How the Alaska-Hawaiian Air merger can avoid DOJ disruption

Alaska Air Holdings (ALK) is buying Hawaiian Air (HA) in a deal valued at $1.9 billion. But with the Biden administration highly scrutinizing deals, there are concerns about the deal's approval. Noah Phillips, Cravath, Swaine & Moore Partner, joins Yahoo Finance to give insight into the potential uphill battle that Alaska Air may face and what the company could do to deal with a stoic DOJ.

Phillips offers advice with what companies could do in this situation: "The best thing that companies can do is muster the facts at hand to show that they really don't compete very much and that the merger of the two companies wouldn't eliminate competition that meaningfully would affect the impact that we all feel as consumers when we fly on airlines everyday."

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Video Transcript

- Wall Street watching a merger in the airline sector Alaska Airlines saying it's going to acquire Hawaiian Airlines for nearly $2 billion, including debt. But could the regulatory environment in Washington affect the future of this deal? Joining us now is Cravath Swaine and Moore partner and former FTC Commissioner, Noah Phillips, thank you so much for being here.

So, we know that this FTC has been quite active in general with regard to mergers, and even more so one could say with some of the airline mergers that have come forth. What do you think the chances are for this one?

NOAH JOSHUA PHILLIPS: Well, Julie, it's great to be here with you. So first of all, this is going to be the Department of Justice that looks at this merger, not the FTC. But I think your summary is absolutely accurate, which is to say this has been a very aggressive and very active administration when it comes to antitrust and airlines.

We already have two cases that were litigated or one is still in litigation one involving American and JetBlue that's the Northeast alliance case, which the Department of Justice won. And another which is currently in court today, involving JetBlue and Spirit. So you see very active regulators looking carefully at airline mergers.

- And Noah, let's say you were advising Alaska and Hawaiian on this one. I mean, what could they say Noah? What could they do to try to placate the antitrust authorities here?

NOAH JOSHUA PHILLIPS: Well, what the law commands and what the enforcers are supposed to do is look carefully at the competitive environment that the companies operate in, and what the competitive dynamic between them is.

So the best thing the companies can do is muster the facts at hand to show that they really don't compete very much, and that the merger of the two companies wouldn't eliminate competition that meaningfully would affect the impact that we all feel as consumers when we fly on airlines every day.

- And Noah, I thought it was interesting too the way they decide here to retain their separate brands. Was that in your opinion an attempt here to extend an olive branch to the DOJ?

NOAH JOSHUA PHILLIPS: I don't know that would meaningfully impact the antitrust analysis. But the enforcers are looking at and what the law commands them to look at is the underlying economics of the transaction.

So you have lots of companies that often have competing brands. But ultimately, if they're owned by the same people, the government and the law are not going to assume that they're going to be operating as different companies.

So I don't know that the brand really matters. It may matter for the companies. And the business logic behind the deal, we've of course, seen the executives talk about the really strong brand loyalty that each of the airlines have. So it's not clear to me that that's driven for by antitrust rationale.

- How similar do you think this case will be if indeed the government does protest it to the one that we are going to hear closing arguments on later this week JetBlue and Spirit?

NOAH JOSHUA PHILLIPS: Well, it's a little early to tell, whether there'll be a case and how that case will look.

- Sure.

NOAH JOSHUA PHILLIPS: But certainly the JetBlue Spirit merger is predicated on a dynamic, where the government thinks that the merger is eliminating kind of a maverick or really low cost competitive carrier that they allege is really driving down prices across the industry. And the absence of which would allow those prices to rise.

I don't know that we have that dynamic here. So it's not clear to me that that's where the government is going to look.