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45–107 PDF 2008

EFFECTS OF THE PROPOSED ARRANGEMENT BETWEEN DHL AND 

UPS ON COMPETITION, CUSTOMER 

SERVICE, AND EMPLOYMENT 

(110–168) 

HEARING 

BEFORE THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 16, 2008 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

ELLEN O. TAUSCHER, California 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

RUSS CARNAHAN, Missouri 

JOHN T. SALAZAR, Colorado 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

NICK LAMPSON, Texas 

ZACHARY T. SPACE, Ohio 

MAZIE K. HIRONO, Hawaii 

BRUCE L. BRALEY, Iowa 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ACURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

JERRY MCNERNEY, California 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

WAYNE T. GILCHREST, Maryland 

VERNON J. EHLERS, Michigan 

STEVEN C. LATOURETTE, Ohio 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CONNIE MACK, Florida 

JOHN R. ‘RANDY’ KUHL, JR., New York 

LYNN A WESTMORELAND, Georgia 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

ROBERT E. LATTA, Ohio 

(II) 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... iv 

TESTIMONY 

Brown, Hon. Sherrod, a United States Senator from the State of Ohio ............. 6 

Fisher, Hon. Lee, Lieutenant Governor of the State of Ohio and Director 

of the Ohio Department of Development ........................................................... 15 

Hammes, Gary, Senior Vice President and Chief Operating Officer, ASTAR 

Air Cargo, Inc. ...................................................................................................... 35 

Hete, Joseph C., President and Chief Executive Officer, ABX Air and Air 

Transport Services Group .................................................................................... 35 

Mullen, John P., CEO, DHL Express ..................................................................... 35 

Prater, Captain John, President, Air Line Pilots Association International ...... 35 

Raizk, Hon. David L., Mayor, City of Wilmington, Ohio ...................................... 15 

Ross, Captain David R., President, Airline Professional Association, Teamsters Local 1224 ................................................................................................... 35 

Simon, Samuel R., the American Antitrust Institute ........................................... 35 

Turner, Hon. Michael R., a Representative in Congress from the State of 

Ohio ....................................................................................................................... 7 

Wallace, Burt, President of Corporate Transportation, United Parcel Service 

of America ............................................................................................................. 35 

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Carnahan, Hon. Russ, of Missouri ......................................................................... 79 

Costello, Hon. Jerry F., of Illinois .......................................................................... 80 

Latta, Hon. Robert E., of Ohio ................................................................................ 84 

Mitchell, Hon. Harry E., of Arizona ....................................................................... 88 

Oberstar, Hon. James L., of Minnesota ................................................................. 89 

Richardson, Hon. Laura A., of California .............................................................. 94 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Brown, Senator Sherrod .......................................................................................... 96 

Hammes, Gary ......................................................................................................... 99 

Hete, Joseph C. ........................................................................................................ 114 

Mullen, John P. ........................................................................................................ 129 

Prater, Captain John ............................................................................................... 146 

Raizk, Hon. David L. ............................................................................................... 159 

Ross, Captain David R. ........................................................................................... 201 

Simon, Samuel R. .................................................................................................... 218 

Turner, Hon. Michael R. ......................................................................................... 228 

Wallace, Burt ........................................................................................................... 231 

SUBMISSIONS FOR THE RECORD 

Wallace, Burt, President of Corporate Transportation, United Parcel Service 

of America, supplemental statement .................................................................. 243 

ADDITIONS TO THE RECORD 

The Honorable Ted Strickland, Governor of the State of Ohio, written statement ...................................................................................................................... 248 

The Honorable George V. Voinovich, a United States Senator from the State 

of Ohio ................................................................................................................... 250 

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(1) 

HEARING ON THE EFFECTS OF THE PROPOSED ARRANGEMENT BETWEEN DHL AND 

UPS ON COMPETITION, CUSTOMER SERVICE 

AND EMPLOYMENT 

Tuesday, September 16, 2008 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The Committee met, pursuant to call, at 2:15 p.m., in Room 

2167, Rayburn House Office Building, the Honorable James L. 

Oberstar [Chairman of the Committee] presiding. 

Mr. OBERSTAR. The Committee on Transportation and Infrastructure will come to order. 

I see we have a very lively interest and apparently a very long 

line of people outside. I hope there is accommodation for them in 

the Subcommittee hearing room to follow the proceedings. 

In the interest of time, I will make an opening statement and 

frame the issue in its broadest strokes, then yield to the Ranking 

Member, Mr. LaTourette, and we will go directly to witnesses. I 

will ask Members to use their five-minute time to make their own 

usual comments. 

In light of the late start, because of the length of the previous 

hearing, I want to get right to the subject matter on the effects of 

the proposed arrangement between DHL and UPS on competition, 

on customer service and on jobs. 

DHL Express and UPS announced that they intend to enter into 

an agreement for UPS to provide airlift services for DHL’s domestic 

express and international package volume in the U.S. and between 

the U.S. and Mexico, the U.S. and Canada. 

The two are competitors in air express service. Packages are 

picked up by trucks, moved by air, delivered again by truck. 

Over the past several years, DHL has contracted with other air 

carriers, ABX and ASTAR, to do the airlift portion of their service. 

DHL has said that this agreement is the only way it can continue 

to maintain its presence in the U.S. market in view of their losses, 

some $3 billion in losses since 2003. 

But concerns have been raised about the anticompetitive effect 

that the proposed UPS/DHL deal would have in the air express 

market. Furthermore, Members of Congress from Ohio particularly 

and those in the Wilmington, Ohio, area where the DHL hub is located are concerned. Not only concerned, they are stunned by the 

loss of thousands of jobs and local revenue. 

2 

I understand that. We have had iron ore mining facilities close 

in my district. We have gone from 16,000 jobs in mining down to 

1,800 in 18 months, and the devastation that produces on local 

economies is painful. 

So far, there has been no concrete agreement between DHL and 

UPS, and it may not be consummated for yet another few weeks. 

As you look at this proposition, it is probably the most complex 

operating and financial arrangement in the post-deregulation era of 

aviation. I will attempt to lay out just the highlights of the issue. 

DHL is an important but not the largest competitor in the air ex- press market. In 2007, that market was $32.8 billion. FedEx had 

43 percent of the market; UPS, 32 percent; DHL, 8.5 percent; U.S. 

Postal Service, 2.8 percent. 

But it has not been growing. The express market has stagnated 

or slipped. The daily package volume in the U.S. is now at 6.6 million shipments a day, and that is down just under 2 percent from 

last year and 5 percent below its 2000 peak. 

Now that is attributable to downturn in the national economy, to 

the internet for transmission of documents, to jet fuel prices, a host 

of other business factors. 

But if you look forward, if the agreement were consummated, 

clearly from what I have heard from my colleagues and then independent review, it would devastate the economy of the City of Wilmington. Air Park is the largest employer in southwest Ohio, 9,000 

jobs alone: 725 employees of ASTAR, 1,200 DHL, 7,000 ABX employees. 

Competition in the express delivery market may also be adversely affected if the deal is consummated. Various observers of 

the scene, those who are not directly affected, have said that it potentially could violate antitrust statutes that prohibit agreements 

that result in restraint of trade, but this is a different kind of an 

arrangement. 

It is not a merger. It is not an acquisition. It is not subject to 

Hart-Scott-Rodino. So the parties are not required to file documents for pre-implementation review under the antitrust statute. 

Therefore, the Ohio congressional delegation and the State of 

Ohio have been frustrated in their attempt to get a better understanding of or respond to the situation. 

Now this doesn’t mean that the Department of Justice cannot review the agreement to determine whether there are anticompetitive effects, but I think we have a somnolent Department of Justice. 

Others have said if you allow DHL to outsource airlift to UPS, 

a competitor, DHL then would be captive to UPS in terms of capacity, price and customer service. Airlift is about 60 percent of the 

cost of shipping a package overnight. So, if you lose a significant 

percentage, then an important part of DHL’s costs will be controlled by UPS. 

DHL could lose the ability to price its services so as to compete 

realistically with both UPS and FedEx, a condition called price 

squeezing. Either way, DHL could well go out of business, leaving 

the market in a duopoly condition. UPS will control capacity on its 

aircraft, and if DHL is not guaranteed space its ability to ensure 

on-time arrivals will be hampered. 

3 

If the industry is reduced to two major express carriers, competition would be reduced, prices will go up. 

When established carriers control markets, the tendency is for 

carriers to follow each other’s pricing rather than really compete 

with each other. We have seen that in the passenger market. So, 

if DHL is neutered in the marketplace, then UPS and FedEx will 

have less incentive to compete with one another, increasing the 

price for express delivery packages. 

I think those are the broad issues that frame this inquiry today. 

With those remarks, I yield to the distinguished gentleman from 

Ohio, Mr. LaTourette, for a comment. Then I see the Ranking 

Member of the Aviation Subcommittee has arrived, and we will 

hear from him. 

Mr. LATOURETTE. Thank you, Mr. Chairman, now that I am back 

in the cheap seats. 

Mr. Chairman, I want to thank you for having this hearing and 

as a testament to the bipartisan nature in which you deal with any 

issue dealing with transportation in the United States of America. 

As I said on the day of your elevation to the Chairmanship, none 

of us on the Republican side would have chosen to be in the Minority, but if we had to we are glad that you are the Chairman of our 

Committee. 

I also want to single out for praise my colleagues from Ohio, although Wilmington is a little bit south from northeastern Ohio. 

When this matter, which really is going to have catastrophic consequences to Wilmington, Ohio, came to the attention, two public 

figures—among others but also above others—Congressman Mike 

Turner of Dayton and our junior Senator, Sherrod Brown, really 

stepped into the fray and are attempting to move heaven and earth 

to find a resolution for those who are about to be displaced. 

Credit also goes to our former colleague, Governor Strickland, 

and his Lieutenant Governor, Lee Fisher, who have been intimately involved and have looked at everything, I think, that they 

can possibly look at from the State side. 

This is troubling issue. It is troubling because about 12,000 people have the potential to lose their job, but it also has to be considered in sort of a world view. 

If you look at what has happened to the price of fuel, jet fuel 

being included, there is not a lot of money being made today in the 

air freight business. As a matter of fact, the United States Postal 

Service, which is also in the air freight business, is looking at closing a number of its air terminals because it has turned out to be 

not the moneymaker they thought that it, in fact, was going to be. 

And so, anything that we discuss has to be discussed in terms of 

where we are with the cost of fuel in this Country. 

It is my understanding also and I think the Chairman rightly 

says that there is no agreement between DHL and UPS at this moment in time. So, therefore, it is tough to determine whether or not 

it runs afoul of something when we don’t even know what it says. 

Just from a business standpoint, I guess I understand UPS’s position, and that is they have excess capacity at their facility in 

Kentucky and why wouldn’t they want to use their assets to full 

capacity. 

4 

The difficulty that I have, I think, in this case is with DHL, the 

German almost owned, German-owned company, 100 percent 

owned by the Germans, in that it is my observation from just looking at the facts that they made a bet. They made a bet that somebody in the Congress was going to blink on the ownership of American Airlines, and when they didn’t blink it thwarted their plans 

to go from a minority shareholder—and I get them confused, 

whether it is ASTAR or ABX—to actually taking control. That then 

has sort of led to a downward spiral. 

But whatever the situation, wherever the fault lies, I think that 

is incumbent upon this Congress to join with the State of Ohio and 

do whatever we can to alleviate the suffering that is going to occur 

in Wilmington. 

And, the reason I am glad it is here in this Committee is this 

is an issue that doesn’t have anything to do with politics, Mr. 

Chairman, but I was down in southern Ohio two weekends ago for 

my nephew’s wedding, and I saw an advertisement that somehow 

this business in Wilmington, Ohio, is John McCain’s fault. 

It is not John McCain’s fault. It is not Barack Obama’s fault. We 

will perhaps determine whose fault it is, but to suggest that it is 

the fault of one party or another to get somebody elected or not 

elected to become the next President of the United States, I think 

is disgusting. 

Quite frankly, even though I don’t come down on this side of the 

issue, if this Congress had accepted this Administration’s recommendation on the foreign ownership of airlines, perhaps DHL 

wouldn’t have made this decision and 10,000 people wouldn’t be 

losing their jobs. 

So I hope we take it out of politics and we put it back where it 

belongs, and that is let’s make sure that we do whatever we can 

with whatever resources we have to help these folks that are looking at a very bleak feature. 

I thank you, Mr. Chairman, and yield back. 

Mr. OBERSTAR. I thank the gentleman. 

I certainly concur. This is a business proposition that we need to 

examine from the standpoint of its effect on the economy and its 

effect on international aviation and trade in cargo. 

Now the distinguished Chair of the Aviation Subcommittee, Mr. 

Costello. 

Mr. COSTELLO. Mr. Chairman, thank you. 

Mr. Chairman, in the interest of time so that we can get to our 

first panel, Senator Brown and Congressman Turner, let me be 

very brief. I will insert a statement in the record. 

I, obviously, have some of the same concerns Mr. LaTourette and 

you share concerning the employees, what it does to the local economy, the competition in the industry, and in particular I am interested in hearing from Mr. Simon concerning the pros and cons of 

this proposed arrangement for both consumers and for the employees. So I look forward to hearing his testimony and the testimony 

of the other witnesses. 

I thank you, Mr. Chairman. 

Mr. OBERSTAR. I thank the gentleman. 

Mr. Petri, the Ranking Member and Ranking Member of the 

Subcommittee on Aviation. 

5 

Mr. PETRI. Thank you very much, Mr. Chairman. I, too, am looking forward to the testimony of our witnesses today, and I thank 

you for holding this timely and important hearing. 

It is essential that we focus on the financial issues facing the airline industry right now, not least of which is the unprecedented 

price of jet fuel over the last few months and its impacts on air carriers, both passenger and air cargo. These difficult financial times 

have pushed many air carriers to make difficult business decisions 

and to pursue cost-cutting and revenue-generating actions. 

In fact, DHL has cited a decline in air express volume and increased operating costs, especially jet fuel expenses, as a reason 

that they are pursuing the significant steps that are the subject of 

today’s hearing. 

As part of their plan to address their ongoing losses, in May, 

DHL announced that it will work together with UPS toward an 

agreement to have UPS provide airlift to all of DHL’s express, deferred and international package volume within the United States. 

DHL’s airlift service has been and currently is provided by two 

small air carriers, ABX and ASTAR. 

It is not surprising that since the proposed transaction was announced, aviation experts, labor groups, affected communities and 

other interested parties have commented both for and against this 

potential arrangement. Indeed, the proposed arrangement’s impact 

on the marketplace competition, customer service and employment 

have been the subject of much speculation. 

While the potential agreement between DHL and UPS is still 

being negotiated, it has generated great concern particularly 

among those who could be the most impacted: ABX, ASTAR and 

the communities such as Wilmington, Ohio, where many, many 

good jobs could be lost. 

This concern is understandable and, given the potential impacts 

of this agreement, it is both important and necessary for this Committee to fully explore the proposed transaction. 

At the same time, DHL has cited that the agreement and restructuring is necessary to address over $1 billion in annual losses. 

The future of DHL operations in the U.S. also must be considered. 

Today, we have before us, representatives of the interested 

groups to testify about the proposed DHL and UPS agreement. I 

look forward particularly to hearing from my former colleague and 

now Senator, Sherrod Brown from Ohio and Representative Mike 

Turner and welcome them here today. I also look forward to the 

testimony of Lieutenant Governor Lee Fisher and Mayor David 

Raizk. 

Finally, we will hear from all four of the air carriers involved— 

ASTAR, ABX, DHL and UPS—two pilot union representative from 

the American Antitrust Institute. 

Again, I look forward to hearing the testimony of all those who 

are appearing today and thank you again, Mr. Chairman, for having this hearing. 

Mr. OBERSTAR. I thank the gentleman. 

And now, we will proceed with the testimony from our first 

panel, Senator Sherrod Brown, a former House colleague—he got 

good training over here in the House and went over to raise the 

6 

caliber of the United States Senate—and Congressman Mike Turner, Representative of the area most directly affected. 

We thank both of you for your advocacy for this hearing and the 

concerns expressed so adroitly. 

Senator Brown. 

TESTIMONY OF THE HONORABLE SHERROD BROWN, A 

UNITED STATES SENATOR FROM THE STATE OF OHIO 

Senator BROWN. Thank you, Mr. Chairman, and thank you. I 

concur with the words of my friend, Steve LaTourette, about your 

Chairmanship. Thank you for that. 

And, Ranking Member Petri and Chairman Costello, thank you. 

And, Steve LaTourette, thank you for your always support on 

transportation issues. 

I would thank the Ohio Members especially here, Jean Schmidt 

and Zach Space and Bob Latta, for their work on this issue. I have 

seen just terrific support from both houses including my senior colleague, Senator Voinovich, and the entire delegation in both parties. 

I especially thank Representative Turner who has absolutely led 

the charge on this issue and has really stepped up. 

We both were sort of laughing—that may be the wrong word— 

with many of the pilots who are here in the room behind us today, 

that DHL did not expect this kind of community opposition and opposition from people who represent this community to this decision. 

It did sort of strain credibility, but it is pretty clear how important 

this is to all of us. 

Also, a special thanks to the Governor and to Lieutenant Governor Fisher who have been in there every day on this issue and 

Mayor Raizk who has just always been on the phones, meeting 

with people, doing whatever he had to do to fight for these jobs, 

and the leadership of Teamster Local 1224, Captain Ross, and the 

Air Line Pilots Association, Captain John Prater and the other pilots that are here today. 

Last week, Mr. Chairman, in the House Judiciary Committee, we 

learned that DHL voluntarily went before the Justice Department, 

which we appreciate. Yet it will not submit itself to a voluntary investigation and plans, it says, to consummate the deal regardless 

of the status of the investigation. 

That makes it very difficult for the Justice Department to do its 

work, to examine the deal from the customer’s perspective. I hope 

both companies will reconsider and allow the Justice Department 

to investigate and not consummate the agreement until the government completes that investigation. 

I am particularly disturbed that DHL’s confidentiality and exclusivity agreement with UPS to complete this contract limits it from 

alternative structures that can keep DHL competitive, that can 

benefit consumers and that can keep jobs in our State. 

Specifically, DHL embarked on this proposal with UPS before 

really engaging the incumbent carriers, ABX and ASTAR, in an effort to reduce costs. ABX and ASTAR have ideas. They had plans. 

They had proposals. But DHL chose this course before talking with 

the Governor about ways the State might help DHL cut costs. 

7 

After not choosing to work with its partners, DHL went ahead 

and bound itself to a confidentiality and exclusivity agreement with 

UPS. 

Considering the lengths the State of Ohio went some four years 

ago when DHL bought Airborne, the lengths the State went to and 

surrounding communities took to welcome DHL to Wilmington including some $400 million in direct and indirect incentives, DHL’s 

behavior is hardly a model of corporate responsibility. 

All of this raises several questions which I don’t think have been 

answered: 

How can DHL, under this proposal, lower prices or improve service? 

How can DHL prevent UPS from manipulating costs and service? 

How does DHL prevent UPS from obtaining sensitive information on customers and pricing? 

Congress also needs to understand how DHL took Airborne Express, a company in southwest Ohio that was profitable, and in just 

four years generated staggering losses while DHL in Germany and 

Europe overall has been a very, very profitable company. As you 

know, it is owned by Deutsche Post, the former German privatized 

post office, a very profitable company in Europe—not so, supposedly, in the United States. 

When DHL purchased Airborne Express in 2003, it had an 18 

percent market share. By last year, its market share had dwindled 

to about 7 percent. 

The ripple effects of this proposed deal, Mr. Chairman, if it goes 

forward would reach beyond, as Mr. LaTourette said, the financial 

hardship it would create in Ohio. The final result may leave a 

mark on how our government approaches something that I know 

you are so concerned about, Mr. Chairman, the next stage of the 

U.S./E.U. Open Skies Initiative which aims to loosen existing rules 

and regulations and restrictions on E.U. air carriers operating in 

our Country. 

Its proponents claim that these negotiations ultimately will create thousands of U.S. jobs and benefit our Nation’s economy enormously. Ohioans have heard this before five years ago. 

So, Mr. Chairman, I will close with we certainly want DHL to 

stay in Ohio. We want them to be successful. We want to work 

with them. We want them competing in this market. 

We want the 8,200 Ohioans, many of whom are represented here 

today, to continue working, continue being the productive employees they were, many of them, for Airborne prior to five years ago 

and all of them the productive employees they have been for DHL 

in the last year or two or three. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. Thank you, Senator. 

Congressman Turner, welcome. 

TESTIMONY OF THE HONORABLE MICHAEL R. TURNER, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO 

Mr. TURNER. Thank you, Mr. Chairman. I greatly appreciate 

your holding this hearing today and your great summary as we 

begin the discussion on this matter because you really laid out 

8 

some of the important issues that we need to address in this hearing. 

I also want to thank Senator Brown for his hard work and leadership on this issue and Senator Voinovich who has submitted 

written testimony. 

We also want to recognize the Ohio delegation Members—Space, 

Schmidt, LaTourette and Latta—and, of course, Congressman 

LaTourette’s leadership post on this Committee. 

And, Lieutenant Governor Fisher and Mayor Raizk, we appreciate their participation. 

We even have the support of the two presidential candidates. 

Obama and McCain have both weighed in, indicating that this 

transaction deserves greater scrutiny. 

Last week, we had a hearing before the Judiciary Committee. 

Chairman John Conyers, upon hearing testimony, said that he believed there were further questions that even his Committee wanted to look at, and he asked for the two parties to hold off on the 

transaction until his Committee could move forward. 

We are certainly hopeful that as you all hear today this testimony, that additional questions that you might have could be addressed in the future. 

This has been a bipartisan issue, and Mr. Chairman, I appreciate 

your elevating it before your Committee today. 

Wilmington, Ohio is in my district, and I want to tell you a little 

bit about the people that are there. This facility is not closing because of the people that are there. They are hardworking, they are 

professional and they are committed. 

This facility that is being subject to possible closure operated at 

a profit prior to DHL’s acquisition and its operation. 

Professions in this community will be lost. Homes are at risk. 

Dreams are at risk. The ability to send children to college is at 

risk. 

In a nine-county area around Wilmington, Ohio, people send family members to this facility in order to obtain health insurance. 

Families’ farms and small businesses depend on the health insurance that is offered at this facility. 

Additionally, non-profits and community service organizations 

will be impacted. 

Mr. Chairman, I would ask that I would be able to submit written testimony from Mary Houghtaling, who is President and CoFounder of Community Care Hospice in Clinton County, which 

speaks of the issue of the impact on small business and non-profits 

in the area. 

Mr. OBERSTAR. Without objection, so ordered. The document will 

be received for the Committee record. 

Mr. TURNER. Thank you, Mr. Chairman. 

But today I wanted, with the others, to outline for you what is 

bad for the U.S. consumer and what is bad for the U.S. air cargo 

industry. 

If you go back just four years ago and view this as a stepped 

transaction, you have a very different picture of the U.S. air cargo 

industry. 

Four years ago, there would have been five major carriers that 

were operating. UPS acquired Emery which disappeared. DHL acVerDate Aug 31 2005 15:35 Apr 22, 2009 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 P:\DOCS\45107 JASON
9 

quired Airborne which operated at the facility that they are now 

attempting to close, which disappeared. And now with DHL and 

UPS looking to combine their operations, we are going to go down 

to with what was five to two operators in the U.S. market. 

But don’t just stop there. You also need to look at what is going 

on in the European market. The Atlanta Journal-Constitution reports that of the three major carriers in Europe—UPS, TNT and 

DHL—they say UPS and TNT, number three and number two, are 

in negotiations for a merger. That would mean that in Europe, 

where there were three major, they are going down to two. 

But, in reality, it will be one because if you go to send a package 

in Europe to the United States and you go into a UPS office or a 

DHL office, you will in effect be dealing with the same company, 

the combined operations which we will see in our market. 

So what else is bad for the U.S. economy if this occurs besides 

this consolidation? Well, there are huge barriers to entry in this 

market. What is an industry that grew slowly now is an industry 

that requires full integration and logistics throughout the Country. 

No one else will be able to now enter the market where this consolidation has occurred. So we have consolidation and we have preventing further competition. 

Once they have market control, what will happen? Well, they can 

limit service, and they can affect price. 

What are some of the things that we do know? Well, I met with 

DHL officials in my office, and here are some of the things that we 

do know about this: 

Their computer systems will have to be integrated because they 

will have to talk to one another as they go through sending packages of their various volumes. 

Their costs will have to be coordinated because DHL will basically become UPS plus. 

I also asked them, the DHL representatives, is it possible that 

this strategic alliance that they are forming with UPS, could it involve also their Asian and European markets, and they indicated 

that it could. 

So what do we need to know? We need to know: 

Why would UPS and DHL agree to this? 

How did DHL take Airborne, a prior business that was profitable, and generate losses? 

What is the future relationship with DHL? Is this just the start? 

And what does it mean for the 10,000 people who are Wilmington? 

Is UPS in negotiations to acquire others? Is DHL? 

I recently had a conversation with the German Ambassador to 

the United States and discussed with him the issue of the proposed 

or possible UPS acquisition of TNT, and he indicated to me that 

perhaps if UPS and DHL combined here that it would affect other 

approvals for UPS in Europe in the future. That is something UPS 

needs to consider. 

Usually when something doesn’t make sense to me, I think that 

something else must be going on. In this instance, I believe this is 

a de facto merger. 

Why else would DHL hand its clients to UPS? 

10 

Why would DHL agree to a cost structure that will become basically UPS plus? 

If DHL is going to share its information with UPS, why wouldn’t 

UPS steal DHL’s clients? 

Why would anyone choose DHL when everyone would know that 

they are a front office then for UPS? 

And why is there no deal for us to scrutinize? Why aren’t they 

able to place before us the transaction? 

Well, to me, if it doesn’t sound right, it probably isn’t right. 

I would like to conclude with a paragraph that I put in an oped piece that I had in the Cincinnati Inquirer: 

All of this should be unnecessary. If DHL lived up to its promises 

to Ohio and to the Town of Wilmington, we all would be focusing 

on how to make DHL more successful. 

Wilmington’s past support for DHL should count for something. 

The surrounding community accepted DHL’s vision of a global company operating in their back yards and understands that DHL 

must curtail its losses. 

However, usually when a company is losing money, they fire 

someone. They don’t fire a whole town. 

Now, in this instance, DHL is going to come forward and they 

are going to tell you that they are losing a lot of money. 

I have to tell you that I believe that bad management is never 

an excuse to allow market consolidation. DHL has an opportunity 

to put its house in order without doing harm to the U.S. economy 

and the U.S. shipping industry. 

I guess now that we know that maybe there is a difference with 

DHL. Perhaps the letters of DHL stand for Do Harm and Leave. 

Thank you, sir. 

Mr. OBERSTAR. That was very powerful testimony from both the 

witnesses. 

Is there any set of circumstances that either of you can conceive 

of under which, with a contractual arrangement, where the air 

services of DHL could remain competitive in Wilmington? 

Mr. TURNER. Yes. DHL acquired Airborne. As you recall, DHL 

was operating its own facility down in Cincinnati, and Airborne 

was operating there in Wilmington. 

When they acquired them, Airborne was profitable and had not 

generated the losses that DHL had. Certainly, DHL would have an 

ability to manage its resources so that it does not have these 

losses. 

Now they have mentioned frequently that their inability to own 

their own airline may contribute to their losses. But even so, they 

have publicly estimated that of the $1.3 billion that perhaps they 

lost from bad business decisions, only $300 million may be attributable to not actually owning their own airline. 

While this deal has been going forward with UPS, contractually 

UPS and DHL have entered into an exclusivity agreement prohibiting their current carriers from even making proposals to them. So 

we don’t have the ability to give scrutiny to what their other options are because those negotiations have been thwarted. 

Senator BROWN. I would add two things, Mr. Chairman, where 

I agree with Congressman Turner. 

11 

One is that my conversations early in this process with ABX and 

ASTAR is that they have in fact made approaches. Because of the 

agreement that Congressman Turner mentioned, they have been 

rebuffed. 

Second, we know that DHL has been a very profitable company 

in Europe. We are not so sure. We have not been able yet to determine if they have moved profits and losses on paper across the 

ocean, one to the other, but there is some evidence that when a 

flight goes from the United States to Europe they may, in fact, 

credit some of the losses to the U.S. division and the gains to the 

European part of DHL. We are looking into that. 

To run up those kinds of losses after the profit that they enjoyed, 

that Airborne enjoyed just five years ago certainly raises some 

questions. 

Mr. OBERSTAR. Thank you. 

Mr. LaTourette. 

Mr. LATOURETTE. I don’t have any questions. 

Mr. OBERSTAR. No questions. Any questions? 

Congressman Space. 

Mr. SPACE. Thank you, Mr. Chairman. 

I would like to thank Chairman Oberstar and Ranking Member 

Mica along with Subcommittee Chairman Costello and Subcommittee Ranking Member Petri for facilitating this important 

hearing today. It means a lot to me. It means a lot to the other 

Members of the Ohio delegation, and it means a lot to the people 

of Ohio. 

I would like to thank Lieutenant Governor Fisher, Senator 

Brown, Representative Turner, Mayor Raizk and others for testifying today. 

I certainly thank Governor Strickland in his absence for his interest in this issue. 

I think their participation in this hearing and their actions so far 

have demonstrated the commitment that the people of Ohio have 

to handling the various problems caused by this transaction. 

I am hoping that this hearing will shed some light on this merger that will harm not only thousands of families in Ohio but also 

millions of business and individuals that ship packages every year. 

If this deal goes through, the loss of jobs to Ohio are enormous. 

Southern Ohio’s economy is already much worse than most areas 

of the Country, and this decision will exacerbate an already very 

difficult economic situation, difficult in a number of senses. 

We have seen a steady evaporation of our manufacturing base in 

Ohio. We have faced numerous infrastructural challenges. We have 

a glaring lack of access to health care, education and technology. 

Our wage scales have become stagnant. Our unemployment is 

rising much faster than the national rate, and poverty is running 

rampant, poverty that exceeds 30 percent in some of the counties 

of my district, poverty in all of its manifestations which include 

hunger and homelessness and addiction, crime and even the breakdown of the traditional family unit. 

It is precisely because of these conditions and these challenges 

in Ohio that this company was offered such an attractive incentive 

package just a few years ago. Well, we don’t know the full extent 

12 

of that incentive package today, but it ranges between 100 and 400 

million dollars. 

And now, DHL is, in a sense, closing its doors under a veil of secrecy and in the dead of night. 

Using what they refer to as a confidentiality agreement, they are 

refusing the State of Ohio’s offer to come in and provide assistance 

and any means necessary or, at the very least, mitigate the effects 

of this action on those thousands of employees whose lives will be 

affected. I find that action both offensive and insulting. 

We need to get to the bottom of why DHL has turned its back 

on Ohio, whether DHL has done anything improper and how this 

transaction will affect American consumers, the cargo industry and 

the State of Ohio. Ultimately, I hope DHL will reconsider alternatives to its plans with UPS. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. I thank the gentleman. 

Congresswoman Schmidt. 

Mrs. SCHMIDT. Thank you, Mr. Chairman. I do want to thank 

you for holding this hearing. I will echo Mr. LaTourette. I am glad, 

since we are not in the Majority, that you are at the helm. You are 

really guiding the ship in a very fair and nonpartisan way. 

I also want to thank Senator Brown for coming forward on behalf 

of the citizens of Ohio and, of course, my dear colleague, Congressman Turner, who is majorly affected by this. 

My district is also affected. About 750 jobs are affected if DHL 

pulls out. 

But really my concern here is something that Congressman 

Turner echoed too, and I would like him to explain it a little bit 

more carefully for everyone to fully understand what I think is 

going on here. 

Like, Congressman Turner, when it doesn’t smell, it is not right. 

It is like when you open up milk, and it is all curdled at the top, 

that is not necessarily cream. 

I don’t think this is cream here. I think there is something else 

afoul, and I really think that what DHL wants to do is to force this 

into a duopoly situation, jacking up the prices and making this unfair for not just the consumers here in the United States but the 

consumers across the globe as well. 

That is where the Department of Justice really needs to enter 

the situation. 

But, Congressman Turner talked about UPS’s intention with 

TNT, and I would like you to kind of explain that a little bit more 

fully to all of us because it is something I wasn’t aware of until you 

brought it forward just a few minutes ago. 

Mr. TURNER. Well, the Atlantic Journal-Constitution reported 

that UPS is in these negotiations to acquire TNT. 

Mrs. SCHMIDT. TNT stands for? 

Mr. TURNER. I am not certain, but they listed it as number two 

in the carrier service industry for Europe. They listed UPS as number three and DHL as number one. 

What I think the whole point of that is, is this will not be the 

end of consolidations. So that if you view this as these two companies are, in effect, merging, what will be the evolution in this inVerDate Aug 31 2005 15:35 Apr 22, 2009 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 P:\DOCS\45107 JASON
13 

dustry where we go down to what will be two in the United States 

and perhaps two or one in Europe? 

You have to look at it as a stepped transaction to see what the 

total impact will be on the market. 

The concerns for the market are, obviously, their ability to affect 

service, their ability to affect price because once people get control 

over a market they have ability to say: Your town is too small; we 

are not going to serve you. Your area is not profitable; we are not 

going to serve you. 

Or, the ability to discriminate through price and to affect other 

competitors. 

What we are seeing is that through this consolidation they will 

gain that ability, and that is what our concern needs to be. 

The human story of the 8,000 jobs that are being lost in southwest Ohio certainly tells the compelling nature of the immediacy 

of the need for review, but the most underlying important issue is 

that this is bad for the U.S. economy, bad for the U.S. consumer 

and bad for this industry to see this level of consolidation. 

Mrs. SCHMIDT. May I have a follow-up? 

Also, Congressman Turner, I believe it was in your testimony, 

you talked about the fact that if DHL has this arrangement with 

UPS, there is not going to be able to be a firewall between the two 

of them regarding price. 

Maybe you could expand a little bit on what happens when the 

bar code label is put on a package and how that bar code may be 

expanded when it goes through the processing center so that whoever is processing it can make sure that the proper price is being 

paid for the actual shipment of it, which what I believe then—correct me if I am wrong—is it makes it painfully aware to UPS exactly what DHL is charging so that they can know what price point 

is there. 

Mr. TURNER. That is an interesting point because DHL and UPS 

allege that they are going to continue to compete with each other 

as independent companies. 

But in order to consolidate their logistics of the airlift, so to 

speak, their computers system are going to have to be linked because if I send a package through DHL and they drop it off at UPS 

and I want to know where it is, it is not just going to go in this 

black hole of nothingness. UPS is going to be communicating to 

DHL. DHL won’t just say to me, call UPS. 

In a way, that shows that the data between the two companies 

will be shared. UPS will know volume, destination, perhaps pricing. They certainly will know cost. 

Those are all the elements necessary to know what your competitor is doing. They are the types of things that you would get in 

a merger. 

Mrs. SCHMIDT. Thank you. I have no more questions. 

Mr. OBERSTAR. Do others have questions? 

Mr. Arcuri. 

Mr. ARCURI. Thank you, Mr. Chairman. I have a question. 

You indicated that Airborne was running at a profit. It was profitable five years ago. Is that correct, Senator? 

14 

Is there any indication as to why changes in the market or is 

there any identifiable reason why DHL is now no longer making 

a profit at that facility, anything? 

Senator BROWN. As I mentioned in my testimony, they have lost 

a significant amount of market share, and I think from Congressman Turner’s discussion earlier that that is a question of management in many ways. 

I think at the same time they have continued. He may know 

more precisely, other factors, but at the same time they have been 

immensely profitable in Europe. 

We haven’t really seen the question answered: Are they moving 

profits and losses from one continent to another in part to perhaps 

deflect some criticism of this merger? 

Mr. TURNER. I don’t specifically. It will be a great question for 

DHL as to how they take a company that was profitable and generate $1.3 billion in losses. 

There are a number of reports in industry magazines that indicate poor service, overspending, expansion of infrastructure that 

did not justify based on customer base and loss of customers. 

One other thing, by the way, Congresswoman Schmidt asked 

what TNT stands for. I am told it is Thomas Nationwide Transport. 

Mrs. SCHMIDT. Thank you. 

Mr. ARCURI. Thank you very much. 

Senator BROWN. I would add too, if I could, Mr. Chairman and 

Mike, after DHL bought Airborne, they also got significant government help. They still had those kinds of losses in spite of the help 

they got from particularly the State of Ohio but also some local 

communities. 

Mr. ARCURI. So they received a package to stay, they bought the 

company, and then they are still showing losses. 

Senator BROWN. To stay. They promised more jobs. They have, 

within half a decade, made this kind of a decision. 

Mr. ARCURI. I have nothing further. Thank you, Mr. Chairman. 

Mr. OBERSTAR. Ms. Hirono. 

Ms. HIRONO. Thank you, Mr. Chairman. 

This potential agreement raises a lot of issues, not to mention 

the antitrust concerns, anticompetitive concerns. Is the Department 

of Justice going to be reviewing this potential agreement in any 

way, shape or form? 

Mr. TURNER. The Senator was just saying we are certainly hopeful. We have no communication from them that they are. We have 

requested it. 

Both presidential candidates have indicated that it would be a 

worthwhile review to occur. I know a number of other Members of 

Congress have stepped forward and said that they believe the Justice Department should also. 

Senator BROWN. And the Administration has. We don’t have commitment yet on that, but the Administration has been helpful. 

When I asked them for a point person, someone who had the President’s ear and the President’s Chief of Staff’s ear directly, they 

gave us someone who has been very helpful to coordinate any response from Justice, Department of Labor, Department of Transportation, other Federal Agencies. 

So we are hopeful, but we don’t know yet. 

15 

Ms. HIRONO. So would it be appropriate for Congress to request 

that the Department of Justice undergo a thorough review of this 

agreement, potential agreement? 

Senator BROWN. We have made that. I don’t know if Congress as 

a body ever does that. I certainly wouldn’t object to that. Many of 

us have done it directly and personally. 

Ms. HIRONO. Okay. Thank you very much. 

Senator BROWN. Thanks for the suggestion. 

Mr. OBERSTAR. Other Members have questions, comments? 

If not, we thank you very much for your presentation, very enlightening on the subject at hand. 

Both are welcome to remain here. Although under Committee 

rules non-Committee Members are not allowed to ask questions, 

but you are certainly welcome to remain as part of the Committee 

to hear the rest of the testimony. 

Our next panel consists of the Lieutenant Governor of the State 

of Ohio, who is also Director of the Ohio Department of Development, the Honorable Lee Fisher and the Mayor of Wilmington, 

Ohio, the Honorable David L. Raizk. 

Lieutenant Governor Fisher, thank you for being here. 

Our thanks to our former colleague, Governor Strickland. I had 

the opportunity of traveling in his then congressional district in the 

Port of Columbiana and meeting with local development interests 

on very important transportation and intermodal issues that they 

presented. This was several years ago. 

I understand the devastation from weather effects that have left 

two million people without power, that the Governor felt he needed 

to stay and sent you in his stead. 

So, please proceed. 

TESTIMONY OF THE HONORABLE LEE FISHER, LIEUTENANT 

GOVERNOR OF THE STATE OF OHIO AND DIRECTOR OF THE 

OHIO DEPARTMENT OF DEVELOPMENT AND THE HONORABLE DAVID L. RAIZK, MAYOR, CITY OF WILMINGTON, OHIO 

Mr. FISHER. Mr. Chairman, thank you very much for giving me 

the opportunity to appear before you today. 

As you indicated, Governor Strickland wanted to be here, was actually scheduled to be here, but we have had a weather crisis in 

the State of Ohio. The aftereffects of Hurricane Ike have hit Ohio 

quite hard. More than two million Ohioans are out of power. Four 

hundred and fifty school districts have been closed 

Governor Strickland is doing what, of course, he always does in 

these situations, and that is feet on the ground, touring the areas 

and working to identify what we can do to deal with this emergency, including the possibility and the likelihood of seeking Federal help. 

But I will tell you, Mr. Chairman, that Governor Strickland and 

I discussed you in particular, and he has the greatest admiration 

and respect for you and wanted me to convey that today. 

I want to thank you, Mr. Chairman, and all the Members of the 

Committee, particularly my colleagues from Ohio, all of whom I 

know quite well. 

I want to begin by repeating what Senator Brown and Congressman Turner said, that this has been a remarkably bipartisan efVerDate Aug 31 2005 15:35 Apr 22, 2009 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 P:\DOCS\45107 JASON
16 

fort. Congresswoman Schmidt, Congressman Space, Congressman 

Latta, Congressman LaTourette and many other Members of this 

delegation, in fact, all the Members of the delegation have joined 

us in this effort. 

I am the Lieutenant Governor of Ohio, and I also have the dual 

honor and responsibility of serving as the Director of the Ohio Department of Economic Development. I previously served as Attorney General of the State of Ohio, and during that time I was the 

Co-Chair of the National Association of Attorney Generals Antitrust Committee. 

As a former attorney general and the current director of our economic development efforts in Ohio, I am very troubled by the proposal which will potentially eliminate more than 8,000 jobs in Wilmington. Governor Strickland and I believe that this proposed 

transaction, in addition to leading to devastating job losses, will seriously undermine competition in the United States package market. 

But the human cost is what we really focus on. We speak in 

terms of 10,000 jobs at stake, but that is 10,000 families. It is 

10,000 homes and far, far more than 10,000 lives literally turned 

upside down. 

The Wilmington Air Park is the largest privately owned airport 

in the United States. It is the single largest employer for the residents of six Ohio counties. Every lost job will be felt time and again 

when these hardworking women and men stop shopping in the 

stores, eating in the restaurants and buying the houses. 

Even as the first round of layoffs has already begun and with the 

imminent threat of closure dangling over them, the hardworking 

men and women of ASTAR and ABX and other facilities in the Air 

Park show up every day, and they give all to their jobs. 

DHL has taken the position that this is not necessarily a matter 

worth of their attention. 

Mr. Chairman, attention must be made. 

In a free market, businesses can fail, jobs can be lost. I see that 

every day. We lament the ups and downs of the business cycle, and 

we make preparations for a better day. 

But I would submit to you this is not a free market transaction 

that we are discussing. It is, in fact, an anticompetitive deal. 

After this billion dollar a year deal is in place, a deal that hands 

over the actual—do you hear that sound? 

[Remarks off microphone.] 

Mr. FISHER. Okay. I wondered if that was your way of saying I 

should stop. Okay. 

[Laughter.] 

Mr. OBERSTAR. The gentleman from Florida will not do that. 

Mr. FISHER. Okay. Thank you, Mr. Chairman. 

After this billion dollar a year deal is in place, a deal that hands 

over the actual shipping process to DHL’s main rival, the company 

assures us that DHL and UPS will remain competitors, and I expect that you will hear that today from DHL. In fact, DHL has recently said in the New York Times that DHL is trying to make life 

as difficult as possible for UPS. 

17 

Well, if I were going to make life difficult for someone, Mr. 

Chairman, I could think of a few things I would try before giving 

them a billion dollars. 

DHL insists that this deal keeps DHL and UPS full-tilt competitors. 

I am a Cleveland Browns fan, and the Cleveland Browns will 

travel to Baltimore this Sunday to play the Ravens. If one of the 

Ravens fumbles, there is a reason why no one on the Cleveland 

Browns will pick up the ball and politely hand it back. 

It is because competitors are not partners. They have never been, 

will never be. You are either one or the other. 

This deal is a merger in everything but name. If you hand the 

essential functions of your business to a competitor, that is a merger. If you discard the planes and the people that make your business possible, that is a merger. 

It would be one thing for a company that makes refrigerators or 

pencils to outsource their shipping services, but DHL doesn’t make 

products. It ships them. If you business is shipping and you 

outsource the shipping, that is a merger. 

There is a very real threat to the consumer here. When UPS essentially controls DHL’s costs and operations, then UPS controls 

DHL’s pricing. When that happens, there will be effectively only 

two shipping companies to serve the North American market. 

I think it is Economics 101 that if you create a duopoly, you diminish consumers’ choices and you raise consumers’ costs. 

Governor Strickland and I believe that the U.S. Department of 

Transportation has jurisdiction to investigate this financial agreement. DHL is a common carrier under Federal law, and the U.S. 

Department of Transportation has authority under the Federal 

Transportation Code to regulate carriers’ business practices and 

the terms on which they hold out service to the public. 

We asked Secretary Peters to exercise her jurisdiction in this 

matter, and she has respectfully declined, saying that she does not 

believe that she has authority to investigate. 

We are asking this Committee to review Secretary Peters’ statements and to encourage the DOT to examine the economic impact 

of this transaction as is their authority under law and in a way, 

of course, that would not interfere with the review of the transaction by the U.S. Attorney General’s Office or the investigation of 

the Ohio Attorney General’s Office. 

Let me add, Mr. Chairman, that the creation of this duopoly 

would undercut the ability of ABX and ASTAR to continue operating. These pilots you see before us are wonderful professionals. 

It is their jobs, their families, their livelihood that is on the line 

which is why they are spending every single day doing everything 

they can, including being here. 

I was here last week, testifying before Congressman Conyers and 

the Judiciary Committee, and they were here in full force, and I 

expect they will always be here in full force as long as these proceedings occur in the United States Congress. 

It would force off the stage the two major players in an industry, 

ABX and ASTAR, with incredibly high barriers to entry. 

If this were truly a competitive free market transaction, why 

weren’t DHL’s existing service providers, ASTAR and ABX, not to 

18 

mention the State of Ohio, given a chance to actually present clear 

alternatives to this transaction and, in the case of ABX and 

ASTAR, to submit a bid for the work? 

Why wasn’t our State given a chance to respond before the deal 

had been decided upon? 

I think it is important to point out that Senator Brown made an 

important statement. He said that we want DHL to succeed, and 

that is correct. We do. We want them to succeed, but we also want 

them to live up to their commitments. 

And, Mr. Chairman, we are prepared and we have said this repeatedly to work with DHL to deal with their losses, to work with 

them on an economic development transaction that can be a winwin—a win for DHL, a win for ABX and ASTAR, a win for Ohio 

but most importantly a win for the men and women whose jobs are 

seriously at risk. 

When this issue first arose, we immediately assembled a DHL 

Regional Economic Task Force co-chaired by Mayor Raizk, who you 

will hear from in a minute, and myself and all the Members of the 

congressional delegation. 

Last week, we learned from DHL and UPS during another congressional hearing that they have a memorandum of understanding 

prohibiting them from talking with other parties, including the 

State of Ohio, while their negotiations are ongoing. 

In this hearing room today, I join Senator Brown and Congressman Turner in publicly requesting that both DHL and UPS discard 

this arrangement so that our administration and other parties involved can present good faith alternatives to the transaction with 

UPS. DHL made $6 billion in profit last year, and we have no 

doubt their Ohio operation could contribute to that bottom line. 

I want to thank the Members again of the Ohio congressional 

delegation and you, Mr. Chairman. The Federal Government once 

helped to facilitate DHL’s acquisition of Airborne Express, and now 

we need the Federal Government’s help to facilitate DHL’s continued existence in Wilmington, Ohio, as a real service-providing company. 

Thank you, sir. 

Mr. OBERSTAR. Thank you very much, Governor Fisher. I greatly 

appreciate your testimony and elaborating on the arrangement between the State and DHL. 

Mayor Raizk. I pronounce it Raizk. 

Mr. RAIZK. Raizk. 

Mr. OBERSTAR. But I earlier pronounced it Raizk. That is the 

way we would say it in Slovenian. That must be Polish, though. 

[Laughter] 

Mr. RAIZK. No, it is not. Senator Voinovich says the same thing, 

but actually my background is Lebanese. It is an Ellis Island spelling. 

Mr. OBERSTAR. Oh, okay. Well, it is a good ethnic name anyway. 

Mr. RAIZK. It is a good ethnic name, absolutely. 

Mr. OBERSTAR. Very much at home in my part of the world. 

Mr. RAIZK. Absolutely. 

Mr. OBERSTAR. Yes. All right. 

19 

Mr. RAIZK. Thank you very much, Mr. Chairman, and I sincerely 

appreciate the opportunity you have given us by holding this hearing and to hear our story in Wilmington, Ohio. 

First of all, I said after last week’s hearing that I was never 

prouder to be an Ohioan than I was on that day. For everyone to 

see the total bipartisan effort of all the Ohio delegation in coming 

to the aid of Wilmington has been truly amazing. 

I can’t thank enough Senator Brown and Congressman Mike 

turner. They have been with me almost every step of the way. 

Also, Senator Voinovich and all the Ohio delegation, I appreciate 

all of your efforts, and certainly Governor Ted Strickland and this 

gentleman to my right, Lieutenant Governor Lee Fisher. Since 

three days after the announcement we have been together, and he 

has supported me in everything that I have done. 

I am also honored to represent the community that I serve, my 

home town, Wilmington, Ohio. Wilmington in Clinton County is a 

wonderful place to live, work and raise your family. But since May 

28th, a storm has been hanging over Wilmington, and it won’t go 

away. 

On May 28th, DHL—Wilmington’s and Clinton County’s largest 

employer and the largest employer in the five surrounding counties—announced that they were seeking a deal with UPS, their biggest competitor, to handle their airlift operations in the United 

States, effectively ceasing operations at the Wilmington DHL airport. 

This was particularly difficult for me as I received this news 

firsthand in Germany at DHL/Deutsche Post World Headquarters. 

I was in Germany as a guest of DHL, representing the City of Wilmington and the Wilmington Airport, the largest hub in the DHL 

network at the grand opening of their new hub in Leipzig. 

Given the current economic climate that has been going on and 

continues, we knew that some restructuring was in the works and 

some job losses would be coming primarily as a result of the standing down of the DC-9 portion of their business. 

But there was reason for optimism concerning the Wilmington 

Air Park. In February, I hosted a conference call in my office with 

Governor Strickland, representatives of ASTAR Air Cargo and ABX 

Air, DHL’s partners for airlift and sorting operations in the United 

States, and representatives of DHL. At that time, DHL assured the 

Governor that although there would be some job cuts coming, they 

were committed to the Wilmington Air Park. 

In April, in discussion with DHL on possible assistance from the 

State of Ohio, Lieutenant Governor Lee Fisher was also assured of 

DHL’s commitment to the Wilmington Air Park. 

So it was with some comfort level that I went to Germany to represent Wilmington. That comfort was further enhanced when German Foreign Minister Steinmeier, the keynote speaker at the hub 

opening, mentioned Wilmington, Ohio in his address. 

Imagine my shock two days later when I received the news firsthand that DHL was seeking a deal with UPS. 

CEO John Mullen of DHL, whom you will hear from later today, 

was very gracious in granting me an audience after that announcement. 

20 

What will be the result of this proposed transaction? What will 

be the impact? 

The job loss alone which includes DHL, ABX Air, ASTAR Air 

Cargo and 18 companies located in and around the Air Park with 

direct or indirect relationships with the operations there would be 

almost 10,000. The annual payroll for ABX Air, DHL and ASTAR 

Air Cargo alone is $257 million. Health care benefits provided for 

their employees are another $63 million. 

These employees of these three companies provide 9 percent of 

the revenue to our local hospital. Losing that would result in a loss 

of seven to eight million dollars in revenue plus the resulting increase in charity care when these benefits cease. It would put them 

out of business. 

This transaction would bankrupt the State’s unemployment insurance fund. The impact to schools, city and county government, 

non-profits and local businesses would be devastating. Our data 

analysis indicates that one in five small businesses will fail in the 

region. 

If I sound alarmist, it is because we are facing an economic catastrophe of unparalleled proportion. 

We are not trying to save old technology jobs that have failed to 

keep pace with the new economy. These are 21st century jobs: pilots and crew members, supply chain and logistics professionals, 

airframe and aircraft mechanics, conveyor engineers. 

And, this isn’t Rust Belt versus the Sun Belt. These jobs simply 

disappear. 

In 2004, we welcomed DHL and ASTAR Air Cargo into the Wilmington family. ABX Air and its predecessor, Airborne Express, accounting for over 6,000 of these jobs, have been with us for 30 

years. They are part of the fabric of our community. 

There is an Air Park employee in one of every three households 

in Wilmington. Many husbands and wives both work at the Air 

Park. 

Many family farms are saved because part-time work at the Air 

Park provided the health care that they needed for their families. 

Students at Wilmington College, many the first in their families 

to go to college, reduced their indebtedness at graduation by working with ABX. 

In short, these jobs just didn’t appear in 2004. Over the last 30 

years, the community has grown with the growth of the Air Park. 

This proposed transaction would literally rip the fabric of our town. 

Now I don’t know about antitrust, and I don’t know the definitions and what your criteria are. I am a simple mayor from a small 

town in southwestern Ohio. 

DHL and UPS say this is a contractor-vendor relationship. But 

to abandon your largest hub and deliver the freight to your number 

one competitor, then I say it is a de facto merger. How can you be 

a player without a hub? 

FedEx has a hub. UPS has a hub. DHL will no longer have a hub 

if this goes through. 

Financial Times Deutschland, this past week, recently reported 

that CEO Frank Appel of Deutsche Post World Net said that they 

are going to, instead of reducing their footprint in the United 

States 30 percent, they are going to move it to 50 percent and, in 

21 

doing so, may contract with UPS to handle some of their ground 

transport instead of the United States Postal Service for that last 

mile. 

Again, if we are losing air and ground, it is a de facto merger. 

Given the recent history of acquisitions of smaller air carriers by 

both companies and the significant antitrust waivers embedded in 

the Open Skies agreements, a picture starts to form. There is 

something more going on here. 

In Wilmington, a foreign-owned company with huge assistance 

from the State and local governments took over ownership and operations of the largest private airport in the United States, a state 

of the art facility. In a little over three short years, if they complete 

this transaction, they will have taken two American companies 

that had significant market share off the board. In the process, 

they will displace almost 10,000 American jobs. 

If this is what unfettered globalization means to America, then 

to paraphrase Senator Sherrod Brown, we are indeed in a race to 

the bottom. 

For, at the end of the day, this is about people. These folks are 

not just numbers on a page. They are our friends and our neighbors, our families. We go to church with them. We attend PTA 

meetings together. We go and watch our kids play ball. 

How will they pay their mortgage? How will they feed and clothe 

their kids? How will they educate their children? 

Please think about these hardworking Americans as you consider 

these issues. 

Thank you very much for the opportunity to speak, Mr. Chairman. 

Mr. OBERSTAR. Thank you, Mayor, for painting a picture in the 

very stark and real and personal way that you did. 

Lieutenant Governor Fisher, you were formerly Attorney General. How can there be real competition in ground service if UPS 

is going to handle all the air service? 

They say this is a contractual arrangement for the air service, 

that the ground service of DHL will remain or will survive the 

agreement. If UPS provides the feed, then how can there be a real 

competition? 

Mr. FISHER. Mr. Chairman, I think first, as you have heard 

Mayor Raizk say, the ground transportation actually may be next, 

that this may be the next step. 

The combination of UPS’s and DHL’s overnight shipment business would give UPS total control of more than half of the small 

packages that are shipped for overnight delivery in the United 

States. 

That high market share is magnified by the fact that it is highly 

unlikely that any new competitor would be able to enter the relevant market following the consolidation because the industry, Mr. 

Chairman, already has high barriers to entry in the form of significant up-front capital investments, marketing costs, important name 

recognition requirements, a large number of exclusive contracts, 

and the competition that has been represented by DHL has served 

as an important constraint on UPS’s pricing and forced continual 

improvement of quality of service. That is what happens when you 

have competition. 

22 

I think FedEx, with all due respect to it, unlike DHL, does not 

have the incentive to be a price maverick like DHL has been. 

And so, I think the bottom line result here is that, as has been 

said many times, it is in fact, we think, a de facto merger. 

Mr. OBERSTAR. Thank you for that response. The State of Ohio, you spelled out, gave $400 million in incentives. 

We have been through something similar in Minnesota with 

Northwest Airlines when they were at the edge of bankruptcy, and 

the State Government, actually it was the airport authority, provided bridge funding for Northwest Airlines to convert their high 

cost, short-term debt to lower-cost long-term debt in the aftermath 

of the Checchi-Wilson buy-out that loaded the company with a 

huge amount of debt. 

But there were caveats. Not caveats, there were agreements in 

that funding that made certain obligations upon Northwest: Maintain their headquarters in Minnesota. Maintain a Minneapolis-St. 

Paul hub. Maintain a certain level of employment. 

Over time, those agreements have been modified, eroded because 

of market conditions. 

Were there similar commitments made by DHL in exchange for 

the funding provided and the financial incentives for them to locate 

and are they enforceable? 

Mr. FISHER. Chairman Oberstar, the answer is yes. With every 

economic development transaction in which we provide tax credits, 

grants and/or loans comes a corresponding commitment by the 

company with regard to the retention and/or creation of certain job 

levels over a period of time. 

In this particular case, in 2004, a job retention tax credit based upon a $295 million payroll was offered with an estimated credit 

value of about $66 million, a job creation tax credit at 90 percent 

for 5 years with an estimated credit value of about $13 million, direct grants called Rapid Outreach Grants of $2 million, workforce 

training grants up to $2 million, a roadwork grant of $1 million, 

and a commitment to build a new route called the Wilmington Bypass. 

Now, in fairness, DHL has not received at this point all of those 

commitments. It has received some, particularly the outright 

grants. 

We have callback provisions in all of our agreements. If this 

transaction does in fact go through and in fact they do abandon 

southwest Ohio, we will aggressively seek back all those commitments that we are lawfully allowed to do. 

Mr. OBERSTAR. Of course, you really want the jobs. You don’t 

want the callbacks. 

Mr. FISHER. That is exactly right. 

Mr. OBERSTAR. Mr. LaTourette. 

Mr. LATOURETTE. Thank you, Mr. Chairman. 

Actually, Mr. Chairman, our Lieutenant Governor is hiding his 

light under a bushel basket. When he was elected to be the Attorney General, we used to call him Landslide Lee because he won by 

1,234 votes and anytime you went to one of his speeches he would 

say his favorite numbers are 1,2,3,4. 

Mr. FISHER. That is right. 

23 

Mr. LATOURETTE. And just the last note on your statement, Lieutenant Governor, if the Browns recover a fumble after watching 

them play the Cowboys and the Steelers, I will be shocked. 

[Laughter.] 

Mr. FISHER. You said that. I didn’t, sir. 

Mr. LATOURETTE. Lieutenant Governor Fisher, you have outlined 

the incentives that the State of Ohio has offered or is prepared to 

offer DHL, and I thank you for that. 

In your observations, you talked about an MOU, a memorandum 

of understanding. I don’t find anything sinister in the fact that two 

parties that are discussing. I think it is pretty boilerplate that they 

would have a clause that you are not going to talk about what it 

is you are talking about and also competitors. 

But the question I would ask you is have you or the Governor 

or Senator Brown or Congressman Turner made the request of 

DHL and UPS that they release that last piece? 

I mean I don’t think it is unreasonable that two businesses talking about whatever it is they are talking about don’t have to tell 

you what it is they are talking about. 

I think that for them, for DHL, well, I guess they don’t have 

shareholders because they are owned by the German Government. 

I think for DHL to make a business decision as to whether or not 

this is a good deal with UPS or not, I think it would be incumbent 

upon them to see what else is out there. 

Have you all made that request of the two companies and, if so, 

have you received a response? 

Mr. FISHER. Mr. Chairman and Congressman LaTourette, the 

answer is yes, we have. I have had two phone conversations with 

Frank Appel who is the CEO of Deutsche Post World Net in Bonn, 

Germany and, to him and also to Mr. Mullen, we have made the 

request that they consider alternatives both from the State of Ohio, 

ABX and ASTAR and give us the opportunity to meet with them 

any time, any place including in Germany. 

The Governor and I both have offered actually to travel to Germany on a moment’s notice if we believe that they would seriously 

consider an offer by the State. 

They have indicated that they do not believe there is any alternative that is viable, and they have also recently indicated that the 

provision of their agreement with UPS bars them from actually engaging in that discussion. 

We have asked them both privately and publicly to, in fact, set 

aside that portion. I think you are right. We are not asking for the 

details, at this point anyway, of their transaction with UPS. We 

will see that eventually if, in fact, it goes through in a written 

agreement. 

What we are asking is that before they actually sign on the dotted line and consummate such agreement, it seems to me it is only 

good business sense beyond the interest of fairness, good business 

sense to explore every viable alternative. 

Now they, I think, would say to you they have looked at alternatives, but I think that that would be disingenuous because the 

State of Ohio obviously has resources available to it that could be 

offered to DHL under the appropriate circumstances. They have 

24 

never asked us for that, and we have never been given the opportunity to offer them. 

Mr. LATOURETTE. We are going to see their representatives on 

the next panel, and I will ask them that question. 

Mayor, in your testimony, you talked about a meeting where everybody said, we love Wilmington. Then you had another meeting. 

Everything is going great. Even though with the way the economy 

is going, you expected some job losses. 

Then they have you over to Leipzig, apparently to a big party, 

and they sort of lowered the boom. I hope you had your ticket paid 

for on the way back. 

What happened? I mean were they just lying to you? Did they 

hose you? 

What happened between those happy meetings and when they 

gave you the news in Germany? 

Mr. RAIZK. I really don’t know. As I said, before I left, we vetted 

it out very carefully that there was going to be some announcement 

in Germany on the 28th. 

But in consultation with the Department of Development and 

Lieutenant Governor Fisher’s office, in consultation with both 

ASTAR Air Cargo and ABX officials before I went, everybody felt 

comfortable with the idea that there were going to be some cuts 

coming. They were looking at restructuring. 

We had this conversation back in February, as I said, with the 

Governor on a conference call in my office. The Governor was very 

specific in his request of DHL officials, that okay, we know that 

things are going to have to happen and you have some losses, but 

are you committed to the Wilmington Air Park? And the answer to 

that was an unqualified yes. 

Then I can only and the Lieutenant Governor can verify with the 

conversations that he had in April, still prior to my going. 

So you can understand that looking at those, if I took the history 

of those conversations and also even the day before I left, what we 

felt might comprise the announcement on the 28th. 

It was certainly a blow because it was just out of left field that 

we were going to not cut jobs necessarily or restructure how we are 

operating, but we are going to turn it over to UPS, which was completely a rout. 

In fairness, no one said on May 28th in the announcement to 

their shareholders that they were abandoning Wilmington, the Air 

Park. But what they said, if they handed their airlift to UPS, 

UPS’s hub is in Louisville, 125 miles from Wilmington. It doesn’t 

take a lot of math to figure out that Wilmington was done and the 

freight was going to go to Louisville. 

So, no, I don’t know. Frankly, I believe that this decision was at 

a very, very high level amongst Deutsche Post and DHL officials. 

I do not believe that very, very few people in America even knew 

of this decision or of this, and I think that has been borne out subsequently. 

Mr. LATOURETTE. Mayor, thank you. We are going to see that 

same bunch in the next panel. I will ask them. 

Mr. RAIZK. You can ask them. 

Mr. LATOURETTE. I will ask them. 

Thank you, Mr. Chair. 

25 

Mr. RAIZK. Thank you, Congressman. 

Mr. OBERSTAR. Other Members wish to be heard? 

Ms. Johnson. Thank you, Mr. Chairman. 

I am trying to determine as I listen whether this is an acquisition or a contract. Is the business closing? 

Mr. FISHER. Congresswoman, I think that it is fair to say that 

it is named one thing but is another. It is being termed a transaction or an agreement, but we think it has all the effects and the 

results of an actual merger. 

The result of that transaction or merger, whatever you call it, 

will be the loss of some 10,000 jobs in southwest Ohio because they 

will either be eliminated entirely or moved, as Mayor Raizk just 

said, 125 miles south to Louisville, Kentucky, where UPS has its 

hub, because UPS will now be the provider of DHL’s air services. 

Ms. JOHNSON. What is the motivation for this happening? Are 

they losing money? 

Mr. FISHER. Congresswoman, yes, the answer is that their motivation, as has been explained to us, is that they are losing money. 

Our response is I am not at this point disputing whether or not 

they are losing money. I don’t have enough information to be able 

to say that is true or not true. But I do think even if we accept 

that as fact, what is important is that they explore every viable alternative before engaging in a de facto merger that would have the 

result of the loss of 10,000 jobs. 

One of those alternatives would be sitting down with the State 

and the two carriers that they currently contract with, which are 

called ASTAR and ABX, and either separately or preferably together see if we could work out ways to deal with their cost issues 

and challenges, at the same time, saving the jobs in Wilmington. 

Ms. JOHNSON. Thank you. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. I would like to observe for the record that Senator Voinovich has talked to me about this situation, and we will 

keep the record open for a statement that he may submit, but he 

is very deeply concerned. 

He and I worked together on a great many issues of economic development over the years, going back to when he was Mayor of 

Cleveland. 

Congressman Mack? No questions. 

Congresswoman Schmidt. 

Mrs. SCHMIDT. Thank you, Mr. Mayor. Don’t ever let anyone say 

that a mayor doesn’t have a big job because you certainly do, especially in this situation. 

In your written testimony, you indicated that the losses to the 

Wilmington community, should DHL reach an agreement with UPS 

and decide to shut down the Wilmington Air Park, will be enormous. 

Everyone has been focused on job loss, but as a former local government official I know that the underpinnings of that can be far 

more devastating than just the actual loss itself. Could you please 

elaborate to this Committee what you believe will be the 

underpinnings of that pullout? 

Mr. RAIZK. Thank you, Congresswoman Schmidt. 

26 

First of all, it is not just Wilmington, and I think it is important 

for the Committee to understand the regional nature of the employment at the Air Park. As you indicated, in your area, there is a significant number of jobs of folks who work there. It is the six surrounding counties that are affected. 

So, as we look at this, for instance, just the uncertainty alone, 

sales tax receipts are down in our county. Even though there has 

not been a significant job loss, there has been some, over a million 

dollars in the last month because people are scared, and they are 

not purchasing or buying or doing those things that they would 

normally do, because they don’t know if they are going to have a 

job or not. 

I think the biggest thing is not just the employment, but it will 

be the concept of retraining, and that is going to be difficult. There 

is going to have to be huge resources for retraining. 

And it is real interesting. As I have said, these are 21st Century 

jobs. How do you retrain folks who have the skills for the 21st Century? What do we retrain them to? 

The impact on small business, as you know, Ohio’s number one 

employers are small businesses all over the State. Although we still 

have agriculture in our area, the impact on the small business is 

just going to be huge. We have determined through some data 

analysis that one in five will fail, and that is not just in Wilmington. That is throughout the region. 

Then there is the resultant more job loss that are not reflected 

in those 10,000 because most people work for small business in 

Ohio. 

So I think the health care system is going to just get a terrible 

situation of how they are going to survive because they are going 

through rough times as it is. 

Education, I am really concerned about the schools. For instance, 

the Wilmington City School District is supported by a 1 percent income tax. If these jobs go away, they will have a devastating effect 

to their school system. 

Mrs. SCHMIDT. Mr. Mayor, I would like to continue along that 

line. You said that the Wilmington schools have an income tax that 

feeds their schools, and so a loss of jobs is a loss of income to them. 

But what about the City of Wilmington as well? 

I am sure you have a fire department, a police department. You 

have a road department. How many employees do you have? What 

is your budget? 

How much of that budget is dependent upon DHL’s presence 

and, with a DHL pullout, what does that do to the City of Wilmington directly? 

I mean you have talked about the indirect effect, and I think that 

speaks miles that you are looking out for everyone around you, but 

I also want to hear what the effects are going to be for the City 

of Wilmington directly. 

Mr. RAIZK. Well, it is funny you should ask that because the City 

of Wilmington has always supported the Air Park through infrastructure, through the impact that its citizens have put up with. 

We are a community of about 12,000 that basically during the day 

supports a community of about 30,000 because we provide water 

27 

and sewer and the road structure. Everything comes through the 

town, the freight, the fuel trucks. 

But until January of this year, the Air Park was not a part of 

the City. We did just recently annex the Air Park with the anticipation that we would receive, because we do have a 1 percent income tax as you know, about $2.5 million a year that we have been 

looking sorely forward to because for the last 30 years the citizens 

have been supporting the Air Park and that infrastructure out of 

their own pockets without receiving any revenue. 

So, while we have geared up to take care of all of those things, 

it was time to get the citizens paid back for their contributions to 

the economic engine out there. Unfortunately, just as we are starting to get the receipts in, now we are under the threat that they 

are going to take them away. 

We have about 160 employees in the City of Wilmington. We are 

very unique. We operate our own fully permitted EPA landfill. We 

have our own water. We have our own sewer. We have our own 

full-time fire department and police departments. 

Certainly, we have geared up with anticipation of taking care of 

this additional acreage and those folks who work out there. Now 

we are looking at probably having to retrench if we can’t have that 

income. 

Mrs. SCHMIDT. Thank you. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. Congressman Space. 

Mr. SPACE. Thank you, Mr. Chairman. 

Mr. Mayor, I just want to commend you for the very able representation on behalf of your constituents that you have rendered 

today. 

Mr. RAIZK. Thank you. 

Mr. SPACE. Lieutenant Governor Fisher, I have had the pleasure 

of working with you and your staff on a number of projects in 

southeastern Ohio in the past, and I have found that you and your 

staff have repeatedly bent over backwards to help those existing 

businesses as well as prospective businesses that we are trying to 

draw. It has been nothing but positive at every turn in dealing in 

very difficult circumstances. 

I just want to make sure I understand your testimony correctly. 

It sounds to me, from what you have indicated, that you have 

reached out to DHL in an effort to provide them with information 

and specifics on what kind of incentives the State of Ohio may be 

willing to offer in an effort to keep them in their status quo or 

something like it and that they have rejected that offer, that extension of an offer for help on the basis that they can’t about it due 

a confidentiality agreement that they have signed. 

Is that a correct representation? 

Mr. FISHER. Congressman Space, let me back up and just say a 

few things. First of all, thank you for what you said. 

First to amplify on what Mayor Raizk said, prior to May 28th, 

we had several conversations with DHL on a variety of different 

matters in which, although it was not necessarily the subject at 

hand, we specifically asked the question: What was the future of 

the Wilmington air hub? And I think it is fair to say the answer 

was that they were experiencing some financial challenges but led 

28 

us to believe that the future was still good, solid and bright despite 

those financial challenges. 

Now I do want to say that I think Mayor Raizk is probably right, 

that those with whom we were speaking at the time probably did 

not have knowledge that superiors in Germany were thinking 

something else. 

In other words, I want to give them the benefit of the doubt that 

they were not purposely misleading us. I have no reason to believe 

they were misleading us. I do have reason to believe that they had 

an opportunity to give us information that the company itself clearly had even if the individuals with whom we were speaking did not. 

The second point I would want to make is that repeatedly after 

May 28th, in meetings with senior executives of DHL and in two 

conversations with Frank Appel, we have indicated that we would 

like the opportunity to sit down with him and find ways where the 

State could be a risk-sharing, collaborative financial partner with 

them. 

Now, no specific offer of a specific amount of tax credits, grants 

or loans has been offered nor could it be until we were actually in 

such discussions. But the point is we want to have such discussions, and we have been rebuffed in our request to have such discussions. 

Mr. SPACE. Has that refusal to sit down been ostensibly based 

upon the statement or the position that they can’t talk about it due 

to confidentiality provisions within an agreement between them 

and UPS? 

Mr. FISHER. Congressman, initially, no. Initially, the response 

was simply that they believe that internally they have already examined all their alternatives and do not believe that there is any 

information that we, ABX or ASTAR could present to them that 

they don’t already have. 

Later on, as the weeks went by, we learned that there was apparently a confidentiality or exclusivity agreement with UPS. That 

was confirmed publicly, I believe, by Mr. Mullen in his testimony 

before the House Judiciary Committee last week. 

I think it is fair to say that that is now an additional reason that 

has been offered, but that was initially not the reason that was offered, that was given to us why they wouldn’t consider the alternative. 

Mr. SPACE. Okay. Thank you, Lee. 

I yield back. 

Mr. LATOURETTE. This is what they call a bloodless coup. 

[Laughter.] 

Mr. PETRI. Congratulations, Mr. Chairman. 

Mr. OBERSTAR. There will not be a coup. This is going to be a 

long hearing. I need more coffee. 

[Laughter.] 

Mr. OBERSTAR. Now let’s see. The gentleman from Ohio has completed his questions. So, Mr. Petri. 

Mr. PETRI. Thank you very much, Mr. Chairman. I really just 

have one question as kind of background for this and how it fits 

in with the State of Ohio. 

29 

I wonder if you could, Governor Fisher, comment about the state 

of the unemployment fund for people in Ohio and how this, if it 

goes through, could affect that fund? 

Mr. FISHER. Congressman, I think it is fair to say that it puts 

it at serious risk. As the Mayor has indicated, we already are facing some serious problems with regard to our unemployment fund, 

and this would only exacerbate them. 

I can’t give you specific figures today, but I don’t think there is 

any question that in all my years in and out of public service, 

which totals 28 in Ohio, I have never seen this kind of job loss in 

one fell swoop like this. So it only goes to say as a result, logically, 

that it is likely to have a very significant negative effect on our unemployment compensation fund. 

Mr. OBERSTAR. Ms. Hirono. 

Ms. HIRONO. I note in the Mayor’s testimony that, Lieutenant 

Governor, you have confirmed that the Attorney General of Ohio is 

looking at this proposal. 

Does the State’s antitrust laws mirror the Federal antitrust 

laws? 

Mr. FISHER. Yes, Congresswoman, it does. Ohio has an antitrust 

law known as the Valentine Act which has very similar provisions 

to the Sherman and Clayton Acts on the Federal level. 

And so, the answer is that the Ohio Attorney General, Nancy 

Rogers, is currently conducting her own independent information 

gathering. She is in a position really similar to the U.S. Justice Department, and that is until there is an agreement, if there is one, 

until there is an agreement with UPS, they have nothing they can 

actually analyze. 

The good news, however, is that both the Ohio Attorney General 

and the U.S. Attorney General, at our urging, are collecting facts. 

So they will be able to hit the ground running if and when there 

is an agreement between UPS and DHL to determine whether either a State and/or Federal investigation are appropriate. 

And, they are not dependent on each other. For example, if the 

Federal government decides that they are not going to pursue it, 

that would prevent or prohibit the State from conducting its own 

antitrust enforcement action or an investigation. 

Ms. HIRONO. So does that mean that if this agreement, once 

there is something to look at and analyze, if the agreement were 

to contravene the State antitrust laws, that Ohio could prevent this 

agreement from going through? 

Mr. FISHER. It is my belief that it could. Under Ohio’s antitrust 

laws, yes, I believe that is possible. It remains to be seen whether 

that will be happening, but the answer is yes. 

Ms. HIRONO. Thank you. 

Mr. OBERSTAR. Mr. Duncan, the gentleman from Tennessee. 

Mr. DUNCAN. Governor Fisher, three of my dad’s sisters moved 

to Cincinnati when they were young, two of his brothers to Dayton. 

A cousin on my mother’s side is a car dealer in Cleveland Heights. 

Our best friends in Knoxville are from Cambridge. I think I have 

more connections to Ohio than any State other than Tennessee. 

Mr. FISHER. Wow. 

Mr. DUNCAN. No Member on either side wants to see anybody 

lose their jobs and especially a job loss of this magnitude. 

30 

Mr. Mayor, I will tell you I haven’t voted for a lot of this what 

some people have called globaloney. I heard you mention the 

globalization. 

But having said that, I haven’t studied this to the extent that 

you all have. I was told that DHL is losing a billion dollars a year 

or perhaps even more. Common sense would tell you, you can’t 

force a company to keep losing money. They have to, at some point, 

pull out or let people off or something. 

I notice, Governor, that you said you don’t know whether they 

have really lost this money or not, but that assuming they had you 

don’t feel like they have looked at all the reasonable alternatives. 

What I am wondering about is what are the alternatives as you 

see them? 

What could they do if, as you said, assuming they are losing this 

horrendous amount of money? What alternatives do they have? 

Mr. FISHER. Congressman Duncan, first let me just say that I 

know lieutenant governors love to be called governor, but I don’t 

like being governor. 

Mr. DUNCAN. Well, Lieutenant. 

Mr. FISHER. We only have one governor. 

Mr. DUNCAN. Okay. 

Mr. FISHER. So Lieutenant Governor or LG or something like 

that. 

Mr. DUNCAN. All right. All right. 

Mr. FISHER. The thing that I would say, Congressman, is that 

every day we are working with companies that are facing losses. 

That is not unusual. 

What is unusual is that a company with whom we have ongoing 

communication and, frankly, a good relationship, all of which certainly typifies what we had with DHL, goes ahead and makes a decision without discussing it with the State to see if the State would 

be able to help them deal with their financial challenges and 

makes a decision which has a seriously negative effect on employment and Ohio’s economy. That is unusual. 

It is not unusual for us to sit down with a company and try to 

work out their financial issues. Do we think the State, by and of 

itself, can solve them? Of course not. 

However, one of the things we specialize in is bringing together 

resources from a variety of different sectors: the Federal Government, the local government, the county government, private equity, 

private sector, non-profit. That is what we do every day in our department. 

Do we always succeed? Of course not. 

But are we given the chance almost 99 percent of the time? Absolutely. We got no chance here. 

I cannot tell you positively that had we been given the chance 

or that if we were to be given the chance, that we could address 

most or all of their challenge. But I know that given our record of 

success, that DHL owes it to the people of Ohio to give us a chance 

to see if we can. 

Mr. DUNCAN. Do you have anything to indicate to you? I mean 

if a company is losing a billion dollars a year here in the U.S., do 

you have anything to indicate to you that they haven’t on their own 

explored every reasonable alternative? 

31 

When you say that you do this every day, have you ever been 

able to save a company that is facing losses of this magnitude? 

Mr. FISHER. Congressman, I think. 

Mr. DUNCAN. I am not arguing with you. I am really asking. 

Mr. FISHER. No. I know what you are asking. 

Mr. DUNCAN. I don’t really know. 

Mr. FISHER. No. That is a fair question. I think it is fair to say 

that it is rare, and I can’t think of a precedent right now where 

a company said they were losing as much as DHL was losing. So 

I think that is a fair point. 

But I would also tell you that let’s take one possible solution 

here. There was a point of time, I believe in the not so recent past, 

where DHL wanted to deal with just one local carrier as opposed 

to two. There are two today, ABX and ASTAR. 

It is my understanding—and there are people sitting behind me 

who know more about this than I do—that DHL, which has a 49 

percent ownership share of ASTAR, attempted to purchase ABX. It 

is my understanding that the primary motive for that was it would 

make sense for them, apparently from a cost standpoint, to be able 

to deal with one carrier as opposed to two. 

That transaction was not consummated for a variety of reasons 

that are known better by people sitting behind me than me, but I 

think it is fair to say that there are people who know both companies and know DHL who believe that if that had happened, if 

ASTAR had purchased ABX, that we might not be here today. 

I don’t know that to be the fact. I am just telling you that there 

are people who are knowledgeable about the facts, who tell me they 

believe that to be the case. So that in and of itself points out that 

there might have been a solution in the not so recent past that 

might have prevented us from being here. 

So, therefore, exploring a similar solution in the not so distant 

future might also lead us to believe that perhaps there is an alternative. 

They have done their own internal analysis that they have not 

shared with us and come to a different conclusion, but any analysis 

that does not include the State of Ohio as a partner is an incomplete analysis on their part. 

Mr. DUNCAN. All right. Thank you. 

Thank you, Mr. Chairman. 

Mr. OBERSTAR. I thank the gentleman. Are there other Members 

who wish to be recognized? 

Mr. Westmoreland had his hand up. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. 

Governor, have you met with ABX and/or ASTAR to ask them 

what the failure was when they could not get together for a merger 

or buy-out or whatever? Did you work with them to see if there 

were any details you could work out in that relationship? 

Mr. FISHER. Congressman Westmoreland, yes, I have had a number of conversations with senior executives with both ASTAR and 

ABX. There are some commonalities, but there are also different 

perspectives, frankly, on what happened. There is, I think, an 

agreement to disagree on why that transaction was not consummated. 

32 

I do believe that given the circumstances today, I have reason to 

believe that both ABX and ASTAR would be more than willing to 

come to the table and explore every possible alternative. 

Mr. WESTMORELAND. I can believe that. I can believe that now. 

Mr. FISHER. Yes, right. All I am saying is whatever reason it 

didn’t happen in the past, I think it would not happen in the future 

in some way. 

Mr. WESTMORELAND. Yes, sir. Do you know what the total employment of DHL is and is the 8,000 jobs just in the south Ohio 

area or are there actually more jobs than that in that area? 

Mr. FISHER. I can only speak to the employment in southwest 

Ohio. ABX, I believe, employs approximately 6,000 people at the 

Air Park. I believe that ASTAR employs approximately 1,200 and 

that DHL employs approximately 1,000. 

But there are representatives here today from DHL, ABX and 

ASTAR that can correct me if I am wrong, but I believe those are 

the numbers. 

Mr. WESTMORELAND. Okay. But from what you are saying and 

what I hear the Mayor saying, I am assuming the Mayor, the City 

and the State would sit down together with these companies and 

try to work something out. It seems to me as if $2 billion a year roughly, that would be a 

hard nut to crack. I know this is a similar question to what you 

have already been asked, but do you have experience in doing this? 

And, from the breaks that I heard you give, it totaled to about $88 million in tax incentives, the employment credit and so forth 

and so on, and this is a one-shot deal, right, the $88 million. 

In just reading some of the testimony here, it has been almost a $6 billion loss, I believe, over the last 5 years. That is a lot of 

money for a State or a city to try to absorb, and that would also 

be a lot of money for these two airlines to try to absorb. Do you 

have any idea how you could go about even trying to do that and 

is that even something that the State of Ohio would want to do? 

Mr. FISHER. Mr. Chairman and Congressman Westmoreland, 

first, I have to say to you that we are not in a position to accept 

the premise of the amount of the loss. In other words, the first 

thing we would do as part of our due diligence is work with the 

company, so we have a comfort. 

In other words, when a company says to us, we are losing X 

amount of money, we don’t take that at face value. We can’t. We 

owe it to the taxpayers of Ohio to actually independently verify 

that. So let’s also focus on the fact that we don’t know whether that 

loss is, in fact, true. 

I am not suggesting it is not. I am simply telling you that we 

have no information that has been given us to allow us to verify 

that. That is number one. 

Number two is that I am not suggesting to you that we can meet 

all those losses. Government should not be in the business, I believe, of literally saying to a company, we are going to deal with 

all your losses. 

Our business is to be a risk-sharing collaborative partner, and 

that means that the business is going to have to continue to find 

some of their own internal ways to deal with those losses, but we 

will help them. 

33 

So there is no time that we ever completely fill the gap, whether it is $100,000 loss or a $1 billion loss. What we do is we try to meet 

them in a sense, halfway—sometimes more than halfway, sometimes less, but we are a partner. 

Mr. WESTMORELAND. Governor, you or Mayor, either one, has the 

State of Ohio or the City ever entered into any of these agreements 

with any company before now that has been able to save them from 

actually moving or relocating? 

Mr. FISHER. To be honest, Congressman, we do it all the time 

ranging from small and medium-size businesses to large businesses 

that are saying to us, we are considering leaving, folding, going out 

of business. 

Do we always succeed? No. 

But I can tell you our track record of success in helping companies deal with their financial challenges—which often by the way 

involves job retention, not job expansion—has been quite successful. We believe that every job retention deal is a future job creation 

deal and job expansion deal because you have to hold what you got 

first and then focus on expanding later. 

So the answer is yes. 

Mr. WESTMORELAND. Well, Mr. Chairman, I appreciate the opportunity to ask the questions. 

I think that sometimes we go down a real slippery slope when 

we start trying to get government too involved with private enterprise and different business deals that come about, but I certainly 

appreciate the position you are in and what the State of Ohio is 

in and what the Mayor of the City is in as far as these job losses. 

UPS happens to be a good Georgia company, and they are good 

folks. So I appreciate there is nothing devious that is coming out 

of this transaction that they are trying to do with DHL. 

Thank you, sir, and I yield back. 

Mr. FISHER. Thank you. 

Mr. OBERSTAR. I thank the gentleman. 

Mrs. Drake. 

Mrs. DRAKE. Thank you, Mr. Chairman. 

Certainly, I am from Virginia, so I am not familiar much with 

the problem. But in listening to you talk, my question would be it 

sounds like the deal with UPS is not finished, that there have been 

these negotiations, but it is not complete yet. 

I would make the assumption that any business owner has 

looked at all the options and is trying to figure out how to best support his business. 

So the question that comes to mind is what if they come to there 

is no deal with UPS? I wonder what your comments on that would 

be. 

The second thought would be if this does happen and this cargo 

goes out of Louisville, would there also be the opportunity of additional jobs in that area? Is this something where people could be? 

I don’t even know the distance between the locations. I think you 

said 125 miles. But would UPS logically need additional employees 

to take on this work that has been done by two airlines? 

So I just wonder if any of that could be absorbed out. 

Mr. RAIZK. I think to answer your question and also the other, 

it is important to understand a little bit of history here. 

34 

The two airlines that we are talking about, ABX Air and ASTAR 

Air Cargo, were created because DHL, which was the former 

ASTAR Air Cargo, was acquired by Deutsche Post World Net. They 

could not own an airline, so they had to spin the airline off. So, essentially, they created this partner. 

Then DHL acquired Airborne Express, the same situation happened. They, because of their foreign ownership, could not own the 

airline or have the certificate as I understand it and had to create 

ABX Air. So the contractors were of the parent company’s own 

making to be able to do, to take their market share. 

Realize that the two American companies, prior to acquisition, 

had 21 percent together of the air express market. That is a significant market share. That market share is now significantly reduced. 

So these two companies were once very profitable and have only 

recently become unprofitable. 

When we look at those losses, it appears to me and I am no expert, but I am just like you. I pick up the paper and read that 

every day. It appears to me that how can we go from a profitable 

situation to an unprofitable situation in such a short period of 

time? 

Mrs. DRAKE. Do you think it could be the price of jet fuel? 

Mr. RAIZK. Absolutely. I mean $4 plus of jet fuel certainly is 

going to create a problem for everybody, and I mean there is no 

getting around that. 

But at the same time, have we looked at totally the management 

of taking two profitable companies and then making them all of a 

sudden unprofitable? I think there needs to be a look at that in 

terms of that, but certainly jet fuel is a problem and has created 

a lot of our problems. 

If there weren’t this increase in jet fuel, would we be here today? 

Probably not. I doubt it, but maybe so. I don’t know. 

Mrs. DRAKE. But one thing that could happen is there could be 

no deal. I mean DHL could say we can’t make the U.S. profitable 

and leave. I mean that could happen. 

Mr. RAIZK. They could say that. They would be abandoning. 

Mrs. DRAKE. Is one of the goals to have a better conversation 

with DHL with the State of Ohio? 

Mr. RAIZK. Absolutely. 

Mrs. DRAKE. From this hearing today? 

Mr. RAIZK. Absolutely. 

Mr. FISHER. Yes, Congresswoman, I would say that, absolutely. 

Our relationship and our conversations with DHL prior to May 

28th, I would consider to be very, very good and very positive, very 

professional. 

They continue to be professional, but they do not continue to be 

productive. 

Mrs. DRAKE. Thank you, Mr. Chairman. I will yield back. 

Mr. OBERSTAR. I thank the gentlewoman for her questions and 

the panel for their responses. Thank you very, very much for all 

that you have invested, yourselves, in this issue and for the continuing effort. 

The Committee will continue to follow these matters very closely, 

and you are dismissed. 

Mr. FISHER. Thank you. 

35 

Mr. RAIZK. Thank you, Mr. Chairman. 

Mr. OBERSTAR. We are in the midst of a vote, the first of four 

votes on the House floor, but I would like to invite Panel Three to 

be available. I think we will recess. 

Let me get the names of the panelists there, and everybody can 

take a little break while we vote, and then we will resume within 

five minutes after the last vote. 

Our next panel consists of Mr. John Mullen, CEO of DHL; Burt 

Wallace, President of Corporate Transportation for UPS; Mr. Joseph Hete of ABX Air, President; and Mr. Gary Hammes, Senior 

Vice President of ASTAR Air Cargo; Captain David Ross, Airline 

Professionals Association, he is the President of Teamsters Local 

1224; Captain John Prater, President of the Air Line Pilots Association; and Mr. Samuel Simon, the American Antitrust Institute. 

I think we will have a very interesting session with the next 

panel. 

The Committee will stand in recess, pending the four votes. 

[Recess.] 

Mr. OBERSTAR. The Committee will resume its sitting. 

The Chair has already announced the next panel, the current 

panel, and we will begin with Mr. Mullen. 

TESTIMONY OF JOHN P. MULLEN, CEO, DHL EXPRESS; BURT 

WALLACE, PRESIDENT OF CORPORATE TRANSPORTATION, 

UNITED PARCEL SERVICE OF AMERICA; JOSEPH C. HETE, 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, ABX AIR AND 

AIR TRANSPORT SERVICES GROUP; GARY HAMMES, SENIOR 

VICE PRESIDENT AND CHIEF OPERATING OFFICER, ASTAR 

AIR CARGO, INC.; CAPTAIN DAVID R. ROSS, PRESIDENT, AIRLINE PROFESSIONAL ASSOCIATION, TEAMSTERS LOCAL 

1224; CAPTAIN JOHN PRATER, PRESIDENT, AIR LINE PILOTS 

ASSOCIATION INTERNATIONAL; AND SAMUEL R. SIMON, THE 

AMERICAN ANTITRUST INSTITUTE 

Mr. MULLEN. Thank you very much. Chairman Oberstar, Ranking Member LaTourette, distinguished Members of the Committee, 

I thank you very much for the opportunity to come to talk to you 

today about the DHL situation in the United States and about the 

proposed contract with UPS. 

You will have received my written testimony already. I hope that 

you have had a chance to read it. 

Mr. OBERSTAR. Your entire testimony will appear in the record 

as submitted, and the gentleman is welcome to summarize the substance of the statement. 

Mr. MULLEN. Thank you. I will paraphrase it as quickly as I can. 

Firstly, DHL is in a very difficult situation here in the United 

States. For over five years, we have battled to break into this market and be successful here. By the end of this year, we will have 

spent some $6 billion doing that. 

We have made a huge amount of progress which we are very 

proud of. We have built a strong brand. We have built out a quality 

infrastructure. But the reality is it has come at a very high price, 

and today we are losing some $5 million a day or a projected $1.3 

billion loss this year. 

36 

We are in a narrow express market that has been shrinking 

since the late 1990s, and there is intense compensation for the declining volume that remains. Now, on top of that, we are facing a 

worsening economy and very high jet fuel costs as well. We are a 

large company, but no company can lose this amount of money and 

survive. 

We are under intense pressure from shareholders, from analysts, 

financial markets and others to address these losses which have 

been going on for some time. There is considerable criticism that 

we have not done this earlier. So we simply have to take action 

and, with volumes declining, that simply means taking out costs. 

We have exhaustively examined all the options that we can see 

open to us from various restructuring proposals, discussions with 

private equity and other players, partnerships, even through to 

closing this business altogether in the United States. 

From that analysis, on May the 28th, we announced a restructuring plan for our U.S. business that had two key parts. The first 

was a major restructure of our ground operations from closure of 

some stations, reduction in trucking network and other measures. 

The second was the intention to enter into this contract with UPS 

to replace two existing aviation subcontractors with UPS itself. 

The goal of that is to save $1 billion per annum. Of all of the 

options we have studied, we believe that this represents by far the 

best chance that we have to remain a viable competitor in the U.S., 

thereby preserving competition. 

I would just like to quickly highlight a few points in respect to 

this contract. Firstly, it is not a merger. It is not a joint venture. 

It is not an alliance. It is not a transfer of assets. 

We are simply replacing two existing third party subcontractors 

with a different subcontractor for one part of our business. 

DHL remains as independent afterwards as it was before. Our 

pickup and delivery fleets, our billing systems, our customer service, our telephone routing, all of these things remain as they were 

previously. 

Customers will not see any difference. A package moving from 

New York to Los Angeles, the customer today doesn’t know whether we use ABX, whether we use ASTAR, whether we use DHL aircraft, whether we use UPS aircraft. It will be picked up by a DHL 

courier and delivered by a DHL courier. 

There is no need for us to and we will not share confidential customer information. Some of the suggestions that UPS will have access to pricing and things like that are just simply not true. The 

only data that we will make available to UPS is sufficient data for 

them to sort and transport those packages. There is no IT link 

being envisaged as might have been suggested. 

Now this type of solution, we believe, is common in high capital 

equipment business: in the airlines where there is code-sharing 

amongst passenger airlines, in the shipping industry where shipping companies for many years have carried each other cargo, 

through telecoms where the last mile carriage on fixed copper lines 

is one carrier provides for many and so on. 

And, in our own industry here in the United States, there is an 

exact parallel where the United States Postal Service some years 

37 

ago closed its hub and outsourced their aviation lift to FedEx, a 

very similar parallel to what we are discussing today. 

Now, obviously, all of that said, no such change comes without 

an impact. We are hugely sensitive to the impact that this decision 

will have on Wilmington, on the local community, on our subcontractors and many, many individuals. 

It is absolutely not a decision that has been taken lightly. We 

have agonized over this. We have been hugely criticized for taking 

as long as we have for making a decisive move. However, we believe we absolutely have to do this. 

So we formed a team which is putting a huge effort now into 

mitigating the impact of these changes. We realize, of course, that 

there is nothing we can do to entirely mitigate the impact on individuals and working families, but we are working to put in place 

a plan that we believe goes well beyond what is usual in this type 

of situation and well beyond what our contractual and legal obligations might be. 

What does that mean in practice? Well, we have allocated some 

$260 million in severance, retention and health benefits. Of that 

$260 million, only $35 million are actually contractual obligations. 

The other $225 million or nearly a quarter of a billion dollars are 

benefits over and above that we are paying, and I might add mainly to the employees of other companies, those of our subcontractors, 

not actually DHL employees themselves. 

In addition, we are working with local, State and community officials to try to help in as many other ways as we can, including we 

are discussing the possible donation of the Air Park to the local 

community. 

So, in conclusion, Mr. Chairman, may I just summarize again? 

This has been an exceptionally difficult decision. We are losing 

$1.3 billion in a declining market, and we have no option but to 

cut these costs. 

We have considered every option that we think is available to us, 

and we have talked to every party we think can help, and we now 

plan to implement a solution that addresses the situation. 

Such a plan will obviously not be liked by those affected, of 

course, but it is not a merger. It is not anticompetitive. It is common in many industries, and it exists here in the U.S. in our own 

industry. 

Hopefully, this leaves us as a viable competitor and will preserve 

competition in the U.S. market. 

Last, but most importantly of all, we are doing our very best to 

mitigate the impact by going well beyond our contractual and legal 

obligations as well as well beyond comparable benchmarks. 

Mr. Chairman, distinguished Members of the Committee, thank 

you very much for your attention, and I look forward to responding 

to any questions that you may have. 

Mr. OBERSTAR. Thank you for your testimony. 

Mr. Wallace. 

Mr. WALLACE. Chairman Oberstar and Members of the Committee, UPS welcomes the opportunity to appear before you today 

to present as clearly as possible the facts regarding UPS’s proposed 

agreement with DHL. 

38 

On May 28th, 2008, UPS and DHL announced that the companies were working toward an agreement for UPS to provide airlift 

of DHL’s express, deferred and international package volume within the United States and to and from Canada and Mexico. We are 

still negotiating this agreement. 

The proposed agreement is part of a larger restructuring by DHL 

designed to reduce its costs and to help the company to remain 

competitive in the U.S. It has been widely reported that this restructuring has several elements including engaging the U.S. Postal Service to provide last mile delivery of some of DHL’s packages. 

DHL has stated very publicly and clearly that it would not be 

able to compete effectively or perhaps remain in the U.S. without 

restructuring its operations and costs. The company has reported 

it expects to lose $1.3 billion in the U.S. this year. 

Mr. Chairman and Members of the Committee, let me state as 

clearly as I can the anticipated agreement between UPS and DHL 

is not a merger or a joint venture. It is not an acquisition. It is not 

a consolidation. 

UPS and DHL continue to compete independently, and we will 

each price and market our brands and services. We will not share 

profits, costs or information about pricing of services to each other’s 

customers. 

Under the proposed agreement, UPS will act as a vendor to DHL 

providing contractual services in the same way that carriers in our 

industry, including UPS and Federal Express, provide services to 

the United States Postal Service. 

This type of arrangement, where one company provides services 

to a competitor, is found throughout the transportation industry including in trucking, rail and ocean carriage. It is also found in 

other industries such as natural gas and telecommunications. 

UPS will not provide pickup or delivery of packages to DHL customers. DHL will deliver packages to UPS’s airport locations for 

movement through UPS’s air network to destination airports. DHL 

will then pick up the packages from the destination airports for 

final delivery to its customers. This is the same service currently 

being provided to DHL by two vendors, ABX and ASTAR. 

The anticipated agreement, in short, is simply an airlift contract, 

one part of a restructuring that DHL has concluded will significantly reduce its costs in the United States. 

There has been a great deal of discussion about the impact of 

DHL’s restructuring on the job market of Wilmington, Ohio. UPS 

is a company that has a long history of providing good jobs and 

benefits for employees. We understand the importance communities 

place on attracting and retaining employment opportunities for 

their residents. 

It is very important to note in this regard that the expected result of DHL’s restructuring will be to preserve approximately 

40,000 DHL-related jobs in the U.S. that would otherwise be at 

risk. Further, the agreement with DHL will help to bring additional job security to more than 14,000 UPS employees in Ohio and 

358,000 UPS employees in the United States. 

I should note that in 2003 UPS employed 317,000 people in the 

U.S. Since then, we have added more than 41,000 employees to our 

39 

payroll which is 14,300 more people than the average total number 

of employees among the Fortune 500. 

It is our hope that growing our business will allow UPS to continue to increase the number of UPS jobs throughout Ohio, the 

Country and the world. 

Any suggestion that UPS could somehow manipulate the way in 

which DHL packages move through our system to gain a competitive advantage is simply untrue and gives DHL far too little credit 

for being able to protect itself. Let me assure you that DHL is a 

tough negotiator, fully able to protect its own interests. 

UPS will continue to compete vigorously with DHL and others in 

the U.S. and around the world, and we fully expect DHL to compete vigorously as well. DHL’s restructuring, including its agreement with UPS, actually preserves competition in the package delivery business in the U.S. 

Now you might ask, why would UPS want to do something that 

helps a competitor remain in the market? For UPS, our goal is to 

find profitable opportunities such as this to better utilize our existing capacity, which makes us a more efficient competitor and allows us to create and provide career stability for our employees. 

In short, the proposed agreement represents a wise and efficient 

use of our assets, helps to protect the jobs of 358,000 UPS employees in the U.S., and if we didn’t pursue this agreement one of our 

competitors would have. 

Mr. Chairman, thank you for the opportunity to share UPS’s perspective on an agreement that helps to strengthen a U.S. company 

that provides career opportunities to hundreds of thousands of people. 

I hope the facts I have outlined today address the questions and 

concerns of the Committee. I stand ready to answer any further 

questions that you and the Committee may have. 

Thank you. 

Mr. OBERSTAR. Thank you very much, Mr. Wallace. 

Mr. Hete. 

Mr. HETE. Chairman Oberstar and Members of the Committee, 

I am privileged to serve as the CEO of ABX Air and President and 

CEO of Air Transport Services Group, the parent company of ABX 

Air. Thank you for the opportunity to tell you about our work to 

help DHL compete more effectively in the U.S. market. 

Senior management of DHL and its parent company, Deutsche 

Post World Net, have asserted their only economically viable alternatives in the United States are an alliance with UPS or a complete withdrawal from the U.S. market. 

Like many in our industry, we believe that there are other alternatives. These other alternatives will ensure competition in the express delivery market and preserve American jobs. 

My remarks focus on the events during the past year that demonstrate how ABX Air has been very eager to help DHL overcome 

its structural inefficiencies and reduce its losses in the United 

States and, second, that ABX Air can provide DHL better value 

than UPS. If this is of interest to the Committee, I would be happy 

to expand on my remarks afterwards. 

We knew that DHL had not been meeting its business objectives 

in the United States for some time, but ABX Air leadership became 

40 

especially concerned about DHL’s situation over a year ago. Seeing 

their losses in the U.S., a softening economy and rising fuel prices, 

it was clear to us that DHL had to change and quickly. 

Because DHL is our largest customer providing 92 percent of our 

business and because we are their largest vendor, we brought our 

concerns to their attention and offered our help. 

In August, 2007, we had our first discussions with senior DHL 

Express management. We asked how ABX Air could help DHL cut 

costs in their U.S. network. In our discussions with senior DHL 

leaders, we offered to change every element of our agreements if 

we could help DHL stem its losses. 

DHL leaders offered us no information on what changes we 

might make to help them save money. 

By November of 2007, we had conducted several conversations 

with senior DHL leaders about our concerns, each time offering to 

help DHL lower its domestic costs, asking for specific ways we 

could help and asking about their plans for the future. 

Each time, DHL leaders thanked us for our willingness to help 

and told us they were still studying the situation. 

Though DHL has never shared its internal concerns or plans 

with us, when we saw their 2007 losses in the U.S., we knew something had to change. We built our own plan to dramatically cut 

DHL’s domestic costs. 

Airborne Express had run a business similar to DHL’s domestic 

one for over 23 years and, with the exception of the impact of September 11th, 2001, Airborne Express had never sustained an annual loss. 

We felt we understood something of DHL’s issues. On March 

31st, well in advance of the May 28th announcement, I traveled to 

Bonn, Germany, and presented a proposal to John Mullen, DHL 

Express’ global CEO. 

Our proposal provided DHL’s network with over 250 million in 

annual savings based on the DHL domestic network then in place. 

Given how DHL has reduced its domestic network since then, we 

believe our plan would save DHL even more money now. 

After DHL’s May 28th announcement regarding cuts from its domestic network, ABX Air went back again to DHL with a revised 

proposal. That proposal was very close in cost to what DHL intended to spend with UPS but provided DHL and its customers 

considerably higher value. 

DHL reported that it will pay UPS over a billion dollars a year 

to handle its freight. Our plan came in less than $100 million 

above that but provided DHL the flexibility of maintaining its own 

sort and airline capacity in the U.S. 

Since we made that proposal, Deutsche Post World Net has declined to meet with us. 

The deal we have presented to DHL is so close in cost to what 

we understand DHL and UPS are discussing, so superior in value 

and so far less damaging to Ohio, that it invites discussion. We respectfully request that you strongly encourage DHL to negotiate 

with ABX Air to determine whether we can offer a solution. We 

urge you to do this before DHL and UPS take steps that will have 

an irrevocable effect on competition in the United States express 

delivery market as well as an unprecedented job loss impact. 

41 

With more information about DHL’s needs and cooperation from 

our organized employees, ABX Air can provide an alternative to the 

DHL/UPS agreement that sustains DHL as a true competitor with 

a proprietary network. 

As business people, we prefer solutions achieved through direct 

discussions with our customers. In the absence of that, we understand that government intervention may be required to produce an 

outcome that supports the viability of a principal air carrier in the 

express delivery market and provides long-term stability to southwest Ohio, the State and the Nation. 

Finally, Mr. Chairman, I want to acknowledge the contributions 

of more than 10,000 ABX Air employees, the majority of whom directly serve DHL in the U.S. Their professionalism and strong 

work ethic has sustained DHL’s reputation for high quality service 

over the years. 

In spite of the layoffs we are now making across our DHL system, our people have delivered 99 percent plus on-time reliability 

since DHL’s restructuring announcement in May. 

As John Mullen himself acknowledged in his Judiciary Committee testimony last week, the cooperation DHL has received has 

been, to echo his words, simply outstanding. We appreciate that he 

shares our view, that the issues we are discussing here today are 

in no way a reflection on the commitment and dedication of the 

fine people who support DHL every day. 

On behalf of the employees and shareholders of ABX Air, please 

accept our sincere appreciation for the opportunity to testify before 

the Committee. 

We recognize that your responsibility in part is to monitor and 

promote a healthy U.S. airline industry and review the potential 

impacts of any consolidations on consumer choice and American 

jobs. ABX Air urges you to exercise your oversight role in seeking 

to promote strong, viable carriers as well as the American jobs that 

they represent in the express delivery market. 

Thank you, Mr. Chairman, and I stand ready to answer any 

questions of the Committee. 

Mr. OBERSTAR. Thank you very much for your testimony. We 

greatly appreciate it. 

Mr. Hammes. 

Mr. HAMMES. Thank you, Mr. Chairman and Members of the 

Committee. 

My name is Gary Hammes, and I am the Chief Operating Officer 

of ASTAR Air Cargo. 

Thank you for inviting ASTAR to this hearing today and giving 

us the opportunity to explain why the DHL/UPS joint venture is 

not in the best interest of competition, customer service or employment. I would also like to explain that we believe there are alternatives to the UPS deal that could meet DHL’s legitimate business 

needs to reduce its costs without producing the adverse effects I 

have identified in my prepared remarks. 

Although our primary focus is the welfare of ASTAR’s 1,000 employees, including over 300 military veterans, the ramifications of 

the DHL/UPS deal go far beyond our company to include the entire 

industry and its many millions of parcel customers. 

42 

If DHL is permitted to outsource its primary and most important 

business and operational functions to UPS, it will compromise 

DHL’s ability to remain an independent competitor, creating a 

UPS/FedEx, two-company marketplace. With only FedEx and UPS 

providing overnight package express services, those companies will 

be able to control pricing. 

One thousand good jobs at ASTAR Air Cargo will have been lost. 

Many thousands of jobs at ABX Air will have also been lost. Almost 

10,000 of these jobs will be located in the Wilmington, Ohio area. 

That community will be devastated. 

DHL’s overnight package delivery business, from pickup to delivery, is a tightly integrated system that relies on proprietary systems that are unique to DHL. The real-time tracking of packages 

and providing the tracking data to customers is a critical business 

function and a point of differentiation between corporations. 

DHL cannot hire UPS to transport its air transport and hub sorting without inserting a major competitor into the middle of its 

tracking system. By turning over this key differentiating activity to 

a competitor, DHL will have compromised its ability to continue to 

aggressively compete as an independent corporation. 

If linked to UPS, DHL’s ability to continue to compete will diminish. DHL will find it more difficult to offer later pickups or earlier 

deliveries than UPS unless it can convince UPS to adjust its flight 

schedules to accommodate DHL’s business requirements. 

UPS may well be reluctant to add capacity or tailor schedules to 

accommodate the unique needs of DHL customers particularly if 

DHL is seeking to take the business away from UPS. Indeed, just 

the act of conducting advance schedule discussions with UPS will 

tip off UPS to DHL’s business strategies. 

UPS’s first and controlling responsibility is to get its own packages to their destinations on time and to outperform its rivals, one 

of whom is DHL. Thus, if DHL contracts with UPS to transport its 

packages, UPS will have an inherent conflict of interest between 

meeting DHL’s legitimate business requirements and meeting its 

own business requirements which include outperforming DHL. 

There is concrete evidence that UPS has embarked on an aggressive campaign to steal DHL customers based on the announced 

DHL/UPS joint venture. A UPS salesperson recently made a sales 

call on ASTAR, trying to convince ASTAR to switch its business 

from DHL to UPS. 

[Laughter.] 

Mr. HAMMES. In this call, the UPS salesperson argued that once 

integrated into UPS’s operation, DHL’s service would be substandard. 

We have seen other evidence that UPS is aggressively making 

such calls on other DHL customers. 

DHL claims it needs the UPS deal to lower its costs. We agree 

fully that DHL should explore every opportunity to reduce its costs, 

but we also believe there are alternatives that DHL could pursue 

without compromising its competitiveness. 

When DHL purchased 49 percent of ASTAR last year, ASTAR 

committed to DHL that it would aggressively pursue every opportunity to control its own costs and pursue other strategies to help 

43 

DHL control its overall air transportation costs. We have already 

made significant strides in this regard. 

For example, the new four-year collective bargaining agreement 

with ASTAR and ALPA signed last February specifically was structured to ensure that ASTAR crew costs would remain lower than 

that of UPS, and they are. 

In addition, last year, ASTAR approached ABX Air with an expression of interest to purchase that company with the intent of 

consolidating all of DHL’s North American air transport functions 

into one company, thereby achieving significant efficiencies and 

cost savings to DHL. ABX Air rejected ASTAR’s expression of interest, but DHL recognized then and I believe continues to recognize 

that this transaction would have made significant inroads in addressing DHL’s efforts to contain and reduce its costs. 

ASTAR would be interested in renewing an effort to acquire the 

DHL-related portions of ABX Air if DHL were to advise that it 

would join ASTAR and ABX Air in such an effort. 

Thank you, Mr. Chairman. I would be happy to answer any questions you or other Members of the Committee may have. 

Mr. OBERSTAR. Very interesting testimony. I wonder how that 

transaction turned out or proposal turned out. We will find out. 

[Remarks off microphone.] 

Mr. OBERSTAR. I think you are right. 

Captain Ross. 

Captain ROSS. Mr. Chairman, Mr. LaTourette, Members of the 

Committee, thank you for holding this hearing. You are performing 

a truly important service for thousands of workers and small businesses in America and for America’s vital transportation industry. 

The proposed anticompetitive transaction between DHL and UPS 

rocketed to the top of the 2008 Presidential Campaign. I have had 

the privilege of personally briefing both Senator Obama and Senator McCain. I have heard them express their concerns about job 

losses and reduction in services to the customers and harmful impacts this de facto merger will have on our Nation’s transportation 

sector. 

Mr. Chairman, I respectfully request that this Committee: 

One, oppose this proposed deal as destructive to U.S. aviation 

policy to promote competition; 

Two, request that the Justice Department immediately initiate 

an antitrust investigation; 

Three, request that the parties refrain from implementing the 

proposed alliance until the Justice Department concludes its investigation; and, 

Four, oppose any attempt to grant DHL a waiver of the citizenship laws that keep this Nation safe. 

I represent almost 700 pilots who fly for ABX Air, but I am also 

here to support more than 10,000 hardworking Americans who, 

like our pilots, will lose their jobs, lose their health insurance and 

their ability to support their families if this transaction is not 

stopped. 

Despite assertions by DHL and UPS to the contrary, the proposed deal will effectively reduce competition in the air express 

market from three to two. DHL, the firm with the smallest market 

44 

share and the greatest incentive to compete on service and price, 

will be neutered as a legitimate competitor. 

Why? First, if this transaction is consummated, DHL will be 

forced to rely on its supposed competitor for its most crucial operations: air transport, package sorting and tracking. 

Second, a key element of the express delivery business is package 

tracking. It is the backbone of the service process. By combining efforts in this process, whether they admit it or not, DHL will be 

transferring highly sensitive proprietary commercial information 

about its customers and about its markets to UPS. 

Having watched express packages go through the sort for 16 

years and being in constant contact with the people doing the sorting, I can tell you there is no way UPS can transport, sort and 

track DHL packages without material and proprietary commercial 

information being transmitted by DHL to UPS. 

It makes no sense to rely on a major competitor for key elements 

of your service, especially in a highly consolidated marketplace. Indeed, there is every incentive for DHL’s proprietary information to 

be disseminated through the sales and corporate organization of 

UPS to the competitive detriment of DHL. 

Perhaps DHL will insist that UPS construct a Chinese wall, 

maybe in the form of confidentiality agreements, to limit that dissemination. Unfortunately, Chinese walls leak and confidentiality 

agreements are breached. 

DHL CEO John Mullen testified last week before the House Judiciary Committee that it was UPS that approached DHL about 

merging their services. 

While I understand DHL’s financial predicament and am actively 

trying to help them resolve it, I do not understand UPS’s incentive. 

Why would UPS help the competitor in the only market in the 

world where that competitor is not number one? 

Mr. Wallace, why don’t you waive the confidentiality agreements 

you have with DHL, so I can talk to them about saving jobs in 

Ohio? 

Our national transportation policy calls for placing maximum reliance on competitive market forces and on actual and potential 

competition to prevent unfair, deceptive, predatory or anticompetitive practices in air transportation. Regardless of how they label 

their deal, this transaction between DHL and UPS would clearly 

violate the letter and the spirit of that well-conceived national 

transportation policy. 

Through mismanagement of its North American operation, DHL 

is losing money. Rather than fix the underlying problem of poor 

management, DHL somehow would rather further undermine its 

position in the American market by essentially turning over its 

book of business to one of its competitors. 

Just last week, the Financial Times reported that DHL plans to 

further erode their business prospects in the American market by 

further reducing service. It was reported, DHL now plans to reduce 

their delivery capacity by half and also have UPS cover part of 

their ground deliveries as well. 

Mr. Chairman, we need your help to save them from themselves. 

DHL’s proposed solution is a recipe for even greater failure. It is 

a potential death spiral. 

45 

We, the employees of ABX, stand ready to help DHL fix their 

revenue and cost problems by working with them to increase efficiencies, improve service and move toward profitability. We stand 

ready to help them reverse their dim prospects instead of going forward with a self-destructive strategy that would improve the business prospects of their major competitor, UPS. 

Mr. Chairman, according to DHL’s own web site, if you were to 

send an overnight package to each of your district offices today, the 

package to your district office in Duluth wouldn’t get there until 

5:00 p.m. tomorrow. For Chisholm, it wouldn’t get there until 5:00 

p.m. on Thursday. And for your Brainerd district office, I am sorry 

to say, sir, it won’t get there until next Tuesday by 5:00 p.m. All 

of these arrival times are listed under DHL’s next day 12:00 p.m. 

services. 

There are other Members of this Committee who have the same 

loss of service. 

On behalf of the tens of thousands of workers in Ohio and 

around America who will be dramatically harmed by this transaction and on behalf of all American small businesses and consumers, I urge this Committee to stop this potential violation of 

our vital national air transportation policy. 

Thank you very much for this opportunity, sir, and I am pleased 

to answer any questions you may have. 

Mr. OBERSTAR. Thank you very much, Captain Ross. 

I am rather surprised and impressed that you got these figured 

out, the shipping times to my various district offices. You probably 

can do the same for the rest of the Members of the Committee. It 

is very intriguing. 

Captain Prater. 

Captain PRATER. Good afternoon, Chairman Oberstar. Thank you 

for allowing us to testify on behalf of our 53,000 airline pilots and 

especially the 500 pilots who fly for ASTAR Air Cargo, many of 

which have shared the afternoon with the Committee. 

For more than 30 years, these men and women have worked to 

make their company one of the most reliable cargo airlines in the 

world. Sadly, it appears that a corporate decision made in an office 

building in Germany could shut down ASTAR forever. 

What Deutsche Post, the owner of DHL, is saying is that your 

job does not depend upon your performance. It depends on the 

whims of a corporate bean counter who treats workers as just another expense to be cut in the name of restructuring. 

In fact, we heard from DHL that they don’t even know what to 

call this. They sure have said what it is not to be called. 

What it will be: It will lead to more industry concentration, higher costs for consumers and more good jobs lost. 

I would like to take just a moment to thank the delegation from 

Ohio which has given so much effort to investigating this issue, 

and certainly this Committee as well as the Judiciary Committee, 

but the truly bipartisan effort from the Ohio delegation and the 

Governor’s office as certainly been noted by our union. 

This proposal, there seems to be an assumption here that DHL 

is somehow addressing its problems through this arrangement with 

UPS. But where is the proof? 

46 

What we are seeing out on the line is that DHL is actually already losing more business because of the uncertainty of what type 

of business they are going to run here in the United States. 

Second, there seems to be misunderstanding. While people throw 

out big numbers like a billion dollars a year—and I could certainly 

say if I was losing a billion dollars a year, that would be significant—is this arrangement going to cut all that billion dollars a 

year? 

Of course not. In fact, by what little public information is out there, we may be talking about a difference of $200 million a year 

of savings. 

Certainly, we have committed to DHL to looking at any which 

way we can, along with our friends and brothers at ABX, to find 

the solutions to keep the business as is. 

What we are seeing is an awful lot of secret and double backstabbing dealing. While we are in negotiations with ASTAR, which 

is of course owned 49 percent by DHL, we are negotiating to protect our jobs. That happens to be the function of the union. At the 

same time that we are signing agreements with the company to 

protect our members’ jobs, they are dealing with UPS to actually 

kill our jobs. 

In fact, what DHL is proposing me reminds me an awful lot like 

the defendant who shoots both of his parents and then cries for lenience for being an orphan. 

Well, in this case, we have a German company that buys two 

U.S. companies, wants to put a bullet in their head and then go 

on about their business. That just shouldn’t be. We have men and 

women, communities that are deeply affected by these decisions 

that are being made. 

We have heard certainly from Congressman Westmoreland that 

he was proud of the corporate citizen of UPS. I guess maybe it is 

because I am married to somebody from Missouri, but I say: Prove 

it. Show me. Where are the jobs that come along with this? 

We are not seeing or hearing from UPS about any jobs for the 

displaced thousands of workers if this deal goes through. 

We have asked this Committee and the Justice Department to 

insist on reviewing these supposed firewalls that they are talking 

so much about. 

Last week, the Financial Times over in Germany made it clear 

that the deterioration in DHL’s situation has actually accelerated 

since May. 

As to the failure for DHL to think and constructively deal above 

board, the facts are clear. We have made our effort and our commitment to finding a solution to their problems well known, but 

again they don’t want to deal with us. They prefer to deal in secret 

with UPS. 

DHL’s solution will ensure that the two companies, both of which 

were viable competitors when purchased by DHL, are put out of 

business. 

Mr. Chairman, there has to be more to this than meets the eye. 

After all, both ASTAR and ABX have met all performance targets 

set by DHL and provide 99 percent on-time performance. 

The pilots at both carriers, while reasonably compensated—and 

you won’t hear a union leader say this very often—make less than 

47 

the pilots at UPS or FedEx. We are efficient, and we are safe, and 

we have been reliable, and that should go into the thinking here. 

The bottom line is that DHL’s problem in North America is not 

the cost or the effectiveness of its air operations. Its problem is that 

it cannot compete with UPS and FedEx on the ground. They can’t 

restructure their way out or call it something else other than that. 

What they need to do is work with their current suppliers and 

their employees to prevent customer flights away from their business. 

For all these reasons—I will summarize, Mr. Chairman—the 

transfer of DHL’s lift to UPS requires, at the very least, careful 

scrutiny by this Committee, the Judiciary Committee and the Department of Justice. Further, as suggested by Chairman Conyers 

last week, this deal should be delayed, pending such scrutiny. 

And, given the stakes for workers and competition, any confidentiality restrictions entered into by the parties should be voided. 

Let’s put it on the table. If DHL and UPS won’t operate in the 

open, we ask you to step in and restructure their thinking. 

Thank you for your interest in this important matter, and we 

would be glad to answer any questions. 

Mr. OBERSTAR. Thank you, Captain Prater. 

As we began to put this hearing together and listen to the concerns expressed by the Members of the Ohio delegation and others 

affected by the transaction, I wasn’t convinced there was a very 

solid case. But as the testimony has been submitted and as the testimony has unfolded, it appears to me there are some very serious 

antitrust implications. That is why we invited Mr. Simon, our next 

witness, to address these issues. 

Mr. SIMON. Good afternoon, Mr. Chairman and Members of the 

Subcommittee. 

My name is Samuel Simon, and I am a private attorney in Philadelphia at the National Securities and Antitrust Bar. These are 

courses that I also teach at Rutgers Law School as an adjunct professor. 

I am here today speaking for the American Antitrust Institute 

which, as many of you know, is an independent research, education 

and advocacy organization founded in 1998 that frequently comments on developments relating to antitrust laws and to competition policy in general. 

Our analysis and concerns relating to the proposed strategic alliance between DHL and UPS are set forth in detail in our written 

comments. 

In connection with my appearance before you today, I would like 

to stress the following crucial points: 

Let me take one second and talk about what antitrust law is. 

Antitrust law can be summarized very simply as dealing with the 

power of market participants to distort the competitive process. 

The Supreme Court has often described the antitrust laws as the 

Magna Carta of the free enterprise system. 

Now the single most important component of the antitrust laws 

is that competitors must compete. 

The converse of that is equally applicable and equally opposite. 

Competitors must not agree not to compete. The less competition 

in the market, the less price and service quality customers receive. 

48 

Now the air express package delivery market, in effect, has only 

three competitors: DHL, UPS and FedEx. Because of this lack of 

significant competition, this tight little grouping can easily lead to 

cartel behavior in the best of times. By cartel, I mean simply a 

small group of competitors acting as a single unified entity. 

The strategic alliance that has been talked about this afternoon 

would mean that DHL uses UPS’s air transport. This means that 

DHL would have a large part of its costs somewhere perhaps 

around 60 percent, controlled by its direct competitor, UPS. 

Now we can postulate two scenarios: 

Number one, DHL ultimately intends to exit the market. Under 

this case, the strategic alliance reduces DHL’s ability to set its own 

competitive retail price because DHL would have no ability, none, 

to reduce pricing on its air linkage component, again about 60 percent of its total costs. 

The strategic alliance simultaneously increases—increases— 

UPS’s ability to charge itself increasingly lower internal prices for 

its own air transport costs. This, by definition, would permit UPS 

to undercut DHL in its retail pricing until DHL has to exit the 

marketplace. Once that happens, you have an effective duopoly. 

Under either version, reduction or increase or some synergistic 

combination of both, two of three competitors would have essentially agreed to cease competing against each other. And, as Mr. 

Hammes discussed a few minutes ago, there is always the possibility of a service squeeze, not just a price squeeze. 

Now let’s take the other scenario, DHL intends to remain in the 

market. Under these circumstances, DHL will benefit from the 

higher prices in the market because it is far easier for two rivals 

to tacitly collude on prices than three rivals. 

Mr. Mullen, a few moments ago, said, well, this only substitutes 

one vendor for another. 

Respectfully, I suggest to you, Mr. Chairman and the Committee 

Members, that this is categorically contrary to the United States 

antitrust laws. It is the exact opposite to what the antitrust laws 

say. You cannot substitute one competitor for another. 

Now what are legal remedies? 

DHL, if it is dissatisfied with what is going on, can bring a 

breach of contract suit against UPS. But you know they build court 

houses, and in the courts of law there is often great difficulty in 

showing an actual contractual breach, and the harm that DHL is 

talking about may be impossible to measure or to quantify. 

The other possibility we see is that DHL brings an antitrust suit 

against UPS. This is even more cumbersome and more enervating. 

Moreover, UPS is not a monopoly in the fact it doesn’t even have 

50 percent of the market share. So a Federal judge is likely to toss 

any such suit right from the beginning, saying there is no monopolization and there is no attempt to monopolize. 

So, in our opinion, the best approach would be for the Federal 

Trade Commission, for the Federal Trade Commission to seek an 

injunction against this deal going forward under Section 5 of the 

Federal Trade Commission Act, charging unfair methods of competition. 

And, let me quite clear. The unfair method of competition would 

be an allegation that the strategic alliance constitutes what is 

49 

called a facilitating practice, making it easier, making it simpler 

for firms in an oligopoly to coordinate their prices. 

Now, if the Federal Trade Commission won’t do it, perhaps the 

Ohio State Attorney General’s Office can do it, but that would be 

our thought as to where this matter should be proceeding. 

This concludes the oral portion of our testimony, and I respectfully refer you to our written submission for a detailed discussion 

and an explanation of matters from our perspective. 

Thank you, Mr. Chairman, for permitting me to testify on behalf 

of the American Antitrust Institute and for your time and attention 

this afternoon. 

Mr. OBERSTAR. Thank you very much. 

Your entire testimony and the testimony of all the witnesses will 

appear in full in the record. 

We have had several statements about the effect of this transaction to be to reduce competition. 

Let me ask you, Mr. Simon, supposing DHL waited to the point 

of bankruptcy. No longer could they continue their operation. The 

next step is bankruptcy, and they seek the protection of bankruptcy 

court, and then they disappear from the marketplace, say, Chapter 

7, liquidation bankruptcy. 

Would that have changed the market effective of the situation? 

Mr. SIMON. It would certainly change the litigation posture. If 

you are talking, sir, Section 7 and not Section 11, the reorganization, once a company files for bankruptcy, Section 362(A), the 

Bankruptcy Act, prohibits it from being sued or from suing. So the 

judicial approach would no longer be applicable. 

Mr. OBERSTAR. But would it change the market structure? 

That is their business then could be picked up by anybody else. 

It would leave then only two major competitors in the market 

place. 

Mr. SIMON. That is right. It would become an effective duopoly. 

There is a number of witnesses who said, Mr. Chairman, there 

are pretty high entry barriers here. The average Joe Schmoe simply can’t go in and start this business because you have an enormous amount of work to do on the land linkage side and the air 

linkage side, enormous sunk costs and a great deal of effort. 

So you would have an effective duopoly if they went bankrupt, 

did not reorganize and eventually disappeared. 

Mr. OBERSTAR. Since this is not a classic case of acquisition or 

merger but a contractual relationship, to rise to the level of antitrust concern, does the air transportation portion of the delivery 

have to rise to a level or percent of the cost of package delivery to 

quality as violation of antitrust? 

Mr. SIMON. Well, I would answer that your question really, sir, 

has two parts. 

There is no acquisition of assets. So the standard classic tool for 

stopping this sort of things in their incipiency, Section 7 of the 

Clayton Act, simply does not apply. 

The other part of your question, I would say that there is no 

threshold formulation because injunctions are often designed to 

stop impending antitrust conduct from occurring shortly before the 

time that they are going to incur. 

50 

If I own a house and somebody is going to run a bulldozer 

through it wrongly, I can get a court injunction stopping them from 

doing so before the bulldozer rips out my house. 

So I would suggest to you that my personal opinion, personally, 

you don’t need any particular threshold of dollars or percentage in 

order to seek an injunction from the appropriate governmental 

agency, which I would suggest to you is much more likely to be the 

Federal Trade Commission which more and more has shown itself 

independent from, as someone said earlier today, a somnolent Department of Justice. 

Mr. OBERSTAR. Yes, that was my comment. I think we can apply 

the same term to the Federal Trade Commission. 

[Laughter.] 

Mr. OBERSTAR. Mr. Mullen, earlier, the Lieutenant Governor of 

Ohio said, we were never given the opportunity to offer good faith 

alternatives. 

What alternatives could the State offer that would dissuade DHL 

from this transaction or make it attractive for DHL to remain independent and without a contractual arrangement with UPS? 

Mr. MULLEN. Mr. Chairman, we would have liked nothing more 

than to find a solution that kept the status quo of Wilmington and 

the people affected by these changes. We spoke to numerous parties. 

I, personally, spent a lot of time in the U.S. and elsewhere, 

speaking to as many parties as I could to try to find a solution to 

our situation. I have spoken to competitors. I have spoken to private equity players. I have spoken to third parties. 

Now, several people are saying, well, we would have liked the 

time to discuss and we can find alternatives, et cetera. 

With the greatest of respect, we had discussions with those people at the time. We had discussions with the two major airline subcontractors at the time, and we were not able to reach any agreement. 

We facilitated an offer from ASTAR for ABX and $7.75 a share. 

I point out I think the share price today is 95 cents or something. 

We were prepared to back that, to allow the two airlines to come 

together to make, as others have said, substantial savings. 

But that was rejected at the time for reasons you will obviously 

have to ask them. It was rejected, and they weren’t even willing 

to discuss. 

So we then moved on, and we have found another solution that 

is a very solid solution to the problem that we have. 

Now, obviously, I can understand people’s angst and disappointment about it. But to come back now and say, if only we had time 

or if only we had allowed to have this discussion or that discussion, 

we did speak to every party that we could see could offer any sort 

of solution. 

Now, in fairness to the Lieutenant Governor, we did not go to the 

government of Ohio because we simply felt that it was unrealistic 

to expect that taxpayers’ money would be used to subsidize private 

company losses of this magnitude. 

If our problem had been $20 million or $50 million, I am sure 

that we might have been able to find something. But a $1.3 billion 

problem every year, year in, year out, we felt was beyond a credible 

51 

expectation that taxpayers’ money would be used for that. So we 

did not, in all fairness, discuss with them, but we did discuss at 

length with all the other parties. 

Mr. OBERSTAR. Thank you very much, Mr. Mullen. 

I now yield to the distinguished gentleman from Ohio, our very 

keen legal analyst on this Committee. 

Mr. LATOURETTE. Well, I don’t know about that, but thank you, 

Mr. Chairman. 

For the members of the panel, I chatted with the Chairman that 

because there are seven of you I don’t want anybody to be neglected. He has indicated that if time permits, we may come 

around again. So, if I don’t get to you now, it is not because I don’t 

like you. I will get back to you. 

I want to begin, Mr. Hete, with you on Mr. Mullen’s last point. 

A couple of people, and I know the Lieutenant Governor said it. 

Maybe somebody else talked about this attempt by ASTAR to make 

an offer to purchase ABX. Mr. Mullen just said $7.75 a share. First 

of all, is that accurate? 

Did ASTAR offer to buy ABX at $7.75 a share? 

Mr. HETE. It was not an offer. It was an indication of interest 

at $7.75. 

Mr. LATOURETTE. Okay. ABX is a publicly traded company, is it 

not? 

Mr. HETE. That is correct. 

Mr. LATOURETTE. And you trade on NASDAQ? 

Mr. HETE. Yes. 

Mr. LATOURETTE. Did you know when that interest was made, 

when they made that intention? 

Mr. HETE. Yes. It actually occurred June 19th of 2007. I received 

a call from John Dasburg, the CEO of ASTAR, and this was basically a week after DHL had made their investment in ASTAR, acquiring 49 percent of the ownership and 24.9 percent of the voting 

shares of ASTAR. 

I received a call from John Dasburg that said he wanted to start 

a discussion in regards to the potential acquisition of ABX. 

I have to digress a little bit because the initial attempt to put 

the two air carriers together was initiated by ABX back in the 

fourth quarter of 2006. We had approached John Dasburg and 

asked if he would be interested in having ABX acquire ASTAR to 

consolidate the two airlines under ABX. 

We spent probably four or five months working on that deal, and 

the offer that we put on the table was rejected by ASTAR. 

So about three months went by when ASTAR turned the tables 

and said, we would like to acquire ABX. The actual indication of 

interest occurred on June 26th when John Dasburg went public 

with that indication of interest which was a little bit surprising because he and I had set a private meeting for a couple of days after 

that, June 28th, to have a discussion about the viability of that potential acquisition. 

So, you see, we viewed it as a potential hostile takeover. We employed the services of Goldman Sachs to assist us in the analysis 

of the ASTAR indication. 

As a result of the analysis looking at the potential synergies that 

would be gained by DHL who, as Mr. Mullen already testified, they 

52 

would be funding that acquisition. Based on the synergies that 

would be gained by DHL, we did not feel and advised ASTAR 

Cargo that the offer or the indication of $7.75 did not represent 

adequate value for our shareholders. 

The following day, ASTAR said, well, they will pursue other alternatives then, and that was the end of any discussions. 

Mr. LATOURETTE. Do you know on that date in June what ABX 

stock was trading at? 

Mr. HETE. At the time they made the indication of interest at 

$7.75, the $7.75 was about a 15 percent premium to the average 

price for ABX in the previous 30 days and it was about a 6 percent 

premium over what the price was on the date that ASTAR had 

made the announcement that DHL had made the investment in 

them. So it wasn’t much of a premium compared to what the market price was prior to that indication. 

Mr. LATOURETTE. But since that time, the fortunes at least of the 

stock price have declined. The last date that I have is May the 

12th, 2008, and I have ABX stock trading at $2.44. 

Mr. HETE. No. Today, it is actually less than a dollar. It is 90- 

some cents. 

Mr. LATOURETTE. Mr. Mullen, to you just a question on behalf 

of the folks in Wilmington. You all own the Wilmington Air Park, 

and regardless of what happens here it is my understanding that 

that ownership presents an obstacle to the efforts by the community to move ahead with redevelopment proposals if this is the ultimate decision. 

The question is can you offer us some insight relative from your 

perspective as to your plans to relinquish the facility as part of a 

settlement with Wilmington and Clinton County? 

Mr. MULLEN. Yes. We have continually maintained from the outset that as and when this transaction is concluded, we would very 

willingly sit down with the community, with the State and discuss 

the future of the Air Park, including the possible donation of the 

Air Park to the community.AFTER 6:00 PM 

Mr. LATOURETTE. Okay. To you, Mr. Mullen and to you, Mr. Wallace, well, this one is just to you, Mr. Mullen. 

I have been trying to think of the movie—and sadly the only 

movie that comes to my mind is Tommy Boy and I know that is 

not it—where they invite the big guys to town and they have the 

big party and the brass bands playing and everything else. 

The Mayor here, you know was in Leipzig, he claims. 

First of all, I would ask you if his testimony was not accurate, 

that there were meetings in February and April. Then he is over 

in Leipzig to see the grand opening of this new thing, and then on 

May the 28th you sort of said: Oh, we are restructuring. Although 

we didn’t know it at the time, it is where we are today 

Can you just from a company’s perspective, just like when I was 

talking to Mr. Hete about not taking 7.75, what happened? 

How did you go from welcoming the Mayor to Leipzig to I can’t 

think of the word that I can use on the record but sort of not being 

so welcoming? 

[Laughter.] 

Mr. LATOURETTE. What happened? 

53 

Mr. MULLEN. Well, firstly, I would like to say that everybody involved, from employees to the pilots to the Mayor to the State, I 

mean we have had wonderful support throughout. There are no 

criticisms of any form from us. This is purely economics, I am 

afraid. 

But in that particular instances, there were several references to 

meetings I think in Ohio where people made various statements 

about our ongoing future, et cetera. At that time, those individuals 

did not know of the decisions being discussed at a board level about 

the future of our U.S. business. So they acted in good faith. 

Mr. LATOURETTE. Well, let me just be clear, and I will let you 

finish the answer because that is an answer. 

So you don’t dispute that the Mayor and our Governor were on 

the telephone with people at your company who said: Don’t worry 

about it. We are in for the long haul. We are staying there. We 

have great employment. 

The problem, as I understood your answer, is that the people 

who were having those conversations didn’t know that other things 

were going on within the company. They weren’t in a position to 

know. 

Mr. MULLEN. Obviously, a decision like this is an extremely sensitive decision for all the people involved. We are a publicly quoted 

company, a stock market quoted company. So, obviously, the sensitivity is huge. 

We kept a fairly tight circle of those people involved. So I am not 

sure of every single conversation or who said what to whom, but 

certainly on the DHL side the people talking at that time were not 

aware. 

Mr. LATOURETTE. Okay. I thank you for that. 

Now to Mr. Mullen and Mr. Wallace. And, Mr. Wallace, let me 

just say that this is my 14th year in the Congress. I don’t know 

if UPS has a bigger defender when it came to postal reform, when 

it came to your dust-up with FedEx. I think you are a great company that has great employees, and you do a great job. 

But I have been handed a sheet, and I don’t know who. I think 

Mr. Hammes was talking about how somebody from UPS came in 

to pitch ASTAR on switching to UPS. 

I have been handed a little card that apparently I don’t know if 

it is handed out to your drivers or not. Are you familiar with this? 

Mr. WALLACE. I am not familiar with that. 

Mr. LATOURETTE. Okay. I would ask the staff to make a copy of 

it and provide it to you. I don’t want to sandbag you, Mr. Wallace. 

But I think it answers the professor’s concern. It doesn’t demonstrate to me that you are rolling over and not wanting to compete with DHL. It indicates something else. 

Let me ask, before I ask you about that, to this MOU, the memorandum of understanding. I think that in these cases and where I 

would take our Lieutenant Governor to task is I think it is 

boilerplate for a memorandum of understanding to say that you are 

not going to discuss what it is you are discussing as you try and 

finalize a deal. 

I also think it is boilerplate that you don’t talk to other people 

and competitors when you are in serious negotiations. I don’t think 

there is anything sinister about that. 

54 

But having said that, I think that the other witnesses have indicated to us that DHL’s answer now is, well, we can’t talk to you 

because of the MOU that we have with UPS. 

Maybe the professor can chime in on the antitrust or the Federal 

Trade Commission implications of this. 

I would tell you that what is the matter with DHL receiving 100 

different offers because at the end of the day if it is going to come 

down to? 

I would think the answer would be what Mr. Mullen is trying to 

say here today, and that is it is the only thing we could do, but 

I don’t know that you can say that unless you have listened to everybody. 

I have to tell you, I have been in this business 20 years. When 

I want to steer something to my friends, I invite 100 people. And 

guess what, my friend still wins, but I have listened to 100 different people. 

[Laughter.] 

Mr. LATOURETTE. The question I have is I think your company, 

which is a wonderful company, and I said in my opening statement 

that I know why you are doing this. You have excess capacity at 

Louisville. 

So sadly, Captains, for the people who are talking about job 

transfers, I don’t think there are going to be job transfers because 

you have excess capacity and this is a boon to your business. I get 

why you are doing it. 

But what is the danger when 10,000 or 12,000 people are losing 

their jobs in southwest Ohio? Let the Lieutenant Governor come in 

and pitch Mr. Mullen. Let whoever come in and pitch Mr. Mullen— 

say, here is the package and what do you think? 

Do you think we can get there, Mr. Wallace? 

Mr. WALLACE. Well, I can’t speak for DHL in that regard. 

First of all, thanks for the compliments regarding UPS. I thank 

you for that. 

Mr. LATOURETTE. Oh, you are a great company. 

Mr. WALLACE. I can’t speak for DHL. 

Our position on this proposed agreement is to pursue it vigorously, to get the agreement done as quickly as possible. We believe 

it is in the best interest of UPS. We believe it is in the best interest 

of competition and good for our people and good for our future. 

The provisions that we have with DHL in regards to the referenced exclusivity discussion that was made earlier, we believe 

these are typical commercial provisions, and it remains in our best 

interest at UPS to stay focused on completing the transaction and 

keeping those in place. 

We have invested resources as part of this negotiating process 

and time, and we believe it is in our best interest to continue to 

maintain that relationship. 

Mr. LATOURETTE. And I get it. That is why I called it boilerplate. 

I think your shareholders would probably shoot you if you didn’t 

have this in the agreement. 

I guess what I am asking is in light of this isn’t just a swap of 

something where nobody is affected. I mean you are going to turn 

a town, not you, but this deal will turn a town into a ghost town. 

55 

I just would ask for you to go back to the lawyers and see if you 

can permit in just that section, not to talk about the details of your 

deal, but just that section of the MOU that would let DHL receive 

Lee Fisher to come in and offer a million dollars or whatever he 

wants to do or this person comes in, that you consider that. 

I bet that your lawyers, if they hooked up with Professor Simon 

over here, might say, you know what, that puts you in a better posture when they come flying at you with antitrust and anticompetitive provisions. So I would ask you to consider that. 

Now do you have this little card that I was talking about? 

Mr. WALLACE. Yes. 

Mr. LATOURETTE. Okay. On the issue, I guess I just want to express disappointment because this clearly—well, first of all, have 

you ever seen it before? 

Mr. WALLACE. No. 

Mr. LATOURETTE. Okay. It has been represented to me that this 

is, and I don’t know if the guy that came to pay the call on ASTAR 

had this card, but it looks like it is titled Turning DHL Restructuring Into UPS Opportunity. 

It looks to me like it is a document that is given to UPS employees when they are calling on customers. To me, if this was just a 

deal to help DHL out, I mean I think that this card instructs people making customer calls to tell them to dump DHL because of potential rate fluctuations, pickup and delivery time issues, single 

carrier responsibilities and customer service. 

So I really think that that blows the professor’s argument that 

you are not still competing with DHL out of the water. But it looks 

to me like with one hand you are making a deal to do the air side 

of DHL’s business, and on the other side you are trying to kill 

them. 

Mr. WALLACE. Yes, I think that this is an example of likely some 

of our local people, who are always trying to compete and grow our 

business, doing that. This is not something that is sanctioned by 

us at the higher level. 

But I do think it is an example of the fact that we are competitors, and our people continue to attempt to gain business wherever 

they see the opportunity to do so. 

Mr. LATOURETTE. Fine. I think you are exactly right. I don’t 

think this is a competitive business thing. I think you want to club 

these guys like a baby seal and get them out of the business, which 

makes me wonder why they are giving you their air business, but 

I will leave that as it may. 

I yield back, and maybe we can come back again, and I thank 

you, Mr. Space. 

Mr. SPACE. [Presiding.] Thank you, Mr. LaTourette. 

Now I would like to follow that same line if I might. 

Mr. Mullen, in your testimony, one of the first things you emphasized was that this was not a merger. Rather, you indicated this 

was simply an act of replacing two separate independent contractors with one. 

Apart from the concerns that Professor Simon has registered regarding the very propriety of that conduct, I just beg to differ with 

you. I think this is something far greater than simply replacing two 

independent contractors with another independent contractor. 

56 

We are dealing with replacing two independent contractors, that 

are not competitors and with whom DHL has had a long and intimate and storied history, with a direct competitor who this documentation clearly reveals is involved in a very intense competitive 

race. That, to me, speaks loudly and causes me some concern over 

the fact that you have dismissed almost out of hand. 

The agreement that forms the basis of all of this, the transactional agreement, the thing that is not a merger, I am not quite 

sure what it is. My understanding is it is a 10-year contract with 

UPS under which your company will pay UPS about a billion dollars a year. Is that correct? 

I know it is a very general statement. Is that a correct assertion? 

Mr. MULLEN. That is correct in broad terms. 

I must stress, though, one of the great attractions of this solution. We would much rather be successful in the United States and 

not have to do a deal with anybody. That would be our first choice, 

of course. 

We compete vigorously in 220 countries in the globe, and we 

have a big problem in this Country. We need to find a solution, 

which is what has led to this. 

But one of the key aspects of this arrangement for us is that it 

is not just a price issue. There are two other major factors. 

One is that it takes a fixed cost that we have today of aviation 

and turns it into a variable one. 

One of the problems of this market has been declining now since 

1998. We look back at the volumes of Airborne before we acquired 

it. Their air volumes were declining before we even bought it, and 

the market has continued to decline since that time. We have less 

volumes today than we had in 2000 as an industry. 

Whatever structure wherein we place ourselves, even were to 

adopt one of these other solutions, we would still have a fixed cost. 

Mr. SPACE. I understand. 

Mr. MULLEN. If volume continues to fall, we can’t reduce the 

cost. In this proposal with UPS, we can. So that billion, if our volume drops, comes down. 

Mr. SPACE. Sure. The reasons as to why you have lost so much 

volume share in four or five years are matters that are probably 

outside the ambit of this hearing and aren’t directly related. 

But my question is this: You have entered into an agreement 

with a competitor to essentially provide a significant percentage of 

market share, and I am curious as to what consideration was flowing in the other direction. What did you get out of the deal? 

Mr. MULLEN. We are not giving up any market share. We are 

contracting one piece of our operation, the flying of airplanes, to 

another company. It has nothing to do with market share. 

Mr. SPACE. Right. Well, you are giving up the air cargo portion 

of your business to one of your most serious competitors or your 

biggest competitor. 

Mr. MULLEN. We are giving up air carriage between key cities, 

yes. 

Mr. SPACE. Right. For that, was there any consideration flowing 

in your direction apart from just getting this nightmare that is 

causing a loss of money at epic proportions off of your hands? 

57 

Mr. MULLEN. We get three things back in return: The first is we 

save a considerable amount of money. 

The second is we take a fixed cost and turn it into a variable. 

The third is we have some 100 plus aging aircraft in the United 

States, all of which will have to be replaced in due course with a 

huge capital expenditure requirement ahead of us in a business 

where we are already losing billions, that we are facing further investment to maintain those air fleets, further investment to maintain the hub, and we can replace that with an outsource contract 

to UPS where we do not have to meet any of that further capital 

expenditure. 

So there are three aspects: saves us money, turns a cost variable 

and eliminates a very significant billions of dollars of additional 

cap ex. 

Mr. SPACE. You heard the testimony of Professor Simon. Are you 

at all concerned about the implications of now essentially being at 

the mercy of a competitor who appears to be gaining in strength 

and has a stronger position on the market than you? 

Mr. MULLEN. Obviously, as I said, we would much rather not 

have had to make any arrangements with anybody. 

That said, we don’t feel that we are at the mercy of UPS. We 

spend a lot of time, what is still ongoing at the moment, in the negotiations to protect ourselves as fully as we possibly can from any 

such threat. 

Mr. SPACE. Now we have heard some testimony from some of the 

other gentlemen at the table that would seem to indicate that they 

have attempted to present concessions and a package that would 

have cost about $1.1 billion as opposed to $1 billion per year you 

are paying with UPS. Do you refute that? 

Mr. MULLEN. Yes. We have not seen this final proposal. 

What has happened is, yes, there has been a backwards and forwards between two subcontractors over which we do not have direct control. 

I take it on good faith from what Mr. Hete says that he maybe 

first approached ASTAR. Then ASTAR approached him. Then subsequently in March, we had another meeting where they proposed 

to take over ASTAR again or first eliminate ASTAR, the same deal 

back in reverse. 

But at the end of it all, our $5 million a day is still taking over, 

and they have not reached agreement between them, and we had 

to take other action. 

Mr. SPACE. The confidentiality agreement that has been discussed at length during this hearing today, is that something that 

you felt prohibited you from entering into discussions with ABX or 

ASTAR regarding these proposed concessions? 

Mr. MULLEN. We have had, let me repeat myself, extensive discussions with both ABX and ASTAR. We do not see any solution 

that solves our problem in the United States. 

Subsequent to that, we have now entered into a transaction that 

we believe will help, and that includes the normal exclusivity provisions that go with any contract like that once you get into the final 

stages of negotiation. So right now, yes, we are bound by that, but 

we have already in our view exhausted the discussions that we 

have had with the other two companies concerned. 

58 

Mr. SPACE. Where are you in terms of the agreement with UPS? 

What stage of negotiations are you in? 

Have you got a signed, sealed and delivered contract or are you 

continuing to negotiate? 

Mr. MULLEN. We are continuing to negotiate final terms and conditions of that contract. 

Mr. SPACE. Mr. Wallace, the question was raised earlier by one 

of the gentlemen concerning a lack of any testimony concerning the 

number of jobs that may be created as a part of all this transaction 

at UPS. Do you have any assessments that you can offer us with 

respect to that? 

Mr. WALLACE. We are still in negotiations. So it is very difficult 

to estimate the number of jobs that could be created or even the 

type of jobs that could be created at this point, although generally 

an increase in our volume in our system, in our network does give 

us the opportunity to create new jobs. Just at this point, I can’t 

give you an estimate on that number of jobs. 

Mr. SPACE. Okay. That is all the questions I have. 

At this point, I would recognize the gentlelady from Ohio, Jean 

Schmidt. 

Mrs. SCHMIDT. Thank you, Congressman Space. 

I have so many questions and so little time. I may put them in 

writing and ask the gentlemen at the table to answer them. 

But before I begin, one of the things that was stated by Mr. 

Mullen, he compared this to the U.S. Postal Service. That is an unfair comparison because the U.S. Postal Service is a government 

monopoly, and books on this sort of subject will say that you really 

can’t use the Postal Service when you are talking about a free market because it is not a free market for reasons I could go into for 

a long time. 

The second thing that I have a problem with your testimony is 

that you are pretty some subjective remarks into it when you say 

that you have looked at every option we think is available, but I 

am not sure that you have looked at every option that is available. 

The third is that you haven’t seen the final proposal from the 

players in Wilmington, but in actuality you are not willing to see 

their final proposal. 

So I have some problems with your testimony, and I have to be 

really honest with you with it. 

Mr. Wallace, I don’t blame you for going full force on this. I think 

this is a great deal for you, and I have seen that card. Before I 

even saw that card, I kind of figured that your sales force was 

going to be out there trying to undercut the competition. 

I did door to door sales a long, long time ago. I know what it is 

like. It is a cut-throat business, and I applaud your folks for doing 

that. 

But it concerns me about what is going to happen with DHL, and 

the thing that really concerns me is I really think we are creating 

a duopoly here. 

Beyond that, I do have some questions that I would like to ask 

you, Mr. Mullen. There are a lot of other assumptions that you 

have made in your testimony. One of those is that you are assuming that when you have this contract with at UPS, that at the time 

59 

it is concluded, that you are going to continue to be able to opt in 

or out at your will, I believe. 

I haven’t seen your contract. But if I were you, that is the kind 

of contract I would want, an opt in or opt out on your terms. 

But UPS is going to have to have that same agreement, that 

after 10 years there is going to be an opt in or an opt out with 

them because what if they can no longer carry and they can only 

carry their goods. 

So what is your fallback position if after 10 years UPS pulls the 

rug out from under you? 

Mr. MULLEN. Yes, you are absolutely right in presuming that is 

part of the negotiations at the moment. Both sides need a considerable amount of warning towards the end of that contract as to 

what the next step is. Is it renewed or do we go our separate ways 

again? 

We are building provisions of ample warning, two years or more 

out, to allow were we not to continue to ask to put alternative lift 

back in place. 

Mrs. SCHMIDT. A follow-up to that, we have heard a great deal 

of testimony from just virtually everybody on this panel and the 

folks before that the barriers that are in place right now, if you 

don’t get a fallback position, a guarantee for the next 100 years 

with UPS, if they shut the door on you, you are really going to be 

out of business because it is going to be very difficult for you to find 

another player in the market and especially in 10 years when we 

don’t even know where this market is going to be. 

Mr. MULLEN. We don’t think so, no. 

We believe that we can build in enough security that eight years 

or more down the track from today, were that to be the case for 

some reason we don’t renew. I guess we would hope that we would 

renew, but if we were not able to we are confident that we will be 

able to put alternative arrangements in place on time. 

Mrs. SCHMIDT. Another question for you, sir, I understand that 

DHL also owns 49 percent of Polar Air Cargo and has an agreement with Polar for air services in and out of the United States. 

Can we expect DHL to try to get out of that contract and switch 

volume to UPS as well? Is that part of your deal? 

Mr. MULLEN. No, that is not part of any deal with UPS. 

Mrs. SCHMIDT. A follow-up, are you going to continue working 

with Polar Air Cargo or are we going to sit here and have another 

hearing when you want to switch gears out of Polar Air Cargo? I 

think we have a right here to know that. 

Mr. MULLEN. At this stage, we have no intention of changing the 

relationship that we have with Polar Air Cargo. 

Mrs. SCHMIDT. Okay. Another question for you, sir, I understand 

that cost of doing business is a very sensitive subject. When you 

can own most of your resources, generally, you can control most of 

your costs, but you are going to take 60 percent of your business 

and give it to your competitor. 

So when your competitor has to raise their costs, what is your 

reaction going to be? 

Mr. MULLEN. Well, firstly, it is not 60 percent. It is sort of in the 

25 to 30 percent area. 

60 

But, secondly, the contract will build in price protection. So there 

is only CPI type increases. UPS is not able just to raise its costs 

at will. We have certainty of our cost position for the duration of 

the contract. 

Mrs. SCHMIDT. Okay. Another question for you, sir, folks have 

been coming through my door, as you can tell, and telling me how 

this operation works and that you have this bar code situation that 

is put on the packages that shows where the logistics of the packages are going to go, what the price was paid for the package because some of these folks have computer-generated software that 

they can actually put the packages at their own business and not 

have to go to you to pay for the packages up front. 

But in that capacity, when it goes onto the airplane, before it 

gets onto the airplane, there is a scanner that actually relooks at 

those to make sure that everything is correct, including the price 

point of it. It appears that you are going to have to take that function and give it to Mr. Wallace because you are no longer going to 

be able to be in control of that package. 

What are you going to do to stop UPS from getting that sensitive 

information and, in addition to the card that I have also seen, having their sales force go right out and undercut DHL? 

Mr. MULLEN. With respect, this keeps getting repeated, but it is 

just a falsehood. We are not going to make pricing information 

available to UPS. 

All the data that they will receive is sufficient data to be able 

to move it from Airport A to Airport B. Yes, they will know the customer name. They will know where it was picked up, and they will 

know where it is delivered to. 

But they know that now. Our sales force, as you can see, are in 

the street every day. They know which our accounts are. So that 

won’t change, but they will not get access to any data that gives 

them competitive advantage with that information. 

Mrs. SCHMIDT. A follow-up, so they won’t have any opportunity 

to know any of your costs involved, either hard, soft or whatever 

in this arrangement? 

Mr. MULLEN. Well, they will know what the cost is because they 

will be charging us the cost, but they will not have access to any 

of the rest of our cost base or any pricing information with that 

customer. 

Mrs. SCHMIDT. And, sir, with that cost, they are going to know 

what the cost is. You are going to know what their cost is to you. 

You don’t think that that is going to build you into a disadvantage 

because they are going to be charging more than it is going to cost 

them to move their own goods? 

I mean that just make sense. If I am using a taxi to get across 

town instead of using my own car to get across town, it costs me 

more to get across town. 

If I am using UPS to carry my goods across the United States, 

it is going to cost me more because they are going to charge me 

just as a taxi charges me to sit in the back seat of the car. They 

are going to charge me more than what the base cost would be. 

That is the part that I am not understanding, and I know you 

are going to come back and say, but your overhead is so much larger and therefore you are going to cut that cost. I am not sure that 

61 

really works. I think school systems are seeing that in renting 

buses versus owning their own buses. 

So I have real problems with how. I am concerned how you are 

going to create an opportunity into the future to remain competitive with UPS and FedEx. 

Sir, what I don’t want to have happen is a duopoly because nobody wins in a duopoly. This is beyond the cost to Wilmington and 

devastating that town and the almost 1,000 jobs that devastate my 

district because my district is impacted as well. 

This is beyond that. This is what is it going to do to the moms 

and pops across the United States that are trying to make ends 

meet now and want to have a package delivered to their son or 

daughter across the ocean or across the United States and suddenly they see that price continue to go up and up and up. 

Mr. SPACE. The gentlelady’s time is expired. 

At this time, the Chair recognizes the gentlelady from Hawaii, 

Ms. Hirono. 

Ms. HIRONO. Thank you, Mr. Chairman. 

Mr. Mullen, you said that one of the pluses of this arrangement 

would be that you would turn a fixed cost into a variable. Can you 

explain to me what is the fixed cost just so I am very clear? 

Mr. MULLEN. Yes, indeed, Congresswoman. That ties actually exactly into the discussion I was just having with Congresswoman 

Schmidt. 

When we fly our own aircraft, those aircraft fly every day whether we have 1 package on them or whether we have 1,000 packages 

on them, and the cost is pretty well the same. 

Ms. HIRONO. Okay. 

Mr. MULLEN. Obviously, you know in a falling volume environment, that continually increases the impact to us. 

In a variable cost situation, if we pay UPS X dollars per package, 

if we don’t have the package, we don’t have the cost. 

Ms. HIRONO. But right now, you are paying ABX and ASTAR for 

that portion of your business. So that, you consider a fixed cost? 

Mr. MULLEN. Yes, because we pay them for the full cost of flying 

that airplane whether we put any packages in them or not. 

Ms. HIRONO. But with the arrangement that you are going to 

have with UPS, it is dependent on the number of packages. That 

is what you are saying? 

Mr. MULLEN. Yes. It is basically a per piece charge. 

Ms. HIRONO. I appreciate your position that you said that you 

have exhausted all of your discussions with ASTAR and ABX, but 

clearly the fact that they are here testifying as well as the State 

of Ohio, they do not believe that the discussions are exhausted. 

I can only suggest that having heard all the testimony, sitting 

here, that I hope that you will enter into discussions with them because they obviously don’t agree with you that they have exhausted 

all possibilities. Also, the State of Ohio has a tremendous interest 

in this. 

Mr. Simon, you noted that you thought that this agreement, on 

its face, raised certain antitrust concerns, and your suggestion is 

that an injunction be pursued. Now it is not that easy to get an 

injunction, and were an injunction to be pursued I would expect 

62 

that DHL and UPS would raise some kind of irreparable harm argument. 

Would you say that based on what you say is the facial appearance of this agreement, that an injunctive action would prevail? 

Mr. SIMON. Well, I would answer the question this way, Congresswoman, when one seeks an injunction, the first thing that 

happens is if you can prove your case you can get what is called 

a preliminary injunction halting the arrangement for a reasonably 

short period of time until the parties can gather their data and 

their evidence and their testimony and present a full panoply of 

witnesses and evidence to the tribunal, a commission or a court, 

whatever tribunal is hearing it. 

At that time, the ordinary standards of full, permanent injunctive relief have to be satisfied, which are not so easy to get but 

which depend on a case by case basis, applying the standard law 

of what injunctive relief is to the facts as developed in an expedited 

discovery program. 

So I would not feel comfortable being put in the position of saying could the full, permanent injunction prevail, but a temporary 

hold entered by a tribunal or a competent court would give the parties time to gather the facts, data and evidence that they need to 

make a full presentation and a full adjudication before a neutral 

fact finder. That is why court houses are built. 

Ms. HIRONO. So, based on what you already know about the circumstances of the situation, you feel, you believe that a temporary 

injunction could be obtained? 

Mr. SIMON. By a government agency? 

Ms. HIRONO. Yes. 

Mr. SIMON. Absolutely, yes. I would add two points to that very 

briefly if I might. 

We have heard a number of very avuncular homilies today such 

as such and such may completely dissipate a certain argument. But 

the core of this hearing is what happens when one competitor 

agrees not to compete with another competitor, and no turning 

around and no pleasant talk can alleviate that. 

Companies acquire competitors all the time. They purchase competitors all the time, and they do it in secrecy. There is a nice cloak 

of darkness there. 

But when one competitor agrees to take an essential facility that 

it needs to keep in business and give it over to another competitor 

in an oligopoly situation where there are only three competitors to 

begin with, it raises some very significant antitrust concerns as a 

matter of substantive jurisprudence going back to the year 1890. 

Ms. HIRONO. You are saying that this horizontal collusion situation that could be set up, it is not just on the basis of price because 

Mr. Mullen mentioned that it is not as though UPS can totally control the prices. They have to do it within a certain limited range, 

perhaps CPI indexes. 

So does that assuage some concerns you have, antitrust concerns 

you have about the horizontal collusion? 

Mr. SIMON. No. With great respect, it does not because if there 

is anything that is prohibited in the antitrust laws, it is a flat-out 

prohibition against competitors agreeing not to compete head-on 

with each other at all facets and aspects of their business. 

63 

If you say, well, we are going to adjust at this percentage or that 

percentage and with a contractual arrangement, that doesn’t answer the question that has been a substantive part of American jurisprudence since the year dot, and that is competitors have to go 

all out and compete against each other. 

If this were another carrier, not UPS, there would be far fewer 

concerns. But even putting aside the service squeeze concerns that 

Mr. Hammes discussed, the price concerns in a tightly integrated, 

little marketplace—only three essential carriers now with a strong 

possibility that it might whittle down to two—is what raises the 

concerns of the Antitrust Institute and my personal concerns. 

Ms. HIRONO. I think it is important, what you are pointing out, 

because although Mr. Mullen says this is a solid solution, how solid 

can it be if it raises all kinds of antitrust and competitive concerns? 

Mr. SIMON. But look, we are a neutral agency. We don’t take positions to help or hurt one party or another, and we have substantial concerns that there are serious antitrust problems here. 

If I could add one very quick point, a lot of talk has been mentioned about losing stratospheric, catastrophic amounts of money. 

When you lose money in an organization, you have to juxtapose the 

revenues you are getting in against the costs that you are incurring. 

Now continental systems of accountancy may and probably do allocate costs differently across the spectrum than American systems. 

So I would suggest that people here take a good hard look at which 

system of accountancy is being used. 

I am not a CPA, but I have litigated dozens and dozens of these 

cases across the Country. 

Which system of cost allocation is being used and is that allocation appropriate and proper under the laws that govern the conduct in our Country? 

Ms. HIRONO. Mr. Mullen and Mr. Wallace, I have to assume that 

you have talked with your lawyers extensively about the antitrust 

issues. So all I can say is that based on the testimony that we have 

heard, that those are very, very serious concerns that should definitely concern you as you move forward with further discussions 

regarding this agreement. 

That is not a question. That is a statement. 

Mr. MULLEN. Indeed, Congresswoman, we have taken extensive 

antitrust advice from some very highly qualified, a range of highly 

qualified antitrust lawyers, and our advice is different. 

Ms. HIRONO. Thank you, Mr. Chairman. 

Mr. SPACE. The Chair now recognizes the gentleman from New 

York, Mr. Kuhl. 

Mr. KUHL. Thank you, Mr. Chairman. 

It is a very interesting conversation that we have heard all day, 

but I am still a little bit confused about some of the issues. One 

of the issues has to do with the actual negotiation between Mr. 

Hete, your group and certainly Mr. Hammes. 

Nobody has really given you the opportunity to kind of, I think, 

give your viewpoint as to how these discussions have either been 

just neglected. I am talking about the discussion that you had offered to Mr. Mullen and certainly his group. 

64 

I would be interested in your perspective, and I am not trying 

to get to an issue of fault. I just want to get to what a number of 

my colleagues have mentioned, and that is there seems to be one 

side an inconclusive determination as to whether or not the negotiations from your side of it have concluded or whether they have 

been concluded because of some agreement between UPS and Mr. 

Mullen’s organization. 

So I would just give you a couple of minutes, and I don’t want 

you to take all my time because I have a couple other questions I 

would like to address to Mr. Mullen. 

If you could, gentlemen, just kind of tell me from your perspective actually where the negotiations fell apart if they did. I am also 

interested in the last offer that you put together as to how that actually equates with the offer for cost savings that Mr. Mullen is 

looking to actually be able to have his business survive and be successful. 

Mr. HETE. If I would, Congressman, I think after the ASTAR indication of interest in which we said it wasn’t sufficient and they 

determined to take an alternative course, from that point forward, 

the ABX team had put together numerous proposals up to and including the one that I had presented to Mr. Mullen in Bonn, Germany, on March 31st. 

October 31st of 2007, we presented to them some proposals to get 

to a single carrier. 

We did that again in February of 2008. We presented them another set of alternatives that would get them to a single carrier. 

Now the single carrier concept was one that should have been 

initiated right from the get-go with the merger between Airborne 

and DHL, and unfortunately it didn’t start off that way. I first proposed that opportunity to Mr. Mullen back in January of 2005 to 

get to a single carrier, and ABX would have been the surviving carrier at that point. 

We spent approximately 15 months and probably spent eight to 

twelve million dollars in terms of putting aircraft back in service 

in order to be able to facilitate that move towards a single carrier. 

Unfortunately, after 15 months of work, DHL elected not to go for 

that option. Of course, by that point in time, we are in the second 

quarter of 2006. 

So we fast forward into 2007 or late 2006. We attempted to acquire ASTAR. That offer was rejected by ASTAR. 

ASTAR came back in 2007 and attempted to acquire ABX, and 

then we went through those various options in October of 2007 and 

February of 2008. 

With the presentation we gave to Mr. Mullen on March 31st of 

2008, it was quite a detailed presentation. As I mentioned earlier 

in my testimony, we presented on the 31st of March, and on May 

28th we got the word from DHL that they were going to transition 

that piece of business to UPS. 

Not once during that roughly two-month period was there any inquiries, questions, suggestions or recommendations in regard to 

that March 31st proposal. So, essentially, it sat there to the best 

of our knowledge. 

We do good work at ABX, but I am not sure we are quite that 

good that someone wouldn’t have had a few questions or possible 

65 

tweaks. I think the key element there is that the presentation we 

gave to them protected the network that they had in place. 

It was implied by Captain Ross earlier, things like Congressman 

Oberstar’s, Chairman Oberstar’s packages to him in some of his offices still would have been on an overnight basis as opposed to taking two, three, four or five days. 

The last proposal that we initiated, once we heard about the potential deal between UPS and DHL, we got within roughly $100 

million of the $1 billion that they said they would be paying UPS. 

At that point in time, we had presented that to Ken Allen, the CEO 

of DHL U.S., to take to the folks in Germany which he said he 

would do, but then the word came back that they weren’t in a position where they could review that proposal in total. 

The difference between that and the March 31st proposal, and it 

was a couple hundred million dollars less I believe, was that we 

cranked into that wage and benefit cuts for employees, for example, 

a reduction in the network coverage somewhat, trying to figure out 

exactly what markets DHL was going to pull back from because the 

less markets you service via air the lower your cost is going to be. 

But we have never had one single discussion in regards to that alternative proposal. 

Mr. KUHL. Okay. Thank you. 

Mr. Mullen, I would like to just kind of understand your restructuring agreement if you would. I thought I heard you say in your 

initial testimony that you have been facing, at least in the last 

year, roughly $1.3 billion in losses in your operation in the United 

States. Was that number correct or did I misunderstand you? 

Mr. MULLEN. No. That number is correct. That is our estimate 

for this year. It hasn’t been as high as that. 

It was still a huge amount, around $900 million last year. This 

year has been exacerbated by customer losses from all of the speculation and media coverage and other interest in what we are doing. 

Mr. KUHL. Now does that mean that with the restructuring, that 

you are actually cutting your costs by a billion dollars or am I confusing numbers here, so that you still will be operating in a deficit 

of about $300 million? 

Mr. MULLEN. That is correct. 

Mr. KUHL. So you plan to move forward with a company reorganization, immediately facing a significant loss in revenue. 

Mr. MULLEN. Yes. We are prepared to pay a price for maintaining our business in the United States. Three hundred million is 

still a very large sum of money, and obviously we hope ultimately 

to eradicate that altogether. 

But the immediate objectives over the next two and a half years 

of this program will be to get the loss down from the 1.3 of this 

year to around 300 which is at least manageable in the interim. 

Mr. KUHL. Did you ever look at the offer that came from Mr. 

Hete relative to his last offer that was, as he said, close to $100 

million difference? 

I am just wondering. If you are still looking at a $300 million 

loss on an annual basis, what is the difference between $300 million and $400 million if you plan to balance it out over the next 

several years? 

66 

Mr. MULLEN. I do have to beg to differ with Mr. Hete. That proposal of March 31st was extensively analyzed. I have two documented detailed meetings between his teams and our teams going 

through that proposal. 

By this stage we had the UPS alternative. We actually delayed 

our negotiations with UPS in order to give full time to study that 

opportunity. As Mr. Hete said, it saved some $250 million was the proposal, 

which was a lot of money. But it was not sufficient together with 

the other factors that I pointed out of capital expenditure avoidance and variability of costs, and it was considerably less in actual 

savings. For those reasons, we declined to go that way. 

Mr. KUHL. Mr. Chairman, if I might, I just have one further 

area. 

I am also interested in what I heard from my colleagues from 

Ohio about the tremendous devastation if this whole proposal goes 

through as to the impact from a personal standpoint, from a 

human side standpoint. 

I heard just very briefly in the testimony I heard today very little 

consideration about the employees that are going to lose their jobs. 

Can you tell me what you are going to do? 

Are there going to be, if the proposal goes through, severance pay 

packages? Are there going to be retirement pay packages kept intact? 

Are there going to be all the kinds of things when you are looking at seven, eight, nine, ten, twelve thousand people who are 

going to be terminated? 

It is a human suffering of really dramatic kinds of proportions. 

It is not the kind of thing that we are used to seeing when you see 

transfers of operations, and I am just curious as to what. 

I know that you will probably set some form of a program in 

place to find new jobs, but how about for those people who don’t 

have new jobs? 

They are in a position. Maybe they are like I am at 65. They 

don’t want to retire. They are still healthy and things like that, but 

at the same point they don’t have the economic wherewithal to retire, and they are going to have a very difficult time relocating. 

Have you thought about that? 

Have you started to put packages together for those employees? 

Mr. MULLEN. Of course, Congressman. You know this is an extremely difficult thing. I am an employee too. 

Mr. KUHL. But Mr. Mullen, you are going to have a job after this. 

This is several thousand people who are not going to have a job. 

You are not looking at termination like they are. 

Mr. MULLEN. Of course. 

Mr. KUHL. So you have a little different perspective. You are 

looking at a $300 million loss and carrying that forward. 

Mr. MULLEN. Indeed. 

Mr. KUHL. These people don’t have a dollar to carry forward. 

Mr. MULLEN. Indeed, but I would not wish it to be suggested or 

intimated that we do not care about the human side of it. We do 

very much. 

As I put in my written testimony and also in my opening verbal 

statement, we are going well beyond what we have benchmarked 

67 

as a standard in these sort of circumstances and well beyond what 

our contractual and legal obligations are. 

Mr. KUHL. Can you quantify that for me so I understand? 

Mr. MULLEN. Yes. We are putting forward a package of $260 mil- lion. Our contractual and legal obligation is $35 million. So the 

other 225, we are voluntarily contributing for exactly the reasons 

that you say. We are extremely mindful of the impact that this has 

on the community. 

And I would add, as I said earlier, that the majority of that is 

actually not even going to DHL employees. It is going to the employees of subcontractors and others who are impacted by it, for 

whom we have no contractual obligation to make that payment. 

Our subcontractor companies have that obligation. 

Mr. KUHL. If I was a pilot for one of these subcontractors and 

looking at having my job terminated, what would I be looking at 

under that package? 

Mr. MULLEN. Every single person employed by ourselves or employed by one of the subcontractors who is impacted by this is entitled to some of that severance entitlement. Now it obviously varies 

between part-time and full-time and pilots, et cetera. I couldn’t give 

you an individual amount per person, but every single person is 

covered by that, what we believe is an extremely generous settlement. 

Mr. KUHL. And insurance covers for any period of time? 

Mr. MULLEN. Yes, health care benefits and similar factors. 

Mr. KUHL. Retirement benefits of any sort? 

Mr. MULLEN. I would have to come back to you, sir, with the specific details on each of those. 

Mr. KUHL. Could you do that because I would really be interested in that? 

Mr. MULLEN. Yes, very happy to do that. 

Mr. KUHL. Okay. Fine. 

Thank you, Mr. Chairman. I yield back. 

Mr. OBERSTAR. [Presiding.] The gentleman’s line of inquiry is one 

of great importance to all those who are directly affected by this 

proposed transaction. I think they would all rather have their jobs 

rather than their benefits. 

Mr. LaTourette, a second round of questions. 

Mr. LATOURETTE. Thank you, Mr. Chairman. 

Mr. Mullen, I asked Mr. Hete about his stock, and now I am 

going to ask you about yours. 

You testified last week that the decision was based upon the best 

interests of your stockholders which is, of course, a company’s fiduciary responsibility. Since the May 28th announcement, how has 

your stock price reacted to that announcement? 

Mr. MULLEN. Our stock price has been I can’t say exactly from 

that announcement because we have had so much turmoil in financial markets and some other major transactions that our company 

has done, including selling the bank which has been a huge overhang in the stock. But what I can say is in line with all the other 

transports, the major transport stocks, we are materially down 

from where we were six or nine months ago. 

Mr. LATOURETTE. All right. Let me just close the loop on this 

offer to Mr. Hete and ABX. If ASTAR had been successful in acVerDate Aug 31 2005 15:35 Apr 22, 2009 Jkt 000000 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 P:\DOCS\45107 JASON
68 

quiring ABX for $7.75 a share, is it your opinion we would be here 

anyway? 

Mr. MULLEN. That is a very difficult question, but I think it is 

likely not, no. I think that would have been a solution at the time. 

Mr. LATOURETTE. And likely not because you would have 

achieved the savings that you are hoping your deal with UPS is 

now going to achieve for the company? 

Mr. MULLEN. No. We would not have saved the savings that we 

are now going to save. But at that time, of course, we didn’t know 

about the UPS opportunity. It wasn’t there on the table, and we 

would have had to make a business judgment at the time. 

I would also say that our business has deteriorated sharply in 

the last year because of the ongoing speculation as to the future, 

publicity, media, political inquiry and others which is now exacerbating the problem that we already had. 

Mr. LATOURETTE. To both you and to Mr. Wallace, the announcement on May 28th was the announcement that you are going to 

work with UPS on domestic shipping and sorting of your packages. 

When did the UPS opportunity present itself and when did your 

two companies begin discussions? 

Mr. MULLEN. The first contact was on February the 13th, from 

memory, when I met with my opposite number in New York. 

Mr. LATOURETTE. Was that February the 13th of 2008? 

Mr. MULLEN. Yes, correct. 

Mr. LATOURETTE. Did you initiate the contact or did UPS? 

Mr. MULLEN. No. The contact came from UPS through a phone 

call to our Chief Financial Officer, and then I followed up with a 

call back which led to a meeting on the 13th. 

Mr. LATOURETTE. Following the meeting on February the 13th, 

well, that meeting, I assume that was: Are you interested? Yes, I 

am interested. 

So when did it get down to discussions? 

Mr. MULLEN. Well, we signed a confidentiality agreement at that 

meeting to start exchanging data, and from there on it started to 

gather pace as it became clearly of interest to both sides to go further. 

Mr. LATOURETTE. Obviously, the exchange of data is important. 

When you looked at their stuff, they looked at your stuff, when do 

you think, if you can give me just an approximate time frame that 

you all sat down and started to talk turkey? 

Mr. MULLEN. Well, we really started from that meeting. Obviously, as we got further and further into the operational capabilities, UPS, I can’t speak for them. I am sure Mr. Wallace would. 

They had to work out whether they could move the volume, what 

sort of operational changes they would need to make. We had to 

do the same on our side. Gradually, the working groups were 

formed to develop the process and the proposal into something concrete. 

Mr. LATOURETTE. Let me ask you this. Have you ever entered 

another confidentiality? The memorandum of understanding that 

we have been talking about here for the last couple of hours, is 

that the confidentiality agreement we are talking about? 

Mr. MULLEN. No. Well, there are lots of documents being talked 

about. 

69 

We signed a basic confidentiality agreement at the beginning. We 

ended up signing, effectively, a letter of intent or memorandum of 

understanding which was what we announced on May the 28th as 

a result of all of those discussions 

Mr. LATOURETTE. The confidentiality agreement that you signed, 

that was entered into on February the 13th, one, I assume that it 

prevented you from talking about the details of your discussions. 

Did it also prevent you from talking to people like the State of Ohio 

or anybody else that wanted to present alternative offers to you? 

Mr. MULLEN. No. That only came into place with the letter on 

intent on May the 28th. 

Mr. LATOURETTE. I don’t know if it was in your testimony or 

whether I got it some place else, but I have a note that according 

to DHL the integration of the Cincinnati hub into Wilmington did 

not go well, resulting in customer service issues and lost contracts. 

Is that DHL’s position and, if so, could you describe what happened? 

Mr. MULLEN. Yes. We had the original DHL business in the 

United States had a hub in Cincinnati. When Airborne was acquired, we then ended up with a second hub being the one in Wilmington, and we had to make a decision to consolidate into one or 

the other location. 

After a lot of discussion, it was decided to do that in Wilmington. 

We then went through a long period of significant capital investment where we upgraded the facilities. 

Then finally in September, we moved the business from Cincinnati across which was a very, very major move. I think we had 

some 180 massive trucks carrying all the equipment, and we literally had to switch off on a Friday and start on a Monday with 

everything integrated in one location. 

It was a very difficult period. I would pay tribute to Mr. Hete 

and his team, and everybody worked long, long, long hours, night 

and day to make that thing a success, and we did. We eventually 

got on top of it. 

But it was like any move of that size. It was a massive logistical 

exercise, and it took some time to get it right. During that period, 

of course, we suffered service delays which affected our customers. 

Mr. LATOURETTE. Mr. Hete, did you work for Airborne Express? 

Mr. HETE. Yes. I have always worked for ABX Air, the subsidiary, but it was a wholly owned subsidiary of Airborne Express 

prior to the sale to DHL. 

Mr. LATOURETTE. Again, my notes say with the lone exception of 

2001, Airborne Express was profitable for the entire time it was in 

business prior to the acquisition of DHL. Is that accurate? 

Mr. HETE. That is correct. 

Mr. LATOURETTE. Can you tell me what business practices you 

changed after the acquisition which caused DHL to lose $1.3 billion? 

Mr. HETE. Well, I certainly can’t attest to all of the business 

practices that changed, but those that did that impacted ABX, for 

example, were things like the ground business, the traditional UPS 

stronghold. 

For example, we had 11 Airborne/ABX. We had 11 regional facilities that we had in place in order to cover the areas of the Country 

70 

that we thought we could make money off by servicing a limited 

scope, not matching every zip code across the U.S. that UPS services. 

In 2004, DHL expanded that network by 7 additional facilities 

and pretty much did it all in the fourth quarter. Of course, the cost 

of expanding a network comes immediately, and then you are hoping that the revenue will follow soon in order to support those 

costs. I think that was one key element was rapid expansion of the 

ground network. 

In addition to that, one other key change was that throughout its 

lifetime Airborne always focused on trying to wring out all the 

nickels of cost that they could, especially when you talk about the 

fixed costs, as Mr. Mullen referred to earlier, in terms of an air network because it is a fixed cost. 

So if that airplane is flying with one package on it or a thousand 

packages on it, the cost is roughly the same. There is a little bit 

more fuel burned when you are carrying extra weight. 

When you are servicing things like a deferred product or something that would normally move via truck, from the Airborne perspective, we always focused on maximizing the sunk costs of the air 

network as opposed to adding an incremental truck. 

DHL did a radical shift in that they wanted to cleanse the air 

operation of any potential ground shipments, and so what that precipitated was a marked increase in trucking costs to support that 

ground network. 

I think those are probably the two key elements. 

The other piece was that from a fleet perspective the ABX fleet, 

for the most part, consisted of two-engine, two-man cockpit aircraft. 

They, well, we have the backbone of the fleet is a 767. 

We have heard a lot of comments about an aging fleet, but the 

767 in the ABX fleet, the predominance of which service the DHL 

network, is the same type of aircraft that is a key part of the UPS 

network. It may not be the 300 series. It is a smaller series. It is 

a dash 200. But essentially it is just about as fuel efficient as anything that UPS will have of comparable size in its network. 

The balance of the fleet consisted of the DC-9 which is probably 

the smallest aircraft out of the combined fleets between ABX and 

ASTAR. But the advantage it had is it is a two-engine aircraft, of 

course, at a point in time when you have fuel prices between three 

and four dollars a gallon. 

If you have 1 more engine back there, it is costing you probably 

$1,500 to $2,000 an hour for every hour of flight that you fly, having a 3-engine aircraft like a 727 versus a 2-engine like a DC-9. 

The primary focus for that in the DHL network is that they want 

to focus on the standard industry cargo container, what is referred 

to as the A container. The aircraft has a large cargo door. 

The Airborne system was unique in that it was built around the 

small package, and so the DC-9 fleet was primarily operated with 

its own unique container system that went through the passenger 

door. 

Now you could carry a chair, for example, in one of the C containers as part of the legacy Airborne network, but if you wanted 

to carry something the size of this table you would have to have 

the standard industry A container. So going to that type aircraft 

71 

was focused on a three-engine aircraft because you want the accessibility of that larger container size versus a DC-9 which doesn’t 

have that and only two engines. 

You are going to have a cost increase. Unless you can fill up that 

airframe to offset that additional cost, you are just basically pouring more money out the tail pipe. 

Mr. LATOURETTE. I thank you for that. 

One of the problems that I had with the United State Postal 

Service, and I concede Mrs. Schmidt’s observation it is a governmental entity. 

But one of the, I think, legitimate criticisms that I think people 

had with the sole-source contract that was given to Federal Express was the fact that the Postal Service was paying for the airplane whether there was 1 package on it or 150 packages on it, and 

that didn’t seem to be a good use of the Post Office’s money. 

Mr. Mullen, my last question, I am going to give you a shot, I 

guess. Well, my last question for you, and I do have a question for 

the professor. 

I have heard you say you lost $1.3 billion and you are losing $5 

million a day. Most companies sort of break out when they are losing money and say: Okay, this division is doing okay. This one is 

not doing okay. 

One, is Mr. Hete’s observation correct that some of the loss you 

have suffered is because of capital expenditures to ramp up that 

revenues didn’t catch up, one? 

Two, did Airborne Express/ABX, your subcontractor, go from 

profitable? In other words, did you lose money on the air side here 

with ABX or were you losing money on the ground side, capital expenditures and other things? 

Did, all of a sudden, this fleet that had profitably performed all 

of a sudden become a drain on your system? 

Mr. MULLEN. Yes. The answer is a complicated one, of course. 

There is no one single reason as to why DHL is in this situation. 

We started with too sub-scale and either at best break even, if 

not loss-making, businesses. We had an existing DHL business that 

was loss-making, and Airborne, with the greatest respect, was very 

close to not being able to compete any further in the United States. 

It was in the segment of the market that has been declining, in 

the small package area. It didn’t have a ground network. We had 

to compete with a bundled product offerings of UPS and later 

FedEx, and it was very under-invested. 

So we took a major strategic decision that would combine these 

two businesses. We would invest in a ground network, and we 

would try to compete head for head with Federal Express and UPS. 

Obviously, now with hindsight, we realize that we haven’t been 

successful in doing that which is why we are all sitting here today. 

Airborne had a low quality service and therefore lower pricing. 

So, today, we do not command the same level of pricing with all 

of that legacy book of business as our competitors do. It was also 

very oriented towards major customers who always demand very, 

very low pricing. 

The lack of DHL brand strength meant that we had a very small 

share of the full tariff small shipper because when they think of 

72 

a name for shipping in the United States, they don’t think DHL. 

They think Federal Express or UPS first. 

So there are many, many factors. Basically, we don’t have 

enough revenue, and we too high costs, and we don’t have the volume to be able to get the productivity on the costs that obviously 

an organization like UPS will do. 

A UPS driver, virtually, I am paraphrasing your business. A UPS 

driver will stop at Number one, Number Three and Number Five 

down one side of the street and the same in reverse. 

Our lack of volume means that we have a driver stopping here 

on this street and then going two blocks over there, and we just 

don’t have the productivity that our major competitors do. 

Mr. LATOURETTE. I asked before about if Mr. Hete’s operation had accepted the $7.75 for the stock offer, then maybe we wouldn’t 

be here. 

Let me ask you this. You own, you being DHL own 49 percent 

of ASTAR, the stock of ASTAR. People have indicated to me that 

the reason you only own 49 percent is we have a rule against foreign ownership of airlines, but I assume you are aware that the 

Bush Administration had offered up new regulations that would 

have permitted that in some situations. 

Was DHL waiting or hoping that the rules would change relative 

to the ownership of airlines and, if they had and DHL was able to 

become the majority of ASTAR, would we be here today? I mean 

was that part of your plan? 

Mr. MULLEN. Well, we have always hoped that foreign ownership 

rules would be restricted because we think it would be good for the 

business, for industry and for the consumer in the end. However, 

we never worked towards a belief that that was going to happen. 

So we have always had to run our business on the assumption that 

would not be the case. 

Mr. LATOURETTE. Thank you for your indulgence, Mr. Chairman. 

Professor, in the dozens and dozens of cases that you have litigated, are you on both sides of those or are you always advocating 

a problem? 

Mr. SIMON. I would say approximately two-thirds to three-quarters of my work over the many years I have been doing this has 

been plaintiff side, and the remainder, about 30 percent, has been 

strictly defense work. So the answer in one word is yes. 

Mr. LATOURETTE. Okay. Perfect. You gave me more than one 

word. 

Mr. SIMON. Sir, if I could add one quick point. 

Mr. LATOURETTE. Whatever you want. 

Mr. SIMON. My apologies. You said earlier that you believe that 

corporations have fiduciary duties to shareholders. 

Mr. LATOURETTE. Right. 

Mr. SIMON. There is a very substantial body of law that says that 

corporations owe duty to shareholders which are not fiduciary in 

nature. They are not fiduciary duties at all. They are simply duties 

imposed by Federal law and occasionally by State law. They don’t 

rise to the level of a fiduciary obligation. 

Mr. LATOURETTE. I got you. I wasn’t attempting to be exclusive. 

I was trying to indicate that they had that responsibility as one of 

their many responsibilities. 

73 

Mr. SIMON. Right, but not up to a fiduciary nature which is the 

strongest duty possible in the law. I don’t mean to sound like Dr. 

Pedagogic at all. I just picked up on the point that you made. 

Mr. LATOURETTE. I had a lot of professors like you in law school. 

[Laughter.] 

Mr. LATOURETTE. But let me see. When I first looked at this and 

Congressman Turner came and so forth and so on and your whole 

discussion about price squeezing and so forth and so on, I thought 

I heard you say because UPS doesn’t have the lion’s share of the 

market it is not a monopoly. Some of that price squeezing analysis 

sort of falls by the wayside. 

This isn’t a great antitrust case. This is a better restraint of 

trade case perhaps. 

Mr. SIMON. I agree with that. The bottom line is yes, because unless you are in a monopoly position or threatening to get a monopoly position, then your customer who is also a competitor can simply go somewhere else. 

Mr. LATOURETTE. Right. 

Mr. SIMON. But if you are in a monopoly position, that is where 

the classic price squeeze comes along. 

So, yes, I would say it is more likely to be a restraint of trade 

case, an unfair trade practice as a facilitating practice permitting 

the very few companies in a small, tight, little oligopoly to facilitate 

the possibility of collusion or price fixing. 

Mr. LATOURETTE. Right. So if you were retained and were advising people to believe that they were aggrieved by this situation, 

you would recommend some petition to the Federal Trade Commission. 

Mr. SIMON. Or the Attorney General of Ohio if they have the 

statutory or common law obligation or responsibility to do that, yes. 

Mr. LATOURETTE. I thank you for those answers. 

Mr. Wallace, again, nobody knows how a case would turn out. I 

am sure you all have wonderful lawyers that are as gifted as Professor Simon. 

Just sitting here at 10,000 feet, giving the people the opportunity 

that are about to lose their livelihood, the chance to just make a 

presentation, I don’t think costs anybody anything. I would hope 

that you would think about that and chat with your lawyers. 

So, thanks so much. 

Mr. OBERSTAR. I thank the gentleman for his very thoughtful 

and persistent questioning and opening up some avenues of 

thought. 

Mrs. Schmidt, do you have any further questions? 

Mrs. SCHMIDT. Thank you, Mr. Chairman. I want to shift gears 

to Professor Simon. 

You have heard a lot of dialogue today. You also talked about 

and you brought up a point that I didn’t even consider, that different countries look at the bottom line in a different way. I think 

that is what you were trying to say. 

So you are not always comparing apples to apples when you look 

at the bottom line cost, say, of doing business in Europe versus 

doing business in the United States. But we have an obligation in 

the United States to only look at it from our bottom line, and I 

74 

think that is where trade agreements across the ocean get us into 

trouble sometimes. 

Could you please elaborate a little bit on that for me? 

I really want to understand why DHL would look at this as a 

good deal when I feel that we are going to be either, in a few years, 

talking about the fact that we have a collapse and now we have 

a duopoly, that we only have two players in the system. 

Mr. SIMON. Sure. Now look, I am not a CPA, Congresswoman, 

and I haven’t been trained to be an accountant, but I have litigated 

enough cases to know that when you have a loss situation or a 

profit situation, you get that bottom number only by juxtaposing all 

your costs against all your revenues. 

The way you allocate costs, particularly when an operation has 

multiple components—ground, air, ground intermediary points— 

can vary widely from one accounting system to another, particularly from the United States accounting system to systems that are 

more commonly employed in foreign countries. 

Where you allocate the costs can go an enormously long way to 

determining whether you are at a major loss situation, a small loss 

situation or an actual profit situation. 

That would be more or less the extent of how I can help you. The 

rest, you would need CPAs highly competent in the field of allocating costs and where they go on the different lines of a company’s 

balance sheet to determine whether a profit really was a loss or 

whether a loss really was a profit. 

Mrs. SCHMIDT. Okay. I have one last question, and this is for 

both Mr. Mullen and Mr. Wallace. 

You have heard Congressman LaTourette say, can we just open 

it up and allow these folks in Wilmington to give it their best shot? 

I am asking you, would you please let the folks from Wilmington 

give it their best shot and, Mr. Wallace, would you agree to let that 

happen? 

We are talking about a lot of lives here and a lot of jobs, and 

there is a human component. Not everything in a bean counter can 

be about the beans. It has to be about the folks behind the beans. 

I am just asking you as one of those people that has to worry 

about, in my past life, making ends meet. I am just asking both 

of you if you would be willing to let these folks, with a sincere 

heart, and the State of Ohio helping them give it our best shot? 

Mr. WALLACE. Well, I think I have already responded to that 

question. 

I just want to once again emphasize the fact that, first of all, 

from a UPS perspective we are always concerned about job loss. 

Also, part of our responsibility is to protect our current employees 

and grow our business to provide job security for those employees. 

In terms of consideration, we will certainly have that discussion 

within our organization and be able to respond. 

But at this point, we feel strongly that the transaction and the 

proposed transaction negotiations should be allowed to move forward. We have been open with the Department of Justice, keeping 

it informed of the status of our transaction. 

We believe that it is in the best interest of our organization and 

competition in general to allow us to move forward, but we will 

have further discussions on it. 

75 

Mrs. SCHMIDT. Before Mr. Mullen answers, look, I get why you 

don’t want to open the discussions. This is a great deal for UPS, 

and if I were you and I held the ball, as Lieutenant Governor Lee 

Fisher said, I wouldn’t want to give that ball up. 

But I am just asking you to put a human face on that ball because there are between eight and ten thousand folks that are 

going to be in serious problems. 

When you look at where this region is in Ohio, this is not a place 

where growth occurs naturally. It has to really be cultivated, and 

it is just so hard to get a job once a job is lost. I am just asking 

you to put a human face on it. 

Mr. Mullen, what about you? Are you going to take one for the 

Ohio team and let negotiations reoccur with Mr. Hete and Mr. 

Hammes and Captain Ross? I am just asking you. 

Mr. MULLEN. Could I just very quickly answer the first part of 

your question as well, just respond on that? 

We are a publicly traded company. Accounts are audited by 

PricewaterhouseCoopers. We follow the International Accounting 

Standard or IFRS which is also followed by many American corporations, and the U.S. is actually moving in the future to that 

standard as well. 

I would love to think there was some magical bookkeeping change that would eliminate our $1.3 billion and turn it into a 

profit. I am afraid I don’t think that exists. 

To answer your other point, I just echo what my colleague says 

here. We are bound by that agreement. It is a legally binding 

agreement, but certainly we will discuss it with them, and we will 

get back to you. 

Mrs. SCHMIDT. Thank you. Just because it is a legally binding 

agreement, you know you always have a chance to change agreements. That is the great thing about the United States. 

Thank you. 

Mr. OBERSTAR. I thank the gentlewoman for inquiry and the witness for his response. 

I ask unanimous consent to include in the record the statement 

of Congressman Robert Latta. Without objection, so ordered. 

Captain ROSS. Mr. Chairman? 

Mr. OBERSTAR. Yes. 

Captain ROSS. Sorry to interrupt you. I know it is getting late. 

I would just like to address a couple things before we finish, given 

the broad scope of the Committee if I have a chance. 

Mr. OBERSTAR. We are not concluded yet. 

Captain Ross and Captain Prater, in your analysis and you have 

great resources. Especially ALPA has staff analysis and resources 

to review these and other agreements that you have testified on 

over the years. 

Where do you think the failure occurred? Let’s call it that or the 

loss of market share. On the air side or on the ground side of the 

DHL equation? 

Captain ROSS. Sir, I think on the air side, we lost a lot. 

When we first started, when DHL came and made the move to 

Wilmington, they had run an outstanding ad campaign. It was a 

great ad campaign. Everyone loved it, and they picked up a large 

portion of new customers. 

76 

During that sort change, when bringing the entire sort from Cincinnati up to Wilmington overnight, our on-time performance 

dropped from over 99 percent down to 70 percent, and it took 

months to recover that. We lost a large portion of those customers. 

The new customers were all gone, and then a large chunk—I 

think it was 25 to 27 percent—of the current book was gone following the Wilmington event as we will call it. I think a large 

chunk came out of that one move right there. 

Mr. OBERSTAR. And on the ground side, do you think there were 

shortcomings there? 

Captain ROSS. Sir, I can’t really address that. I am not that familiar with the ground. So I am not sure if Captain Prater is. 

Captain PRATER. Obviously, not as much because we track the 

air side quite a bit, but it does come down to the fact that these 

companies, both companies, were operating well until the takeover 

by Deutsche Post. 

What happened then, I don’t think they need any more ownership rules when they can kill a company. With just owning 49 percent of it and 24.9 percent control, having a member sitting on the 

board of directors, and yet they can still kill these two U.S. competitors, clearing the way for the duopoly that we have talked 

about. 

We have heard many, many reports that maybe management 

should be looking at itself for the way they have tried to run the 

business since taking it over. 

We fly the airplanes, and we deliver a good product, both my 

members and Captain Ross’ members and yet all to naught. We 

can’t make up for management decisions to destroy a business so 

that they can then give it away to another customer, in this case, 

UPS. 

Mr. OBERSTAR. Well, I concur about the foreign ownership issue, 

and I think that is kind of a red herring here. 

You heard the Lieutenant Governor earlier say, we were never 

given an opportunity to offer good faith alternatives were his 

words. 

What good faith alternatives do you think could be presented at 

this point to save DHL from losing the billion dollars a year that 

they are losing? 

Captain PRATER. Well, in negotiations, we indicated our support 

for a combination of ASTAR and ABX so that there would be efficiencies there. 

Obviously, we don’t control the management of those two companies, but in both day to day labor negotiations, our contract negotiations, we indicated our full support for it a year ago. We have 

continued to indicate that we are more than willing to try to make 

that work so that there would be an efficiency, and it would result 

in the continuation of a third strong carrier in this Country. 

What we have to realize is that there are two points: DHL is losing customers every day since they have announced this business 

plan because their customers aren’t willing to pay DHL for UPS 

service. 

The second one is I have heard lots and lots of different numbers. 

The numbers that we have seen are the transfer of air operations 

to UPS will save DHL some two, maybe three hundred million dolVerDate Aug 31 2005 15:35 Apr 22, 2009 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 P:\DOCS\45107 JASON
77 

lars a year. That is not going to make up for their stated $1.3 billion or $900 million annual loss. So some of these numbers are not 

just adding it up. 

And with the revenue that DHL is losing by proposing this transaction, they are not going to be any better off. They are just going 

to trash two airlines. 

Captain ROSS. Mr. Chairman, also, on the loss of $1.3 billion, understand that this company made 3.2 billion Euros last year, 3.8 

billion Euros the year before. The reason that Mr. Mullen and DHL 

are willing to absorb a $300 million loss per year in the United 

States is because they are making all that revenue in Asia shipping to the United States, the revenue in Europe shipping to the 

United States. 

So what is lost in this number of $1.3 billion is how much revenue they are making around the world because they support the 

U.S. network. That is why they are willing to take a $300 million. 

I support Captain Prater. We are talking about a $300 million 

difference, and I think Mr. Mullen has testified to the same. 

We have never shut the door in working with ASTAR. We are 

willing to work together with UPS, to give them the flexibility they 

need. I’m sorry. UPS, where did that come from? 

With DHL to give them the flexibility they need. We don’t shut 

the doors. We like flying for DHL. 

Airborne Express was a great company, a lot of niche stuff. DHL 

could be a great company. Our doors are open for talk, sir. 

Mr. OBERSTAR. There are significant differences between the 

DHL service and the UPS service, correct? 

That was spelled out in earlier testimony, the type of service that 

DHL offers and that of UPS. By combining the two, you lose essentially what DHL offers in the marketplace. 

Captain ROSS. Yes, sir. Part of Airborne Express, we had a lot 

of neat little stuff we do. 

There is a company called Lab Corp in Kansas City, Missouri. 

They do drug testing, urine testing. We have a separate airplane 

that flies there every morning by 4:30 in the morning to get that 

lab test. Those lab tests, they can be out by noon that day. 

There is a cancer treatment company in Nashville, Tennessee. 

The life of the drug they create is 24 hours. We take a separate 

aircraft as late as we can out of that city to accommodate those. 

It is that little thing that was neat with Airborne Express. It was 

neat with ABX Air. It is neat with DHL. 

That now DHL is going to hand that off to UPS, UPS is not 

going to put an airplane where we ask them to put it. We are going 

to get space on UPS’s aircraft. 

That is why the market suffers like that. You lose the niche ability that comes with DHL, that came with the Airborne Express before. That is the fun part of the flying, when you are doing something special like that. 

Captain PRATER. As well as we will lose another civilian craft 

service provider to the military, with ASTAR being put out of business, one less supplier/vendor airline for our military. 

Mr. OBERSTAR. That is a very significant factor. Thank you for 

that. 

78 

Captain ROSS. Sir, in a 50 metric ton line haul, there are 34 aircraft between these two airlines, actually 17 aircraft apiece, that 

are at risk for losing CRAF. 

Another point I wanted to bring up and I am sorry I interrupted 

before, we have to look at what if our brothers at UPS go out on 

strike or our ground delivery people at UPS go out on strike. You 

effectively shut down two of the three competitors in the overnight 

market. 

I mean there are a lot of outside and small things. It is craft. 

What if there is a strike? What does that do to the Nation’s economy to shut down two of the three overnight providers? I think it 

is things like that this Committee needs to look at, sir. 

Mr. OBERSTAR. Should this go forward, you would have FedEx 

with 43 percent of the market. If you simply add the numbers, you 

would have UPS with 40.5 percent market share and a little bit 

left over for the U.S. Postal Service. That is not a healthy competitive market in the deregulated era of aviation trade. 

Mr. Simon, does it make a difference in consideration of restraint 

of trade whether the problem is on the air side or the ground side? 

Mr. SIMON. Actually, no. As a matter of pure analysis under the 

antitrust laws, if you and I are competitors and I give away a portion of my business to you and say, please do it for me, when our 

soul goal in life is to compete with each other, it doesn’t make a 

difference which aspect of my business I have asked you to assume. 

It can be air. It can be ground. It can be intermediate steps, handling, for examples, sorting. It doesn’t make any difference from an 

antitrust perspective. 

And if I could add one sentence to an answer I gave earlier to 

Congressman LaTourette, I tried to make it very plain and I want 

to do so now. 

When you spoke about unfair methods of competition, the concept would be an injunction action under Section 5 of the Federal 

Trade Commission Act which prohibits unfair methods of competition. 

This particular unfair method of competition, as a classic antitrust restraint, it is a classic facilitating practice that permits two 

direct competitors in a tight, little oligopoly to collude to facilitate 

price increases. 

Mr. OBERSTAR. Thank you very much. I want to thank all of the 

panelists for their presentation. 

Having listened to this testimony all through the afternoon and 

read over much of it previously, I think there is a prima facie case 

made for restraint of trade, and I think the Committee in consultation with the Minority and Majority should consider a formal referral to the Federal Trade Commission for action. 

Mr. LaTourette, what do you think? 

Mr. LATOURETTE. Thank you. 

Mr. OBERSTAR. With that, the Committee stands adjourned. 

[Whereupon, at 7:23 p.m., the Committee was adjourned.] 

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