The Airline Deregulation Act of 1978 was designed to create a more competitive environment in commercial aviation. But as deregulation has matured, we have an industry more highly concentrated than at any point in its history, and a horizon devoid of new competitors.During 1989, three of the four largest airlines in the United States became targets for leveraged buy outs (LBOs): Northwest, United and American. As of this writing, only the former has been successfully concluded. The failure of the United LBO sent the Dow Jones Industrials skidding 190 points on Friday, October 13, 1989-the twelfth most serious collapse in Wall Street history. Two reasons account for the sudden surge of interest in airline acquisitions. First, after more than 150 bankruptcies and 50 mergers, the industry has become an oligopoly. Eight megacarriers dominate 94% of the domestic passenger market. With fortress hubs and shared monopolies, ticket prices are ascending into heaven. Now that airlines are becoming money machines, they have become targets for leveraged buyouts. Second, the glamor of the industry has always attracted men with huge egos. In the old days, it was buccaneers like Howard Hughes, Eddie Rickenbacker and Juan Trippe. These days it is Marvin Davis, Donald Trump, and Peter Uberroth. Owning an airline is more prestigious than owning an NFL franchise, for there are fewer of them. Owning an airline also means becoming emperor of several fiefdoms, for the fortress hubs are a stranglehold over the cities they serve and the regions they dominate.This article will examine the motivations behind airline LBOs and the policy reasons why they are not in the public interest. Criticism of LBOs centers on the impact massive amounts of debt will have on the ability of airlines to make new aircraft purchases or maintain existing aircraft properly, expand operations, maintain competition, and withstand the vicissitudes of the market cycle. A deep and prolonged recession will likely cause a new round of bankruptcies and consolidations among debt ridden airlines which will leave the industry even more concentrated than it is today. Finally, foreign ownership of U.S. airlines raises competition and national security concerns
