Aug 2013.

As part of the clearance, the airlines will have to give up 52 take-off and landing slots at Washington’s Reagan National Airport (DCA) and 17 pairs at La Guardia airport in New York (:LGA). Further, the carriers have to divest two gates and related facilities at each of the Boston, Chicago, Dallas, Los Angeles and Miami airports. The DOJ has argued that opening up of slots will induce more competition within the industry.

Delta wishes to get an opportunity to bid for slots and facilities at these airports particularly in DCA and Love Field Airport at Dallas, from where it operates non-stop flights to its international hub in Atlanta. The bidding will be through a DOJ approved process following completion of the merger, which is expected in Dec 2013.

Atlanta-based Delta has argued that if the divesture is limited to low cost carriers, it may led to reduction of flights to small and medium communities as budget airlines generally avoid these routes. Further, with their fleet of small aircraft, the carriers will be able to provide regular service from DCA and LGA to other smaller and medium size cities.

However, during the settlement procedure, DOJ hinted that low cost carriers like would be a significant part of the divesture process. Reiterating that view, recently a DOJ lawyer confirmed that carriers like Delta and United Airlines are unlikely to win slots at these airports. Others such as Southwest Airlines Co. (LUV) and JetBlue Airways Corp. (JBLU), Virgin America and Spirit Airlines (SAVE) are considering participation in the divesture process.

Winning newer landing and take-off slots will only strengthen the presence of legacy carriers like Delta in the above mentioned airports. However, it remains to be seen whether Delta will ultimately win any slot, given the inclination of the DOJ toward budget carriers.

Delta currently carries a Zacks Rank #2 (Buy).

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