HomeMy WebLinkAboutR-78-0740AESOLIIfION NOS 8 - 7.4_
A RESOLUTION uROINO PAVO SABLE CONSIDERATION
'iaa cytVIL AERONAUTICS BOtikD (OAS) oP ".It1S PENDING'
APPLICATION POR THE WIRIER AND ACQUISITION OP
NATIONAL AIRLINES, INCORPO1 A'ED BY PAN AMERICAN
WORLD AIRWAYS, INC. OR BY EASTERN AI} LINES, I'C.:
FURTHER OI RCdT I IVV THE CITY C LEW< TO FORWARD
A COPY 01 THE ► EREt RESOLUTION TO Tilt c i AIRMAN
OF THE CIVIL ON 1Ufl i S BOARD
WHEREAS; theta is presently bending before the Civil
Ae jnatUics Board (CAB) an application for the Met et and
acquisition of National Airlines, incorporated, by Pan
.Auer.ican Worlei Airwdys, Inc, (PAA); and
WHEREAS, these is presently pendincg before the Civil
Aeronautics Board an application for the merger a'ld ac 1uisitiOn
of National Airlines, Incorporated by Eastern Airlines,, Inca
(EAL) ; and
WHEREAS, the Chairman of the. Board of PAA has
"DOCUMEM
ITEM NO
phA to the fO1lD' i.1CJ.
VitivA
1. Thete will be no reduction in existing job
opportunities as a result of the consolidation;
2. PAA will establish `its Flight Training School for
all PAA flight training at Miami, Florida;
3. PAA will continue: DC-1D and 13-727 air frame
Maintenance at existingNational Airlines Facili-
ties Miami , ' Fiorida;
PAA Will maintain or increase existing routes
and schedules, both domestic and international,
that currently Originate ' in Florida;
5. PAA will, as a result of the merger, increase
employment in the State of Florida by over 700
jobs. 4:38 of these jobs are detailed in PAA's
submission to the CAB. 212 of these jobs will
result from PAA's coalitmsnt to establish its
central flight training facility in Miami,
Florida and
W!IERE? S, the City Manager recognizes the significance
DE the proposed merge!: and acquisitions by PAA and its positive
imps o the economic welfare of , the entire community; and
impact upon
CITY COMMISSION
MEETING G OF
DUI, I, 4 197$
WflE1 ffA , Eastern Airlines ha S served th'o City of•tot n%i
faithFully fir 50. years,, aped WTibt „Ni Eastei 1 has ptoViddd safc-
and dependahls oassengeL' and oatgo air Lrafspor'tat iotl
F iz tie
citi.yens and nainL• :i.ri r1 its horse base of -operations in Miami,.
•
and
WHEREAS, the acquisition by EA:L can bring
benefits to th.
City of Miami
ni fiiCant
1. It will result in a strong, stable Miami -based
carrier, positioned to compete effectively in
the marketplace and to expand its operations,
2. The integration of the two carriers' routes will
Position Eastern to fully develop Miami's .role
as both a major tourist destination a -id as a
gateway) to Europe and Latin America;
3. The Chairman of Eastern has stated that the acqui-
sition will not adversely impact employment;
4. The expansion opportunities created by the acqui-
si.t))n woulcL px:)Vide Long t;-?r:[r Je?flefits tl the
city in omoloy_nent all economic activity; and
WHEREAS, the City Manager recognizes the significance
of the propoSod Merger and ac.;ji)i Sition and its propoSed positl'Je
7.mpaeL epos the ei Onomic :welfare of the entire conlmanity;
NOW, TULRSFORE, BE IT RESOLVED 3Y TIi]: COMMISSION
CITY OF MIAMI, FLORIDh:
Section 1. The Civil Aeronautics Board (CAE) is
hereby urged to favorably consider and approve the pendi-ng
application for: t.r1C ;aarger and acquisition of National Airlines,
Incorporated, by either Pan American Worl:l Airways, Inc or
by Eastern Airlines-, Inc.
Section 2. The City Clerk is hereby directed
a copy of the herreinresolution tos
Chairrna l
-Civil Aeronautics Eoarl
Universal T3uiIling
W45hi_ngtOf, D. C. 20420
to forward
MAURICE A F RRE
M7 tJRtCE A. 'ERRJ.
M A Y O R
RALLP G. ONGIE, CITY CLERIC
PREPARED AND APPROVED 3Y:
0.41-7
R6t3ERT F. CLARK
ASSISTANT CITY ATTORNEY
AP ► AS TO FORK, ' CORRECTNESS:
7 8- 7 4 0
ROM
citi, oft WA*, P.l<:6§1bA
iNtEtt.t5PPICE MEMOAANbUM
liONORAnt MEMtEkS OP THt COMMItSION
8' Lii A M. rbt4ba2A
beputy Clerk
SMM: ms
i
SUBJEci •
RESERENCES
March 12, 1979
tescilutfot No. 78440 $aa§ed aid adopted
oti beeetnber 14, 1978 eetit to the
Civil Aeronaitic6 taard
ENcLosuRts tetter from 'Civil Aerottatities toard
order 78-0-24 & Order 784.450
On becember 28, 1078, following the instructions of the
City Clerk, I sent a copy of Resolution No. 78-740,passed
and adopted by the Miami. city Commission at its meeting
of becembet 14, 1978, to the Civil Aeronautics Board.
Today we received their reply, a copy of which is attached
hereto for your information.
1
CIVIL AttlICMAJTICS EIW
WAst-HIWG1bN, b.t. IOW
Sylvia MA Mendoga
deputy Clerk
Office of the City Clerk
3500 tan American Drive
Miami, Florida 33133
near Ms . Mendota:
I have read your letter of December 28, 1978 favoring the proposed
merger between Pan American World Airways and National Airlines.
The Federal Aviation Act, as amended by the Airline Deregulation
Act of 1978, requires that a merger of two air carriers or an acquisi-
tion of one air carrier by another air carrier be approved by the Board.
Section 408(b) of the Act requires the Board to disapprove a merger or
acquisition that would substantially lessen competition, tend to create
a monopoly, or restrain trade in any region of the country, unless the
merger would result in significant transportation benefits which could
not be gained through less anticompetitive means.
Texas International Airlines filed an application for Board approval
of its National take-over proposal on July 28, 1978. The Board set this
application for expedited hearing in Order 78-8-150, August 25, 1978.
Since then, Pan American World Airways has applied for authority to
merge with National, and the Board has consolidated its hearing on the
Pan American application with the one involving Texas International.
I' enclose copies of those orders. Hearings in both of these cases have
been concluded. The administrative law judge is expected to issue his
initial decision by April 30, 1979 and the Board is expected to issue
its decision shortly thereafter.
0n December 13, 1978, Eastern Air Lines also applied for permission
to acquire control of National Airlines. Its application has been set
for hearing and should reach the Board in time to be considered along
with the Pan American and Texas. International applications.
The Board wants to reach decisions in these cases promptly to avoid
unnecessary burden on the parties, and also because the Board wants to
develop and declare its policy on mergers to allow the air transport
industry to get on with business without having to wonder about the
rules of the game. Since these proposals are before the Board for
adjudication, I am not at liberty to discuss their merits.
CIVIL AVIONAlitICt Et
wAsi INotoN, b,'. z84 B
Sylvia Ms Mendota
Deputy Clerk
Office of the City C1etk
3500 Pail American Drive
Miami; Florida 31133.
T;
fN REPLY htttit
Dear Ms. Mendotat
i have read your letter of December 28, 1978 favoring the proposed
merger between Pan American World Airways and National Airlines,
The Federal Aviation Act, as amended by the Airline Deregulation
Act of 1978, requires that a mergerof two air carriers or an acquisi-
tion of one air carrier by another air carrier be approved by the Board.
Section 408(b) of the Act requires the Board to disapprove a merger or
acquisition that would substantially lessen competition, tend to create
a monopoly, or restrain trade in any region of the country, unless the
merger would result in significant transportation benefits which could
not be gained through less anticompetitive means.
Texas International Airlines filed an application for Board approval
of its National take-over proposal on July 28, 1978. The Board set this
application for expedited hearing in Order 78-8-150, August 25, 1978.
Since then, Pan American World Airways has applied for authority to
merge with National, and the Board has consolidated its hearing on the
Pan American application with the one involving Texas International.
I enclose copies of those orders. Hearings in both of these cases have
been concluded. The administrative law judge is expected to issue his
initial decision by April 30, 1979 and the Board is expected to issue
its decision shortly thereafter.
On December 13, 1978, Eastern Air Lines also applied for permission.
to acquire control of National Airlines. Its application has been set
for hearing and should reach the Board in time to be considered along
with the Pan American and Texas International applications.
The Board wants to reach decisions in these cases promptly to avoid
unnecessary burden on the parties, and also because the Board wants to
develop and declare its policy on mergers to allow the air transport
industry to get on with business without having to wonder about the
rules of the game. Since these proposals are before the Board for
adjudication, I am not at liberty to discuss their merits.
The toe°tdr a toles retquite to to puce your letter e.ud a copy of
thie tepiy id the tottee iotldetice sectio i of bucket 3 3283, a td to put
eopies itt the publie Refetet%ce toot.
Siticetely,
Sitciosure5
Stephan P. Cattiet, Chief
Cotnpetitiod liaititeh tree Section
Ms i gyilliS M: Metttioga ()
The Boate s tides requite ttie to place your lettet acid a dopy of
this reply in the cottesponcience seotion of bocket 33283, and to pttt
cdpies ih the Public lefetence Roots
Siticetely,
Stephan Pi Cattiet, Chief
Competition Maittetiafee Section
Adopted by the Civil Aett1 vlutic s Lief('
at ita 'office in WaehinItuh, D. C
fat the 7th day of §eptember, 1474
PAN AMER/CAN-NATIONAL
ACQUtSTTItiN
u.
TEXAS INTERNATIONAL
NATION, AIUISITION
CASE ANOPOi:lT
t sTIGATION
:'
bathe; 332t 3
Docket 33112
ORDBR coNsoLIDATINO
APPLICATIONS
On August 24, 1978, Pan American filed an application for approval
of its acquisition of control of National Airlines and for approval of
a merger between the two companies. Texas International Airlines also
wants to acquire National, and a hearing on the TXI application and re-
lated issues has already been ordered by the Board. Order 78-8-150. 1/
Pan American has filed a motion seeking consolidation of the two ap
plications, arguing that the cases involve the same primary problems,
cover many very similar issues, and that consolidation will be efficient
and not result in delay.
Answers to Pan American's motion have been filed by National
Airlines, Texas International Airlines, the United States Department
of Transportation, and the Bureau of Pricing and. Domestic Aviation. 1
With the exception of TXI, all the answers support consolidation. TXI
believes that the Board has the discretion to treat the applications
separately and that consolidation may complicate the case MI also
argues that, if the applications are consolidated, the Board should
maintain its original target dates for completion of the proceeding.
It asks the Board to describe how the Pan American issues fit into
its case, if consolidation is ordered.
1/ August 25, 1975. Also, see Order 78-8-151, consolidating the
question of whether Texas and Pan American can continue to purchase
National stock in advance of a Board decision on their control ap-
plications.
2/ All parties to the Texas International case were provided
c notice of our intention to deal with this question expeditiously
andlegraphs these parties were requestedto
tefile responses by August 30, in ad-
vance of the date that would otherwise have been required by our rules.
As noted, responsive answers have been filed and piowpl action accords
with the interest of all parties. See Rule 302.12.
Ede have dedideci ILO rbfiso1idate t the ttt pft eedi igs, Altlitugh
initial informatift requests have been filed in the l case, and a
prehearing ds,feretice has already bash scheduled 3/► we do hiot believe
that catch-up poridd for the pan American case neEd be lengthy, t
do believe that the target date set for the initial tecisish shod
be modified to refledt the additional workload. Order /A-841t0 set
January 2 as the target; we will eXtdhd this to February 1 f 1079
We will to let March 1.4 for bur final decision
We have decided to consolidate these proceedings for convenience,
efficiently and the developrient of a complete record, There are a number
of issues, pai`ticularly broad questions of CoMpetition policy, uhich
the parties would duplicate if the proceedings were separate. 'it and
Pan American would obviously intervene and participate in each other's
hearing and many other parties Mould also be required to appear twice.
We are enthusiastic about the prospect of two competing applicants
arguing against one another; this should sharpen the issues and the debate.
We hope that they will focus their arglrrents on the canpetitiVe matters
that are of primary concern to us. And we believe that this can best be
accomplished in a single hearing.
It is important, however, that the parties not misread the reasons
for consolidation. We caution then not to look on these two proposed
applications as presenting mutually exclusive comparative facts. The
proceeding should not be focused principally on the comparative public
benefits of either combination of route systems. The Board's route pro-
gram is likely both to make futile any attempt to "freeze" the route
system of any of these carriers long enough to examine it, and to make
it possible to achieve any alleged public service benefits through new
licenses without the combination of carriers. While we believe that
consolidation will lead to a more efficient use of everybody's time,
we would like all concerned to understand that Pan American's application,
like the Texas takeover, raises very distinct questions about competition
policy. We expect these to be considered separately for each proposed
combination. Our general concerns about the impact of mergers on tire
potential for a successful transition to a market -regulated system were
spelled out at some length in Order 78-8-150. These concerns naturally
carry over into the Pan American application. Indeed, this is one of
the overlapping issues that make consolidation attractive, and we want a
clear statement fran everyone on how they think approval of either one
or both of these acquisitions would affect competition in general and'
the possibility of a successful transition period in particular.
In Order 78-8-150, ue pointed to the actual and potential competition
2/ By notices issued on September 1, the prehearing conference in
the Texas acquisition case was postponed, and a consolidated conference
for both proceedings has been set.
A
that existed between Mti and National as ar"i area that htbderd e1
0fididetatioh. 4/ ate hails ifra1 t dbhetths about a Pali Al i n 'if
National c iratiOn.
Pan Ateritan and National typify the rapid shift that tan tie
place frdt potential to actual cotVetition under out pr titiw
s
licensing and pricing policies, A nnnth ago these tw+o'carriers engagedrily very limited actual:competition,
€tition, PshiAn titan had ofily f l *u1
o .
rights in t National , gton/Patirtre ant
Miattii- 'anpa, and these rights are limited by ions -haul restrictions and
'by the need to use thilles Aizxrt rather than close -in National Ai
in Washington, 0,04 but this litni.ted competition is a smell fraction
of the potential between these two carriers, especially since they both
operate fleets that have long -haul, transoxntinental and thternati a1
capabilities. 0oth carriers have stations at many of the rttjor east
coast cities, both serve lips Angeles and sah Franciscib, as -well as torido1i
Paris, Frankfurt, and Amsterdam. Just in the last week we granted Pan
American an exemption which will permit it to operate domestic fill -up
routes in connection with its Houston, Los Angeles, Miami and San Francis-
based international operations. 5/ This could result in an intnediate ex-
sion in the actual domestic ccrnpetition between these two carriersi
The sane type of expansion could take place internationally as a result
of decisions in the U.._S,-Benelux l --Fare Proceeding, and related
dockets, 6/ where National seeks a direct extension into some of Pan
American`s European markets, Pan American, and of course National if
it should agree to the Pan American proposal:, 7/ should confront the
competitive problems raised by a consolidation�of two carriers that
are thus poised to become active, oampeti.tors .over a widespread area
of operations.
This statement of our concern about oampetitive impact is
intended not to prejudge this application, but to direct the energies
of the parties to what rrost'concerns us. ;^ applicants are free to
argue that these concerns are misguided, that a rare Competitive
system will result, that there are offsetting public interest reasons
for approving the merger, and that there are rho feasible less anti-
competitive alternatives for achieving those benefits. On this last
point, the consideration of less anticotitive alternatives
should include the possibility that Pan American's limited domestic
authority can be cured by internal expansion and new licenses.
4/ Tnis issue, as specifically stated in the TXI order, refers to
lessening Competition in any region of the United States. There should
be no question in anybody's mind that this includes foreign air trans7
pOrtation.H The impact of an anticompetitive consolidation is felt by
the consumer first at the point of sale. For example,- a reduction in
Competition between Miami' and Europe would have an impact on the sales
of'`foreign air transportation in the Miami metropolitan area. :The Miami
area is clearly "a region of the Country" for section 408 purposes.
5/ Houston Service Investigation, Docket 33320, Order 78-8-172,
August 30, 1978. Also, see the applications of Pan American in the.
California -Florida Taw Fare Case, Dockets 31976:and 32307,
6/ See the applications of National Airlines in Dockets 31976 and
32307, and Order 78-9-2, September 1, 1978, arantinq National temporary
exemption between New York and Amsterdam.
7/ Newspaper and press reEorts indicate that National and Pan
American are actively considering whether a merger agreement can be:
reached. National opposes the TXI acquisition at this time.
In Order /A-0-172, we ihdioated a willingheat tt5 give conaidatatissi
to an overall plant for system realignment by Pah AMericafi, and uea iti�
eipate that it will offer a response to this as part of ita preaentation,
We ask that the administrative law judge and the otherri r eepecially
the beau of Priding and Mimetic Aviation, do their bat b see t
hat
this alternative is fully developed
tniliile we have now dea ribed WiMe of the prObleme that (oil US
the moat, this is not art a tciusive statement of the isstyes or a limitation4
on the right of any party tO arch its case. The genera merger
ssues
have been outlined in order 78-8-150, and they apply here,
TXI
has raised a question abut a possible violation of section 4081 and
suCh issues are always considered as elements of the public interest,
And, of course, the record should include the consideration of any
to public service benefits that would arguably result from the pro-
posed Merger, although here again we are interested in whether these
Y - the licenses of the in-
dividual also be feasibly achieved by �5
dividual monies.
ACCOPDINC ,Y,
1. We consolidate the application of Pan American World Airways
for control. of National Airlines,
Docket 33283, with the proceedings
in Docket 33112
2. We direct the administrative law judge presiding over this
consolidated proceeding to issue his decision by February 1, 1979.
3. We direct Pan American World Airways to file the environmental
submissions required by Part 312,12 of the Board's procedural Regulations
within 30 days of service of this order.'
4. Petitions for reconsideration of this order shall be filed
within eight days of service of this o (by
September 15, 1978) and
answers five days thereafter (by September 20, 1978).
This order will be published in the Federal. Register.
By the Civil Aeronautics Board:
(SEAL)
All Members concurr
Lj't1TED STATES O `emsrE.''.ICA
E-; N � •':.:., /•� BOARD
` 4 D.
.4Eilt�.•i: 1. Y 1C[ uVCi1
WASiilNGI'C q Di C►
Adopted by the 'CiVii Aeronautics Board
at its office ih 'riashiitgtc ►, O, C,
oh the 25th day of August4 1918
TEXAS INTERNATIONAL t 11AT tbNAL ACQUtS ITION
CASE AND tNVORCE+ 'INVESTIGATION
.7i'. Li iL i`. LM1 YG Y't 1C Y511�i�fimaii'CL��.4iG%icL.�iYG it.0 fii C::. tl7.1G rig Y�CJ'.. �LGo�w"S �:'. SC ^' Cl:.���,
NORTH CENTRAL SOCTHERN MERGER CASE
y
ORDER-I;:STITUTI,+G PROCEEDINGS
..NNATA
• Docket 33112
Docket 33136
The above order inadvertently omitted granting a dumber of outstanding
petitions for leave tc intervene. Accordingly, page IS, paragraph 4 should
read:
4.The petitions for intervention of Continental
Air Lines, Inc., Braniff h;ri;ays, incDelta Air Lines,
Inc., -Western Air Lines, Inc., the City of Harlingen,
Teas, t`;e:t.S. Department of Transportation, ,the Flight
Engineers Interraticnal Association,,AFL-CIO, f nited Air
Lines, American Airlines, Transoort Workers Union of Az erica,
AFL-CIO Frontier Airlines. Inc.-4. Northwest Airlines; Inc.',
Eastern Air Lines, Inc., Allechenv Airlines, Inc., 0cark Air
Lines, Inc.. Seaboard World Airlines, Inc., Air Line ?ilots
Association, International, the City of Houston and the Houston
Chamber of Commerce, and Pan American World Airkays, Inc., in
Docket 33113, and Western Air Lines, Inc.,Braniff Airway,Inc.,
Delta Air Lines, Inc., Minneapolis -St. Paul Metropolitan Air-
ports Commission, United Air Lines, American Airlines, the.
Master Executive Council of :Forth Central Pilots, Transport
Workers Union of America-, AFL-CIO. the U.S. Department of
Transportation. Allechenv Airlines. Inc., Air Line Employees
Association, International.' Frontier Airlines, Inc.. Master
greateg;
bated: August 20i 1978
Attetaetttl
_ AILLk it Di5dk t "33I36, be
°M,': ttEt tiA is yr A l RtCA
CtVtb AtikOseni� tct tbARt
VASzRINC ON, b. C.
Adopted by the civil Aer riaUt iO§ Board
at its of ice in i,:at''ningtCh, b. rn.
on the 25th day of August, 1976
saammUam
Mkt tNtE NATIONAL r Wt t AL ACQUnt tOai
CASE AND ENFORCER= NVEST/OATIoN
■. fiii'iG��..i �G i.�Gii Y.il►.iii".inYS i.=aim ir. Yi iii GfiGCJ..�GS. c.:���:a Y'.Iii�7i G.r r.r
hOICH OVT?,A - SO. t1 tRN MERGER VASE
..1►--
bocket 3311
Docket 33136
ORbER INSTITUTING PROCEEDINGS
On July 28, 1978, Teas International Airlines (TXI) filed an
application for approval of its acquisation of control of National
Airlines under Section 408 of the Federal Aviation Act, 49 U.S.C,
�5137$. TXI asserts that the proposed acquisition will, within the
meaning'of Section 408, be consistent with the public interest and
"will not result in creating a monopoly or monopolies and thereby
restrain competition or jeopardize another air carrier not a party
to the ... acquisition." 1/
TXI reports having already mace open market purchases of 790,700
shares of National's couanon stock, representing 9.2 percent of National
shares outstanding, at a price of approximately $14.5 million. It says
that it intends to acquire up to 25 percent of National's voting shares
before final Board action on its application. 2/ T\I's application,
however, seeks approval for the acquisition of National's capital stock
without limitation as to the nu, bPr of shares c.fhi _h may be a'"'
3.
1/ Section 408(b) 49 U.S.C. §i378(b)
2/ TXI proposes to keep its acquired stock in a voting trust during the
pendency of its application to insulate it from acquiring control under
Section 408. See our discussion of this proposal below.
as zs tyS ee give btotwt. and e: edited tonsiderati t to its a p .iCa
tiofli It notes its altead5 , heti�ycas'r, ini>estmen't in i'iatichal. dhd argues
that delay itt ptodessiig its application cool:: tie ua a Substattial
pottiofl of its• assets acid debti've•the public, the shafehOldefs of eac
carrier and the earners thesise1Ves.ef.the benefits of its proposed
• 6e4u0i461ia / It suggests that• we establish a btoceduta' scheaul.e s hitch
will pelt us to 'decide the case t.ithih•sib: thotiths of the dare of falii:g
8f its applitetioh Such-ek'editea treatment, i.t observes, is co isisteii• with
the sit torith period allowed fot decision on 8ectiof 408 cases in the •
legislative refort.bills petding.befote both Houses -of Congress. /
National has filed an anstter in response to kI's application It
submits that the application should be dismissed because .il has failed to-
aavise Us precisely•what:it proposes, to do.attid provide us With and° specific
justification. Also, Natior.al teises -numerous -points about 'hat it•perceiVes.
to be the competitive itvplications 1 of- 's-proposed acquisition, and
suggests a series of• issues itbelieVes shcud'be considered. 3/
We.have' decided not to application. to our view, the
points :rational raises would best be -aired it hearing. 4/
1/ TXI relies on the Board's recent decision in .Internat cna1 Air Service
Co span `rlcguisition of Control__.of Aloha ?.irl ties, Inc.. , Order 78."6-208,
June 30, 1975, for a recital of the public interest factors which support
a policy of not discouraging hostile open -market take-over attempts.
2/ S.2493, Section 20, Report No. 95-631, and H.R. 12611, Section 28,Report
No. 95-1211, 95th Cong., 2nd Section.
3/ National also alleges that T\I has violated Sections 408 and 411'of the
Act by its stoat purchase program and asks that we defer consideration of
TXI's application pending a resolution of these allegations. 'We will,
however, investigate possible violations of the Act by TXI during the pro
ceedings on the merits of its application. See Swift International Forwarders,
Order 76-12-84, December 14, 1976, and discussion belcw,rne cot etion and public
service aspects of this acquisition are the primary isstes before us in both the
acquisition and enforcement facets of this case; however, we anticipate the reso-
lution of all the issues in this proceeding within the announced target dates.
National also asks us to adopt modern discovery procedures (in'accordance
with the Federal Pules of Civil Procedure) in our consideration of 'i'}:I's
application. It submits that our present rules are ill -suited to deal with
contested take-overs. We have decided not to grant this request. However,
we recognize that the various parties to the proceedings which we are
instituting may have legitimate needs for deposing certain individuals
and obtaining documentary evidence to prepare their cases. Rule 20 of the
' Rules of Practice provides for such procedures, but ordinarily limits their,
application. So we have decided to delegate authority to order deposition
testimony and t.ne production ct documentary evidence, under Section 100 (e)
of t.he Act to the Administrative Lac Juc es concocting' these proc_ecings, who
=ay matte these procedures available tc the parties We wish to emphasize,
however, that the ..se o: hese procedUtzs shculd not be a..lowed to delay the
course of these cases.'
TheI.OUrikt,bdVe3 ebth tt< At ho.titk°- f the die" of rkiG,..i Btac ;
Tidri a has tiled A A6 drit iti otfCsiti n tv the f%otosed ac eyyy�$1
r t 7 ,.i'J if JC :t,i A"C ,:tontifteiita�
`aeet� 0�i 15b3ss$ble if�t�t� ,to N��:,r *� �� - appfo�ed, x_�; �s
i esterf► Alt tihes; belts
14rlin et L Itag; t~he Utt-. tepartfaefit Cf itahsportatiOhi . the
night flgihurs ltitefttatidital Assbciatich,.-ttt,,C104 i,t itad •Air tires .
an4 American Airiittes,• have filed petitions to i:ttetvehe, Which .we will
gratis,
0n AUgUSt I; 1028, North Central Airlines and Southern Ait ays
applied for expedited consideration and approval of the proposed Merger
of the latter into the fortter, and the transfer to forth Central of
Southernt s certificates of public Convenience and necessity attd exetttptioh
The joint applicants state that oh July: 28, 19i8; their re-
sp
ective � pp July
toards of Director$ approVed a letter of intent confir ing the
desire of the t% o cotapanies to tuerge and setting forth the pfinciples of
that ,tierget, 1/
The applicants anticipated that a definitive merger agreement would be
executed on or before August 15, 1978, and that stockholder approval wOUla
be achieved within approximately 120 da.s,
Southern and north Central; like TXI, urge e!Cpeditious consideration
of their application, and contend that the proposed mercer •Hill be in the
public interest; will not result in creating a Monopoly or monopolies, will
not restrain competition, and T3iil not jeopardise any other air carrier tot
a party to it.
Western Air Lines, Braniff Ai:wsays, Ueite Air Lines, the Minneapolis
St. Paul Metropolitan Airport Commission, United Airlines; American Airlines
and the Master LYecutive Council of North Central Pilots have filed peti'-
tions to intervene, which we will grant. 2/
1/ A copy of the letter of intent is attached to the joint application as
Appendix A. The letter, which by its owm terns is not a 'winding legal agree
;sent, states that each Southern stockholder will receive 2, 2 shares of
North Central common stock for each share of Southern stock. Each holder of
Southern',s convertible: securities, stool: purchase warrants and qualified stock
options will receive North Central securities on equivalent terms but with
the conversion exercise for North:Central shares based on the 2.2:1 exchange
ratio. The letter further_ states that Southern Will be merged into North
Central, with North Central the surviving corperate.entity. An appropriate
name for the merged company, representative of its broadened service.area,.
will be selected and North Central's Certificate of Incorporation will be
so amended upon the effective date of tze._tnerger.
2/ The General Counsel of the Department of Transportaticnhas filed; a'
letter with our Docket Section urcihg the Board to defer establishment of
the procedural framework or hearing on the applications,
(CONTINUED ON NEXT PAGE I .
A 'merget of t`Wo ait da fiers of al = t:uisitioh of ah ait tattier by
any pe.tsott is iliegal Without ptitit Board approv=a1 uhdet Section 46S of
the Adt. Section 408(b) dells fot apptoVal With appropriate terttt acid
cottditiofs Unless the target or acquisitioh Will tiot be consistefit 1.th
the pt►blic ihtetest m subjedt to the proviso that the Board snail hot
apptoVe a Merger or acquisition Whidh:would result in dteatittg a thoticpaiy.
or tonopolies And thereby restreir Competition of jeopatditt attotheit ait
cattier tint a patty to the tt+atisactioh
The North Cetttal4Outhett application also calla for the t?arisfet to
the fort -et of the tatter's certificates of public cotiveniente and necessity.
Section 401(h) of the Act precludes such a ttatisfet: uttiess it is appttWed
by the Board as being consistent with the pubic interest; acid sittce
certificates for foreign air tratspot^tation ate inVolved, their transfer is
subject as well to the approval of the president of the ttiited States under
Section 801 of the Act.
Ascertainment of the public interest in a metger or acquisitiotl pro"
ceeding is a balancing process in which the Board Weighs all of the
considerations disclosed by the record relating to the Act's purposes and
objectives "in order to calculate, as near as may be determined, the pro-
bable net effect of the proposed transaction upon the public interest," 1/
The test of consistency with the "public interest" brings irAto play
Section 102 of the Act, especially the portions that declare, as being
in the public interest, the encouragement and development of an air trans-
portation system properly adapted to the present and future needs of the
foreign and domestic commerce of the United States; the regulation of air
transportation in such manner as to recognize and preserve the inherent
advantages of, and foster sound economic conditions ir.,such transportation;
the promotion of adequate, economical, and efficient service by air carriers
at reasonable charges; and competition tc the extent necessary to assure the
sound development of an air transportation system properly adapted to the
needs of the nation.
CFOOTNOTE CONTINUED FROM P. 31
in Dockets 33112 and 33136, until after receipt of further public comment..
The Department's request will be denied. A11 interested parties will have
ample opportunity to participate in the establishment of the scope and
conduct of the proceedings at the prehearing conferences.
1/ American -Mid Continent Merger, 7 C.A.B. 366, 372 (1946).
y -
A148 Perti;:fieftt nd tit •public• iitettst' aspects .61•a terikt 6f ad44isi."ti6f,
6 6. 6 i Y ii cited ift' the i.at'tott•Att, detiof, s VxiCh 0.6tCilbat.
t iii1 it 4Uiii6h naViftg atdOtpetiti` a of wife t i tVth thug!', Sedtid:;.
4Pi bt th Adt it iiiftiies a t;`,ergets• of• e gsisitibh nidh wt appt6vt. f$o the
pima 6f• the afittttust lawtswt cannot ignote the poildof�r;tose. /at t the
rdeeiig aiitittust is a vet'.t inpottant.pub1ie• ihtetest corhssdefati t
ii So tautt. of Appeatg. for•toe- i)istt tt Of. t.olufia Cii Uit het sta'ta, 'tha'
ant truet l&t4s•ar
"afiathet tool t.ihith a f egu at.oti' agendv• erplo?s
to a greater. Or lessee` degtee to give undetstand=.
able cofitetit•to the broad• statutory, coticept of •the
•
'public intet tee Y , ► ," 3/ •
f)ttdet toard precedent, ttaheactiohe :that .Violate established.antitrust
•ptinoiples will fiat he approved-ut tess there is a clear. and cont'iticing
showing. that they ate requited by ''a serious transportation needy. or are
hecessat to - secure other. ifnpottant public benefits, the also t: equire the
• proponent§ of the proposed;activityto consider• less anticompetitive � a1•
ternativess and to explain why these alternatives have been rejected.
.(See our decision•in•the Cabacltv_educt.ion Ae.reet erits, ase, cited below,)
-It is not tleceSSary that ' asserted inconsistencies t ith 'antitrust -
-ptinciplee constitute outright antittust..vio1ations; The hoard has saidt
(t)he• essential question from an antitrust. standpoint is t..hether the
existence of a market structure.conducive to -maximum' feasible competition
v.i11 be itlperiled by apptoval of the agreement. '� 4/ -
1/ Section 7, as amended in 1950,..provides•in pertinent part: No corpo
ration engaged in- commerce shall acquire,- directly. -or indirectly,. the whole
or any part of the stock or other share; capital...t(orj.•.the assets• of
another corporation engaged •also in cotlrerce, where in. any line -of commer•
ce
in any section of• the country, the effect of. such acquisition taa: be subs
stantially to •lessen -competition, or tend -to create a •motcpoly.".
64 Stat. 1124-(1950), 15 ti.S,C, 18.
2/ See,e•g•, McLean Trucking•Cc,• v. U.S.,•321 U.S. 67 (1944);-and
CaDacit' .eduction'Agreements Case, Order 75-7-98, July •21, 1975. Also see,
Section•11 of the Clayton Act,-15-ti. S. C. .21 which es.ts us with.the power
.to enforce• -compliance by air• carriers and foreign air carriers 'with
Section
7 of - that statute. ' ' 2d. 953, 961(1968)., See:.also
3/ •Northern Natural Gas Co.' v. ITC, 399 7.
U. S.•.v.• F.M.C., Nos. 76-2004- and-77-1470, (C.A.D.C. July'28,-1978).at• 12-15
slip -opinion.
4/ Reopened -Transamerica Corporation and Trans International Airlines, Inc.,
order'71-71-119, July 21, 1971, at•16, citing National Air. Carrier Association
• et al. - v. C.A.B., 442-F. 2d.- 862(1971)..
We VieW these t fo applications in the ccnte it Of both the
statutory and polio' guidelines, discussed above, and today's regulatory
enViron ief<t, We are attetptirtg to charize air transport regulaticcfi front
a burdensome, prescriptive regime, in which entry is testtitted and
rates detert►ined in detail by the regulators to a less interventionist
regime ifi which entry is relatively f r'eei and prices ate to a large
e'ttef t set corpetitive1yt We are Making this change because we firtlY
believe that vigorous tOMpetition is Most likely to fulfil the ObjectiVet
Of the Federal Aviation Act: We Consider the speedy and successful
Widget -eft of this change to be our paramount public duty= Accordingly,
we dons ides the public interest ih these applications, or in any Merger.
or adtluisitioft, to be dominated by the question of their potential
effect bn Cur efforts tb create a More competitive air transportation
systein�
The current period of transition is also one of uncertainty. Regular
tort' and legitlative actions to create a more competitive air
transportation system ate still evolving andwe cannot khoW the
optimal firm site or industry structure for the as yet undefined regulatory
environment of the future. We do know, however, that during this period
of transition the elimination of any existing certificated air carrier
seriously concerns us. While we hope to see net: organizations certificated
to offer air transportation, the present shortage of available equipment,
the length of even out most expedited certification proceedings, and
the relative difficulty of starting a new airline mean that the Board's
transition program depends heavily On existing air carrier competitors
to respond most quickly to market opportunities and thereby contribute
to the initiation or intensification of competition and the supply of
services finely attuned to market demand. During the transition period,
and until the Board has lowered still further the regulatory barriers
to new entry, a lingering oligopolistic industry structure means that
the rate of increase in competition is likely to be directly related to
the number of existing competitors who can start service on their
existing routes 1/ or apply for expedited consideration of their requests
to serve new Markets. 2/ Therefore, a decline in the number of existing
competitors, actual or potential,which might not be as significant in a
fully competitive regime, will, we believe, tend at this time to -Frustrate
our regulatory objectives.
We must record at once our, recognition of the fact that the effective-
ness of competition is not a function of the number of competitors
alone. It is also important that the competitors be highly efficient,
vigorous and aggressive; and it is conceivable that some diminution in
1/ See, our discussion of existing dormant authority in the Oakland
Service Case, Order 7S-4-121, April 19, 197S.
2/ See, e.z., �onlication of Piedmont Aviation. Inc., Order 7S-4-69,
April 1- ,^I97S .
Butters Acton ivied by ati eizhanCttent Of he f ittiett of ca n to too
aa�s t15,4ded tht t;tLMulat; to cotipetitiofi rettaint paterf3i, take
CoMpstit .0ri More, rathef than less, of f ett i s;e,
Ne iefthelesst We th the air trahaportAtion industry
strudtured: as it hitiv is, be par`tidUlar•1Y ceticeftied about the .degree
to which combining Carriers May be actual or potential tot^petitors
of one other:, It is the existing carriers that have the ;,tahageie tt,
labors equiprett and established stations to perttit the Mast immediate
retpotSes tb the expanding oppoftUnities for cotapetitiOn that we are
intent Oh creating. Since the nuthber of potential competitors in2ny
particular Market will remain limited fat sotue tite to cottre, the degree:
of injury to competition from a combination during the transition period
will vary directly with the degree to which the combined carriers cOhbete
or could start competitive service by using existing unused authority or
applying for elitit^.atiotl of restrictions or exbedited entry into t e t markets,
In additions we cannot ignore the possible effect$ Of our decisions
on business judgements and behavior, The Uncertainty that necessarily
accompanies the transition which we are attempting makes us fear that
an uncritical attitude toward consolidation may precipitate a wave of
uneconomic and anticompetitive mergers and acquisitions. First, air -
carrier Managements might be tetrpted to merge or acquire during a period
of perceived Board tolerance for fear of being unable to do so
later when the regulatory climate Wight have become more restrictive.
Second, ho one can be sure how far or hovfast ourreform program will
progress'. An overly tolerant attitude by the .Board may encourage
businessmen to calculate that a merger or acquisition, though not economically
advantageous, in an unregulated 'environtuent, may prove to be so given the
risk that regulatory reform may fail or proceed only slowly. Sitilarly,
un:.ertainty about our actions or their results may lead'financial
institutions to encourage smaller firms to merge even though their
economic prospects aresotmd, and to refuse to finance smaller air
carriers who desire to expand internally rather than merge. Business
managements might direct their entrepreneurial energies more to, seeking
the security that appears to be promised by joining in the formation
of larger organizations with larger route systems, and less:to the
highly selective, discriminating task of rationalizing their existing
route systems, sloughing off uneconomic operations, improving their
internal operations and selectively grasping the opportunity to extend
their operations in the way most rational to them..,At worst,
an overly tolerant attitude toward particular' horizontal combinations
might be interpreted as a Board judgment, which we are emphatically'
'not prepared to make at this time, that a major consolidation of the
industry would be economically sound, and in the public interest.
ftall��s we ate in this period or transition souse nat less
tespofisive to Ccttalti traditional E1r:its of benefit Whithayed iii the
last; favored the dr pteva. cf Ir a regulatot'
regime in which competitive route expansion was sevetely testtioted;
pUblic setVide benefits slowing from expanded route syste:t:,s btete
@ 1i1et :Y offeted ih auppott of proposed cottbit ations+ A key e1etelt of
our transition t a tote competitive ehvitonnent; ih contrast,- is the
$tore rapid processing of a greatly increased r►umbet of cofpetitiVe route
applications, We have encoutaged carriers to file applications to seiie
competitive opportunities by internal eXpansion, In brie4 the add% nt'aget
eatia..at least so fat as-$oard polity is determinative- tiow be achieved
by internal eypaitsion; without merging, buritg the transition period,
as a general ptoposition we ate strongly inclined to prefer the fottier
method to the latteri-competitive entry to serVice expansion by absorbing
competitor, actual or potential.
Despite our concerns about mergers and adquisitions during the
transition period-and our declining reliance on store benefits traditionally
associated with horizontal combinations, we, cf course, intend to Consider
each application -on its ir;dividual merits, The damage to our transition that
the elimination of any single carrier could inflict is directly
proportional to that carrier's competitive potential. We have made clear
our desire, absent anticompetitive effects, to bring the discipline of
the capital markets to bear on air carrier managements.' 1/ Applicants
may be able to convince us that the carrier to be acquired is failing,
or that the combination Will actually enhance competition. For example,
where the acquired carrier is a relatively ineffective or unaggressive
competitor, the merger or acquisition may discipline the system and may:
deploy -existing air transportation assets more co.:.petitively than other-
wise, 2/ Moreover, our concern that current regulatory uncertainty may
spawn uneconomic combinations does not mean that we cannot be convinced
that a particular merger or acquisition is justified by increased.
efficiency of a sort that clearly outweighs any anticompetitive copse-
quences. Finally, there may be reasons why the preferred process of
expansion through competitive entry is impractical in a particular case.
In considering each particular case, however, we expect the Administrative
Law Judge and the parties to be guided by the above statement of our
i/ 'See International Air Service Company Control of Aloha Airlines, Inc.,
supra.
2/ We recognize that this question is difficult to resolve and we will
reiv on the Judze to avoid overburdeninz the record on it.
The pattieular citcu°tStances surtounding these appri''.atiehs
Y N§tify approval; rye believe, however, ih fait less to the
Appljdahts, that ate should alett thet to out i:';itiai oo .'Z.et:is taised
their requests, rirst, as to the ::oath t::entta� Southern t;ergef; these
tt.:6 detiiers appear to be likely totehti l ettr.iies ititc t:ach others
markets and route st'stet:s+ Geogta?hicallt• these tarsiers are standing. on
$ , h t result of recent g s
the
_ edge o� each other's- st+s€efts, Indeed as t:" raitt�
of new operating authority, each is now extending its route syste:it into
the ptitar% region served b ► the otiet, (See, ftt exanple, the t.iiat st-
At1 kta__Cote,t,i.t .VO _SO idk_.(a_te, Otdet 780-' 137, Duly 25, 1978, granting
North Central bettoit Atianta authority and the MethhisTwih_Cit, es
fi1t6lukee Case, Order 8, 4-20, .June 1, 197E, granting Southern authority
bets.seen Menphis, on the one hand, acid Milt.aukee a:,d Minneapolis/St, Paul,
on the other.) Also, as a result cf our advocacy cf liberaiiied tiarket
entry, both ate not: seet:itig authority in 40 coCihon city -tat t.at sets. 1/
He alst note that both Southern and North Central now' serve Chicago,
Detroit and Net. York, It our Viet.:, all these factors enhance the likelihood
of independent competitive entry by Southern and North Central into each
other's markets absent conbit-,ation. We also note that the predotinant
aircraft operated by both carriers is the DC-9. This too would seem to
facilitate the prospect that these carriers would be able to enter new
markets (including each other's) suited to service by this class of aircraft.
Because TXI has not so precisely advised us as to its specific
intentions,, we are unable to identify our areas of concern in evaluating
its proposed acquisition. TXI has not told us whether it would terse one
carrier into the other or operate one as a subsidiary, or liquidate its
interest in one while continuing, to operate the other. Answers to these
questions would, of course, greatly affect hot,. .e view the acquisition.
Assuming, however, that the current ;rational and. TXI would be controlled by
the same economic interests, we Note that at present they are two of the
principal competitors providing nonstop service in the Houston -:yew Orleans
market; 2/ that their route systems are geographically adjacent; and
1/ 'See, Chicago-?.idwav Expanded Service Proceeding, Docket 33019;,
Carribean Area Service Investigation, Docket 30697; Atlanta -Florida
Competitive Nonstop Service Case, Docket 30679.
2/ In light of the Section 411 and Clayton Act questions raised by TXT's
current holdings of National (see discussion below), we shall be alert
to any reduction in the quantity or quality of competitive services in the:
Houston -New Orleans market during the pendency of T:>I's application. If we -
determine that any ditinution in competition has become evident, we will be
receptive to granting additional authority in this market by exemption.
that they ire :, :, eti ng a; ixcat,ts tc+t new authority. it a tlt3t:6er 8°'bdard
prodeedings
As ': e : tatLd a.nvQ, -,ui views on these applications ate by nb
tilea:tS forted, Our discussion il+? E is designed to alert the battles to
our general attitude arid; thus) toots the proceedings, we, Enerefote,
ekpect the proceedings that we ate instituting by this order to
densider the fol outii g riot -exhaustive list of issues:
I, Would approval of the application result in creatifig a monopoly
or tohepolies and thereby restrain coMpetition or jeopardize ahother
air carrier not a part' to . the : action proposed?
II, Would approval of the application be consistent with the public
interest?
Al HWOUlti the effect of the proposed combinations be to sub
stantialls .tessen competition or to tend to create a monopoly
in any region of the United States? If so, are the anti-
cotwpetitive effects of the proposed transaction outweighed in
the public interest by the probable effects of the transaction'
in tweeting significant transportation conveniences and needs
that nay not be satisfied by reasonably available alternatives
having materially less anticompetitive effects? 2/
1/ See, Houston-Tarina/Orlando New Orleans -Orlando Investigation, Docket
31921; Dallas/FtWorth/Houston-Philadelphia Service Investigation,
Docket 32343; U.S.-Bahamaas Service Investigation, Docket 32294; Las Vedas
Texas'Case,, Docket 32152: Houston-Phoenix/Tucson Cage, Docket 32708,
Oakland Service Case, Docket 30699; Tucson -San Diego Nonstop Route
Investigation,:Docket 327709: Dallas/Ft. Wcrth-:yew Orleans -Florida Service
Investigation, Docket 32711;:and_San Francisco-Reno-Albuauercue-Texas
Service Case, Docket 32710.
2/ This is essentially, the test"set forth in S.2493, cited above. This
test is based in part on the statutory language of the Bank Merger Act
(12 L'.S.C. 1823) (c) (5), (17) and 1842 (c). Also see-, United States v.
Third National Sank of Nashville, 390 U.S. 171 (1968). We have already
adopted this test :for judging intercarrier agreements under Section'412
See Order 78-6-78, June 9, 1978. We believe that this test should
similarly be applied to our approval of mergers and acouisitions since
such approval also carries automatic antitrust immunity under Section
414.
",ottld the proposed dtAb=iatith create a sabre cctpetitive
atd eifitiett air tattier, thereby stitiulatittg toftpetition its
the air tranaportatiat s; stets, cr could it Create inefficiencies
or management problems that would
ditiinith the combifted
carrier's competitive 'potential/
2, May the ob3ectives and benefits of the combination be
achieited by alternative leas antitompetitivt Means ..
partitulariy internal a passion; or are there barriers such
as equipment shortages or regulatory obstacles to the
attainment of these objectiVes and benefits by independent
action?
3, Rog would the proposed trabsacttoft affect the quantity
and quality of air service? 1/
lit, that terms, conditions or modifications could the Board
attach to the proposed transaction, or What other collateral action could
the board take, to increase its public benefits or reduto its harm?
IV. What impact would approval of the proposed transaction have
the environment and energy resources of the nation?
l/ Of course, this issue includes the impact of approval of the merger
or acquisition on fares, subsidy liability, and, especially, service to
smaller communities. Senator George McGovern has sent a letter expressing
concern on the effect the North Central Sohtehen proceecgering tolconsi l have on
service to South Dakota. We will expect
r
this issue. A copy of Senator McGovern's`letter has been placed in the
correspondence file for Docket 33136.
tt additioi to its argUWents against the p aposed acquisition; Natiohai •
alleges €hat TXt. I as• alreadt. violated Sections 408 end 411. of the Act. by its
stock pur'ehaseil the teafd's $ti:eau- of Coftsii set Protection es elso requested
that we-eontidet. instituting an -enfortetteht proceeding against T41 to detereiine :
whether tRt has violated 8ettions 408,afd 411-of the Act ard'sectioh i of the
Olaytor Aet ' 'toe have -decided to act .of the tuieau of Cot sueler protectioh's
re4uest by consolidating the enforce eht issues tjith the•acquisition•prodeeding►-
The questions of 0-ether-TM has acquired control without •prior approval of
the board in..violation of.Section.408 of the Act, and whether its stock purchases
to -date constitute.an unfair practice or unfair thethod of cotttpetition Under
8eetion.411 of the Aet till be litigated and decided in the proceeding t►;e are
instituting to consider its application. •
First, we wish to detertaine•whether TXI's holdings. of National stock.
should be aggregated with National stock owned by National Aviation and.Technoiogy
Cotporation.(tATC)..to determine the full e!ttent,Of Voting shares subject to TXI 5
direction and control. -In addition to the 9.2 percent interest already acquired
by T?CI, reports filed.vith the board under Part 245.of our.Economic.kegulations.
disclose that NATO otans 3.0 percent of \ational's.voting stock and about 18.2
•percent of T;tI's voting stock. Under these circumstances,:we would like to
••explore the practical workings of.the.relationship-between.ATC and.-TXI and the
consequences of -that relatienship.for TXI's influence on tiational-to determine
• .hether. Section 408-of the Act has been violated.
t,'h.1e-the Federal Aviation Act does not presume control from.-the.--owner--
ship of voting shares at levels below 10 percent, we--tvay. nevertheless find
control,. where -circumstances warrant, at lower levels. 1/ BCP. points out
that T\ 's oian 9.2-percent holding, even t:ithout aggregating NATC's 3.0 percent,
constitutes toe largest block of stock in \ational,that•TXI is avowedly seeking
control of,that carrier, and that -the 9.2 percent nears the statutorylevel of
presumed control. The.proceedine should also determine whether, under -these
circumstances, section 408 has been violated. 2/ At the'same-.time, this case is
precedential`inTthat it is the first contested take -over -attempt in which the
shares of. - the target -firm may be a significant weapon in the acquisition. struggle. 3/
As we explore the possibility of violations•ot.Section 4Un, we will be. alert to
the possible consequences•of our actions for the free flow of capital and.for fu-
ture strtleglec for rnr1trnl of air•carr'cr
1/ Railroad Control of Northeast Airlines, 4 C.A.B. 379. 3f0 (1945).
2/ Recently received information, indicates that TYI may have already increased its
beneficial ownership of National stock, within the rearing of Section 408, to a
level above 10 percent. The protection afforded b' this order, of course, does
not cover actions taken before this order is issued,
3/ In the International Air Service Corboratior., Inc. Accuisiticr. of Aloha Airlines
Case, supra, the Aloha management was sttculated to be in complete control notwith-
standing IASCO's holding of voting stock.
1
has also 'asked us `to Gohsidet whether i3°.z has violated Se i
P �` { crot� �a:a
•of the AC-�t' and•Sect' on i Of. . t t i the Cla�ori Ace , ors BCP dotes ti Ti41 and EYat ioIa.
ate diced cothpetitots between Houstet andet: otieans and ate pottetitia cot:,
petitdts - in tatkett being cohsideted' in at ' feast- hi e '3oatd ptOdeedirhgsi i, fidet
these citcuristancest T :'s acquisition of its cut'reht shatehoiditlgsi. as. part -%i •
its declared. progtatri to aCqu to contto1 cf .+ationa • tight °possibly have-t'esUlt.
ed'in a violation.Of.Section % of. the Clayton Act of Violated'Sedtioh•4118 e
hate detert.itied to set the Section 411 :.slues for' resolution in this pto eeding,
Additionall' ► iii. accordance with BC?'s recottn endatioii, t+'e have decided that the
Judge shouid.inVestigate whether there are reasonable grounds to beliette that
Section of the Clavtoh Act has been violated, Of course4 -itt zohsidetitig all
of these etiforcettent'issuesi. we't;il1 be alert to the itiplications of our aettiohs
in •the tiarketplace foi future.COrpbrate conttol_,
'`AiV of the enforce.;ient issues involve' the sate e\ idehce as is -.-relevant -
f th meritsof the -acquisition itself, Therefore order -
to the deter:;ination of:the e
1iness•and efficiency require the •litigation.cf.these issues.togetheri s0 t.'e,have
decided to investigate the Clayton Act issues in the sage hearing in which we -
are considering proposed -acquisition and determining tahether. violations
of Sections 408 and 411 have occurred. In the .hearing, we would .like the fudge
to consider the follow ing questions t •
I. Ads TX/ violated.Section 408 of the Act?
•?. Should the• interests. of T::I' and those cf ,Z:ational Aiation-
and Technology. Corporation be aggregated to deterrine•the
forger's voting •share participation in.National-under'Section
.:08 of- the. Act?
-Does TXI's ownership. of National's stock constitute
control of National within the ;meaning of Section 4U8?
I„ Has. TXI violated Section ..1'_ of the. -Act?
III. Are there reasonable grounds. to believe that TXI has violated
Section 7 of the Clayton Act?
•If`the Judge -finds violations of Sections.408- and 411-of, the Act, he. •
shall grant whatever,relief he- finCs'appropriate after.. consideraton'of ail
the.•facts and circutstances'presented.in this proceeding. --If the Judge finds
• reasonable.grounds to believe' that Section 7 of the Clayton Act has.been vio-
lated, we expect -him to recommend whether further. enforcement action based
-upon that. section should be instituted.-
-.-
he. Tekat thtetnajionalNotint Trust As_sues
TX! states that it May continue to purchase up to 26 perdeht of National's
Vatilg shares during the pendehdv of its applidatiott, Sectioh 408(f) of the Federal
AViatiof act presutties control at 10 pereeht, T'{i recoc'hiles that aciluiring up
( 'tS percent would Violate the statutory requirement that approval precede adgUisi
tiOh, It seeks to nullify the presumption of Unlawful control by p1aeiho the stodk
ih a limited voting trust, With several itnrortaht exceptions., it will riot vote its
Sheer SO as to affect decis'tOfis Made by Siatiohal Airlines which are subtiiitted
to tharehoider vote, t/
National objects to the possibility of further stock purchases and the use
Of a Voting trust as a cure for unlawfully acquired control, it would have the
cohtrol applieation held in abeyance until these issues are settled, It etaims that
T\I's actions are severe violations of la`,v that requite postponement of the aequisi=
tion under goverhing precedent. 2,` TX1 argues the opposites claiming that its
violations are hot otily not severe, but non-existent, It claims to have acquired
less than 10 percent of National shares, and says it .will not purchase more than
10 percent without insulating itself from control by the use of the voting trust, 3/
TXI also argues that its voting trust device is consistent •,cith the Board's announced
desire not to alloy Section 408 to work any unintended interference with the flow
of capital into the airline industry,
We believe that the issues raised by the voting, trust should be resolved
as soon as possible within the next thirty days. This is the second contested
takeover to come before us in the past year, ►i'e do not Wish to see Section 408
unnecessarily raise the cost of an acquisition ;..:hick might ultimately recieve public
1/ The trustee, the United States Trust Company of New York, is instructed
to vote the stock entrusted to it proportionately .vith the votes cast by the holders
of the other outstanding shares. This will increase the aggregate number of votes
cast, but it will not change the balance for cr against any proposition. Depending
upon National's bylaws. this may have the effect claimed by T\1. The exceptions,
which we described below, still remain of siginificant concern to the Board.
2/ In our most recent consideration of the way, to handle violations of the
prior approval requirements, we decided that automatic postponement — the old
rule — was unreasonably burdensome. We noted that even while the old rule was
in effect, we had waived it routinely. Our new policy is geared toward individual
evaluation of each alleged violation. We retained the possibility of postponement
of a hearing on the merits, where we deemed an unapproved acquisition to be.
a severe violation and considered immediate enforcement action the proper course.
Swift International Forwarders. Order T6-12-84, December 14, 19 7 6.
3' The Board initially considered these arguments in a public meeting on august 17.
Since that time TXI may have increased its beneficial o.-r.ers"nip above the
10 percent presumption. This matter should be considered in the principal investiga-
tion. Additionally, ..tie are informed that Pan .,n.erican l\orld Airways has purchased
approximately 5 percent of National's shares and has approached National with
the possibility of a friendly merger. This develo?^ient may raise significant issues
which we may nave to address in the future.
interest aob►bt'alt So we are again faced with redondiling the prior approval reeluirea
Merit§ of Sedtion 408 With the b65sibility that this sedti611 affords ind r ibent Managers
a degree of prOttotion that is hot Warranted by the provision's intent or the public
interest generally, TXI's application proposes the use of a voting trust to acdtilnrho*
date these dompeting ihterestst It argues that its position is supported by lose
law, althaugh National argues from a long line of CAS prededent that voting trusts
are riot a suffidierit devide to insulate a target corhbanv froth unlawful dontrol,
boring the next thirty days We will dohsider the legal arguments, but we
tentatively find that the use Of a trust) revised adcording to the iiistCuetions below
and limited to 28 be -Merit of National's shares, r'hay result ih a satisfactory wears=
tion of ownership frbm cbhtrol for the relatively short period that TMt's applica-
tiara for approval is pending before the Board
As proposed) the trust agtee,tneht would give TXI unfettered control over.
the voting of up to 25 percent of National's shares oh issues that might affect
T'I's interests. 1/ The desire to retain this power is readily understandable. We
can see no ways bf justifying such unapproved acquisitions of control under Seetioti
408, unless the acquiring company has neutralized its power to control the target
company that arises from its ability to vote the shares it has acquired. But TXI
would retain this voting power on issues that are Crucial to it under its proposed
trust arrangement. At least in cases where a presumption of control exists under
Section 408, we are hot certain that this retention would be consistent with the
statutory requirements, since the right to vote would be exercised before approval.
by the Board. 'Consequently, it is our intention to direct TNI, if it acquires stock
above the 10 percent presumption, to reform the trust agreement to eliminate
its control over the trustee's voting of its National shares. 1\e, therefore, do
not object to " h1I's proportionate voting proposal, but would eliminate T\I's discre-
tion to intervene in circumstances which it believesare exceptional without specific
prior Board waiver. We recognize the risks that are created by this kind of trust,
but we believe that they are necessary under the circumstances.T:\l will be free
to petition the Board for waiver of this condition. It is our tentative view that
this waiver procedure, which will make Board approval a precondition to voting
other than proportionately, is compatible with all the obligations imposed on us
by Section 408 and our statutory mandate to keep, the industry competitive and
efficient.
TXI has already placed its National stock in trust. Whether it will choose
to use the revised trust while it holds less than the 10 percent at which Section
408 presumes control is something we cannot predict. It is free to do otherwise,
but it takes the risk that its conduct could be found to be an unlawful acquisi-
tion. However, if TXI's holdings exceed 10 percent, we will require that all of
its National stock be placed in trust - assuming the trust device is sustained.
is The trust agreement instructs the trustee, notwithstanding the proportionate
voting provisions, to vote TXI's shares against any proposed action involving changes
in the number or type of issued or outstanding shares in the company, changes
in the bylaws or certificate of incorporation, sale of company assests, any merger,
consolidation, recapitalization or dissolution, unless T\I instructs otherwise.
1°44"
y tree ; i`i
Itch d3:$u3 t a _ s ate n3s - .-
it Will Chodse th sSc�
use x i a f as L P.l i_ e .t hblYLthat
the th
he 16 perdtht at W idhh Se tioh 468 pf.`eglIteg c rt16l is 66Methindaft
` f tt do o u�':�?`PW ise ► DUB i � taYes the.
�li�t �r'�l.�t: �t is ree �i�P�:
tick3�9 .�C h/+ - „..jy - an u`nla%.ful a s1
that CR _�ll�.ii��. 1S �.�.l ri 1... l.�v ..or,Sc f.1 to i
However, if VIlt holdings emceed 10 perdert; we Will reqUire
that all Of i. s National sto t be placed ii`t t:,Us"t astUMing the
tit device is sustained:
Of coir Sey GanlOt ti 0:whether
our telu3 ulYe iiiUi1gt
on the :rust will be confided until the thirty da period for
ni5 ... Cr :.
6 7ttfileflt andcecxsiOh is 6Ver, tea�es a seriCu. problem for
' `I has plainly state' that it ccees not t•:arit _ rest._ ih
ed
its .. t
is � ra,
. ,u `^ �`_clear that approval alter
1.f1 its p __ . -
aYc, a,i the
thirty G s�Sjs eS d and u it to equally announcement ."1. nt that IV is :lac ih
L � �. �. >_r• predict
m. y•.. x r " z : w.c if e now ,Cert ,rneuin
:From, cum s �an.+po.�: , ._, are t.t�:'�e.... • 7. legal aLithorit�i
the effect that this would have, for do we -atie a
Crto influence ;rice of National shares,
� Nub1.iL interest reason the
Ss cut tire:.iSpositic n is t0 keep cur hands off certainly ih the
absence of the voting trust, acquisition of --owe .. . than 10 percentis pre: u. ntively urla;• fu1. Therefore, at the end Cf the .JO day period,
if the bust is not sustained, VI woulc rate tc rid itself of the
excess over 10 percent. However for stook :,o1cires of this sort --that
of 10 t t placed L--t a `tr' st of
.: `'lcns �"1 e,•:^.e5- percent tut �.
a t+.�?
15 a� �J.l si �'
_
.y.atr.ol : approved but laterdisapproved y_
the Board --we not
that "Lis acenc.4 :lee take act i-n be cnd divestiture
`
ac-
complish the purposes behind Section �; tI'�I ccnt hues 'r.O �8. 'bus, �� .
� rc�ase uo to 25 ;P...rce.' t of atic 'a1' s stodt and uses the suggested
. i` our authority to
t-asL/ w.t does Sv. at its �7i.T1 risk _' the trust form �J liisaL..�rV�%e✓•,
p e o bs1c.+ 10 ` -f L.a
AY er dive-.r \..1 L`.I.J. e. -LV � ✓:.1 �.L 16:. i.� - .
(2) ultimate a ".cry t': to order divestiture if the acquisition is
car ti;4..e L�..
(„ the o_ss_c__it•, of enforcement actions if, apart
it is found to have exercised
:ram . nl�+iit�• Ci�iarC= 'i• t o �'CJtw.+t�•w. trust, r, _, .cul -,.-r•--o1 0 o- >,•a..ic:tom49
-� • teti.er direr` y or indirectly, See
_ �+
U.S.C. 13S2.
r� 0 while we 'gait fcr t ."'.. er com e:.t cn these issues, 4:e direct
t - r ` tr &.=d with 10 tercent c f more of National's
tr.:stee, if i _ .,�. :ems e": ,:�
on to the
st C , to vote all sharps ecl:r.^,it.ed to i t only i+-i proportion
r C"••n1-tzs -t•0 t�rt^r ::�r+.r0a6ri 1
inornor
/
rS noted a;'r
e, ' s Tale of proportionate voting is the basis on
,. .- ,1
'- relinquished ^ =hed. its control. We are insisting
which i::I claims to•; ? l e � '
.'at it be used :Cut the exceptions _ons retained by `TY.I. Cur power to SO
"., o t-e trustee is reco`:. ricer in the tr a s t ac= ee.re.'t, Paragraph ' 1(b) .
;?ze t^iscrag 4_;aiasto'.: i.- - s.._•e`z to trus_t� t^
ut
5u4'aY to •.,:a:.�:er -c cis:::ssed above.Finally,
~ ,, / + while . have ave sere_ eC
_ t _ res trst:r." cenor , tier _C rer..rd. the r._
tes in.. .,�i..�e 'l= -.f.L^ r i _'~ .�.. of R carc nt s Sriy�� Cw.li�
rti.C-
_.. '.'r... ..So.. -.._on
A tabtN0L' , tt 18 abntb t21AT t
14 A proceeding to consider- the application of texas fntethational
Airlines, 1fid. for appro'1a1 of the ac4Uisition of control of National Aitlifies,
ht.. it bocket 331 2, to considet whether: fit has violated
Seoti3fis 408 and/or 411 of the Act in connection Vith its attetttpt to
acquire control of National, and t0 consider: whether there are reasonable
grounds to believe that X1 has violated Section 7 of the Clayton Act
in connection with its attett:pt to acquire control of National, be
instituted under sections 204, 4080 411 and 1002 of the rEda,d1 Aviation
Aet of 1958, as amended, and be for hearing before an Administrative
Law Judge of the Board',
2. A proceeding to consider the applicati.ott of North Central
Airlines, tnt. and Southern Airway's, Inc,, for approval of the merger
of Southern into North Central, and the transfer to ;north Central of
Southerti's certificates of public convenience and necessity for..Houtes
98 and 174 and other certificate and exemptiotl authority, it1 Docket 33136,
be instituted under Sections 204, 401 and 408 of the Federal Aviation Act
Of 1958, as aiiended, and be set for Nearing before an Administrative Law
Judge of the Board;
3. The authority to order testimony and the production of documents
provided in Section 1004(e) of the Act is aelegated for the duration of the
proceedings instituted in paragraphs 1 and 2 above to the respective
Administrative Law Judges conducting thee;
4. The petitions for intervention of Continental Air Lines, Inc.,
Braniff,kir..ays, Inc., Delta Air Lines, Inc., Western Air Lines. Inc.,
the City of Harlingen, Texas, the U. S. Department of Transportation,'
the Flight Engineers International,Assoc3ation, AFL-CIO, United Air
Lines, and American Airlines in Docket 33112, and western Air Lines,
Inc., Braniff Airways, Inc., Delta Air Lines, Inc. Minneapolis -St. Paul
Metropolitan. Airports Commission, United Air Lines, American Airlines,
and the Master Executive Council of North Central. Pilots, in Docket
33136, be granted;
5. The Bureau of Consumer Protection be made a party to the
proceedings instituted in paragraphs 1 and 2 above;
6. Texas International Airlines, North Central Airlines and'Southern
Airways shall tale the environmental submissions required by Part 312.12
of the Board's Procedural Regulations within 30 days of the date of service.
of this order (by September 17, 1976);
There are irhportant questions that we heed answered before we eah decide
Whether a revised tr i t agleement wilt be satisfactory. txI is directed to provide
US with et leant the following infot`;nationt (I) its willingness to l`evise the trust
agreement along the line§ above, (0) its intentions regarding the holding Of any
National stock outtide -of the trust agreernent (a) agreements of any "sort regarding
the voting Of atoek by other holders of %ationad'S sedurities; and (4) whether or
het it Will continue to require stodk before revising the trust agreement along
the lines outlined above. We Will require TXt's answers to these questions within
ten days of the Service date of this order. Any further Comments it wishes to
make in Suppart of its position will be due twenty days from the date of service.
National will also be directed to file any further COrnttientt it wishes to
make within twenty days of service 1+'urtherfiore. since our decision in this case
will have obvious precedential value, we sblieit the comments of any the interested
persons, Comments ents are requested from the Departrnents of Justice and Transportatiot
the 1~ederal trade Cotnrnlssion, and the Securities and Exchange Commission,
and all other interested persons — not limited to the immediate parties to this
contest -,_ are welcome to subrit their views on this issue Comments will be
due within twenty days and a preliminary deterrnination on the voting trust issue
i which will be the rule for this base will be issued shortly thereafter.
We wish to make a few retraining points before leaving this issue. What
we are attempting to determine is whether any forth of trust agreement is suffi-
cient to insulate ah acquiring party from control during the pendency of ari applica-
tion before the Board. We are not considering the propriety of a trust agreement
as a long-term instrument for investment in the stock of competitors. We wish
to consider whether, even in the period necessary for the processing of a Section
408 application, there are any distinct problems raised by the fact that the voting
trust is used by a competitor or potential competitor. We also request those com-
menting to address the question of whether there should be a restraint on alienation
of the snares required to be placed in the trust, However, whether there are already
violations of Section 408 and 411 is not germane to the question of the advisability
and legality of permitting a revised trust. Those matters are dealt with above.
Procedural Dates
We agree with the applicants that fairness to all concerned requires expedition.
Accordingly, we have decided to institute proceedings to consider the applications
before us separately in the light of the concerns expressed above, and we direct
the administrative law judge presiding over each hearing to issue their respective
decisions no later than January 2, 1979. We have determined to take review of
each initial decision and will issue an order setting forth an expedited briefing
schedule at a later date. For our part, we will endeavor to make a final decision
on these two applications by March 1, 1979.
ACCOPINGLY) IT IS OnDFREb THAT;
1� A proceeding to consider the application of lexas International
Airlines, Inc* for appovai of the acquisition of control of National Airlines
Ine,3 in Docket 33112, to consider whether T1i has Violated
Sedtions 408 and/ot 411 of the Act in connection With its attettpt to
acquire cottttol of National, and to consider whether there ate reasonable
grounds to believe that TN/ has Violated Section 7 of the Clayton Adt
in connection with its attettpt to acquire control of National, be
instituted tinder Sections 204, 408, 411 and 1002 of the Federal Aviation
Act of 1958, as amended, and be set for hearing before an AdministtatiVe
Law Judge of the Board;
North
2. A proceeding to consider the application of ,ort, Central
Airlines, Inc. and Southern Airways, Inc.," for approval of the terger
of Southern into North Central, and the transfer to North Central of
Southern's certificates of public convenience and necessity for outes
98 and 174 and other certificate and e.cetption authority, it Docket 33136,
be instituted udder Sections 204, 401 and 408 of the Federal Aviation Act
of 1958, as wended, and be set for hearing before an Adtvinistrative Law
Judge of the Board;
3. The authority to order testimony and the production of documents
provided in Section 1004(e) of the Act is delegated for the duration of the
proceedings instituted in paragraphs 1 and 2 above to the respective
Administrative Law Judges conducting thee;
4. The petitions for intervention of Continental Air Lines, Inc.,
Braniff Airways, Inc., Delta Air Lines, Inc., V.`estern Air Lines, Inc.,
the City of Harlingen, Texas, the U. S. Department of Transportation,'
the flight Engineers international Association, Am. -CIO, United Air
Lines, and American Airlines in'Docket 33112,'and k`estern Air Lines,
Inc., Braniff Airways, Inc., Delta Air Lines, Inc Minneapolis -St. Paul
Metropolitan Airports Commission, United Air Lines, American, Airlines,
and the Master Executive Council of tiorth Central Pilots, in Docket
33136, be granted;
5. The Bureau of Consumer Protection be made a party to the
proceedings instituted in paragraphs 1 and 2 above;
6. Texas International Airlines, North Central Airlines and Southern
Airways shall file the environmental submissions required by Part 312.12
of the Board's Procedural Regulations within 30 days of the date of service
of this order (by September 37, 1978);
I. 146ti6ht to tOht6lidite and petitiot t f6t recot�tl.det`atio i Of this
. artier than. be filed MY ithill 10 days of the date Of tei 1ite tit this order
(by September , 1978) af►d tesponsive masers shall ;e filed t days
thereafter, (by teptetiber 1z 978)
e, This order shall be served on the 13t,ited States bepattlehtd of
dustiee atld Trafispottatiofi, the rederal Trade COtthittiOhl the SeEutitiet attd
E5tohatige Otitission; and the United States Trust Coftpany of ,;et.iYOrk;
0, TXI is directed to provide the infot,tatioti requested oft page 17
above within ten days Of the setvice date of this Order;
16, Any parties vishing to Cottent on the advisability of permitting
a -trust agreement: for interim holding of potentially contralling blocks
Of securities during the pendency of control applications are directed
to respond within twenty days of ser°\'ice. Parties to this docket Will
abide by the toard's rules for service; other interested persons may
submit three copies of any cotaments to the $oardts Docket Section;
11, The United States Trust Company of New York: is directed to vote
all National Airline shares held by it pursuant to a trust agreement
tiith Texas International Airlines dated July 24, 1978, only in accordance
with paragraph 4 of that agreement until further order of the Board;
12. The requests of National Airlines, Inc. for injunctive relief,
as set forth in its letters of August 7 and 15 to ChairmatKahn, be
denied;
15. The motion of National Airlines, Inc. dated August 15, 1978,
to file otherwise unauthorized documents be granted; and
14. The administrative Ia.,' judges presiding over the above proceedings
are directed to issue their decisions by Januarti 2, 1979.
This order shall be published in the Federal Register.
By the Civil Aeronautics Board:
(SEAL)
All Members Concurred.
PHYLLIS T. i:AYLOR
Secretary
Beeembet 28, 1978
A,IFH'0,`O C`rtC
itv Clerk
F4IRkI
Accictant City Cle!t,
btrt•fit rii ciLRh.•
'sicra h1. Mehdnsa
Robtitt ivcitrit
1k'their-6 m B. Potter
gobert L. Ilhglht
5tA}F
Georgia 4i. Little
tiittROlFt;M 01\15IO',
kiela Isabel Fernandes
EsiIt R,:
Mr. Marvin S. Cohen BI,` Chairman
Civil Aeronautics Board
Washington, B. C. 20428
bear Mr► Cohen:
Bnclosed herewith please find a copy of City of Miami Resolution'
No. 78-740 passed and adopted by the Miami City. Commission at its
meeting of December 14, 1978 urging the favorable consideration
by the Civil Aeronautics Board of the pending application for the
merger and acquisition of National Airlines, incorporated by Pan
American World Airways, Inca or by Eastern Airlines, Inc.
Your} very truly,
527.7.
Syia M. Mendoza
Deputy Clerk
OFFICE OF THE CITY CLERK/City Hal1/3500 Pan American Drive/Miami, Florida 33133/579-6065
a
Wr-