Distorting the DHL Deal

Summary

Analysis

The AFL-CIO and presumptive Democratic presidential nominee Barack Obama are blaming John McCain for the loss of more than 8,000 jobs in southwestern Ohio. The AFL-CIO mailer is the most explicit, saying that "McCain helped cut a deal that sent over 8,000 jobs to a foreign-owned company." Obama's television ad, which began airing on Aug. 14, charges that "John McCain helped pave the way for foreign-owned DHL to take over an American shipping company." An Obama radio ad, which began airing in Ohio over the weekend, repeats the message that McCain "used his influence in the Senate to help foreign-owned DHL buy a U.S. company and gain control over the jobs that are now on the chopping block in Ohio."

The Backstory

In 2003, DHL, a company owned by Deutsche Post (the German equivalent of the U.S. Postal Service) announced that it would purchase the ground fleet of Seattle-based Airborne Express. The merger gave DHL a fleet of more than 15,000 trucks, as well as ownership of Airborne's Wilmington, Ohio, hub, which consisted of a sorting facility and the world's largest privately owned airport.

Legal challenges from United Parcel Services and FedEx prevented DHL from purchasing Airborne's air freight service. That's because federal law prohibits foreign ownership of any U.S. airline. As a result of those legal challenges, DHL had to sell the airline it had already owned to American investors. That airline became ASTAR Air Cargo. Moreover, when DHL purchased Airborne Express, it had to spin off the air cargo portion into a separate business, ABX Air, which remained under the ownership of the original Airborne Express stockholders.

The upshot is that DHL cannot fly its own packages. It collects packages on the ground and transports them to airports, but it has to contract the air transport of those packages to U.S.-owned airlines. DHL had used ABX Air (which also operated the sorting facility in Wilmington) and ASTAR Air Cargo to move packages by air. But, in May 2008, DHL announced that it would no longer use ABX or ASTAR and would instead pursue an agreement to contract its sorting and air freight to UPS. ABX Air President John Graber says that the move could cost his company 6,000 jobs. Wilmington's mayor, David Raizk, told the Dayton Daily News that another 1,000 ASTAR employees as well as 1,200 DHL workers could face unemployment as well.

Part of the Rest of the Story

The Obama campaign and the AFL-CIO both use the Wilmington debacle to paint McCain as bad for Ohio workers. The AFL-CIO mailer informs us that McCain "turned his back on 8,000 Ohio workers" when he "helped cut a deal" to send those jobs "to a foreign-owned company." The mailer goes on to tell us that McCain "could have stopped the deal" but didn't.

Obama's television ad leads off with two local Ohio residents. Chris Fisher explains that without DHL, Wilmington will be "a ghost town." She is followed by Ed Rutherford who relates his personal hardship of losing his job. The announcer then informs us that McCain "helped pave the way" for "foreign-owned DHL to take over an American shipping company," putting thousands of jobs at risk. The ad closes with Rutherford saying that he feels a "foreign entity" is "sucker punching us."

[TET ]

Obama for America Ad: "Ohio Jobs"

Chris Fisher: If DHL [inaudible] if something happens, it’s gonna be like a ghost town.

Ed Rutherford: I thought I was doing a good job providing for my family, and to have that taken away…

Narrator: In Washington, John McCain helped pave the way for foreign-owned DHL to take over an American shipping company. McCain’s campaign manager was lead lobbyist for the deal.

Narrator: Now, thousands of Ohio jobs at risk.

Rutherford: It’s tough times, when it’s a foreign entity coming in and sucker punching us. That’s how this felt.

Obama: I’m Barack Obama and I approve this message. [/TET]

Obama's radio ad hits on many of the same themes. It begins with McCain's admission that there is likely nothing McCain can do to prevent DHL from eliminating 8,200 jobs. The ad then intones that "there's something John McCain's not telling you" and goes on to explain that McCain "used his influence in the Senate" to help smooth DHL's 2003 purchase of "a U.S. company" and that, more alarmingly, McCain's campaign manager was a lobbyist who was paid $185,000 to lobby on behalf of DHL. Finally, we're told that "foreign-owned DHL doesn't care" that 8,200 Ohioans are losing their jobs.

There is some truth to the ads. As we said, as many as 8,200 workers in Wilmington are likely to lose their jobs as a result of DHL's decision to outsource to UPS. It's also true that in 2003, some senators supported legislation that was designed to make German-owned DHL's purchase of U.S.-owned Airborne Express less attractive. McCain did in fact oppose the legislation. And it's true that DHL paid $185,000 to the firm of Rick Davis, McCain's campaign manager, to lobby for the merger (the $590,000 cited in the AFL-CIO mailer represents the entire amount that Davis' firm collected from DHL during Davis' tenure, most of which went for lobbying on other measures). But it's misleading to say, as Obama does, that McCain "used his influence" to help DHL "buy a U.S. company and gain control over" the 8,200 jobs in question. The AFL-CIO's claim that McCain "could have stopped the deal" is one we find dubious, to say the least.

Both ads refer to a fairly obscure legislative battle. In April 2003, Congress was debating a supplemental spending bill to provide additional money for the then-fledgling war in Iraq. Alaska Sen. Ted Stevens wanted to insert an amendment that would have made it difficult – if not impossible – for DHL to acquire Airborne Express. A number of senators and representatives opposed the measure, as did President Bush. According to reports by Congressional Quarterly, McCain convinced Stevens to offer a watered-down version, which Stevens introduced as part of a 13-page "manager's amendment" just before the vote on the final bill. The proposal:

S. Amend. 522: None of the funds in this Act may be obligated or expended to pay for transportation described in section 41106 of title 49, United States Code, to be performed by any air carrier that is not effectively controlled by citizens of the United States.

The revised amendment would have prohibited DHL (which, at the time, was the only non-U.S. air carrier with a major U.S. presence) from engaging in business with the federal government. McCain participated in the debate of the Stevens amendment but registered no objection to it at the time. The amendment passed via voice vote, so there is no record of McCain's position. The spending bill passed 93 to 0.

Listen to Obama for America Radio Ad

[TET ]

McCain did later voice opposition to even the watered-down version of the amendment; on April 11, 2003, Congressional Quarterly reported that McCain sent letters to members of the House and Senate finance committees urging them not to include Stevens' language in the conference version of the bill. (The House and Senate often pass different versions of spending bills; they must then reconcile the differences in a conference.) In a press release at the time, McCain stated:

McCain (April 17, 2003): If there are legitimate reasons to change the criteria for determining US-citizen control of air cargo carriers, these considerations should be clearly articulated and debated in the normal legislative process – not inserted into a non-amendable vehicle in the dead of night.

McCain's efforts were unsuccessful. The final version of the bill, which became Public Law 108-11, includes Stevens' language and goes on to specify conditions for an air carrier to demonstrate that it is controlled by U.S. citizens. A December 2003 Congressional Research Service report concluded that the law applied to only two U.S. air carriers: ABX Air and ASTAR Air Cargo. However, in May 2004 (after the merger had taken place) the Department of Transportation ruled that ASTAR qualified as U.S. citizen-controlled. And a spokesperson for ABX Air told FactCheck.org that ABX "has never been precluded from bidding on government contracts."

The ads would be correct to point out that McCain opposed the version of the Stevens amendment that would have effectively prohibited the DHL sale. They would even be correct to point out that he opposed the watered-down version, which merely made the merger less attractive. But it's a stretch to suggest that McCain alone could have prevented the deal. There was considerable opposition even to the watered-down version, and President Bush opposed altering military contracts in the midst of two ongoing wars in Asia. Stevens' amendment might have passed if McCain supported it, but there is no way to know that.

Moreover the ads go too far in attributing motives to McCain. The Arizona senator has long crusaded against the practice of inserting pet projects into spending bills, and his April 17 press release lists the Stevens amendment as just one of the spending bill's 51 earmarks and 16 policy changes that he opposed. We can't judge people's motives, but we've seen no evidence to suggest that McCain's activities were directed at helping DHL do anything at all. And certainly we've seen nothing to suggest that McCain "turned his back on" Wilmington's workers.

A Merger That Was Applauded

The ads also engage in some fishy causal reasoning. The mailer and the radio ad both argue that it's the 2003 merger that is the direct cause of the job losses. But that's far from obvious.

In fact, for several years, the merger provided significant benefits to the residents of Wilmington. It allowed DHL to invest $1.2 billion into its North American Operations. Part of that investment included transferring operations from an older hub in northern Kentucky to the Wilmington facility, a move that added about 1,000 jobs in Wilmington. And while a 2003 article in Aviation Week warned that the merger could affect the survivability of either ABX Air or DHL Airways (which later became ASTAR Air Cargo), the warning proved to be, at best, premature. ABX Air stock rose more than 600 percent in its first year of operation (ASTAR is privately held).

Airborne's former employees were happy with the deal, as well. A press release from the Teamsters union praised the "historic" agreement it reached with DHL after the merger. The agreement protected more than 6,000 Airborne jobs by including a "no-layoffs provision" and held out a promise of "more Teamster jobs" as the result of anticipated growth. That prediction proved true for a while. According to the Cleveland newspaper:

Cleveland Plain Dealer, Aug. 6: Several Wilmington civic leaders said that what happened in 2003 created an economic gain for their community, lasting several years.

But despite its investments in the North American market, DHL significantly trails its three main competitors in market share, having never topped 10 percent. In the overnight package business, for example, DHL's 9 percent share lags well behind the U.S. Postal Service (32 percent), FedEx (31 percent) and UPS (25 percent). It's perhaps little surprise then that DHL has consistently lost money on its North American business. A lot of money: $900 million in 2007 and an expected $1 billion in 2008. An analyst at Morgan Stanley predicted in late 2007 that DHL would have to either outsource its business to one of its competitors, reduce its coverage to major metropolitan areas or leave the North American market altogether.

It's possible that Airborne Express would have fared better against its much larger rivals, but we've seen nothing that would suggest that. In fact, according to Congressional Quarterly, Airborne Express had laid off 2,000 workers before the DHL merger went through. And an analyst told the Seattle Times that to continue to thrive, Airborne was "going to have to grow internationally, and that was going to be expensive."

While DHL's move undoubtedly will hurt many residents of Wilmington, it is worth noting that UPS has announced that its new deal with DHL will result in new jobs at its Louisville, Ky., hub. (The exact number won't be determined until early 2009.) So at least some of the jobs in Wilmington will move 150 miles down the road. It's misleading to imply (as both ads do) that these are jobs that are leaving because a "foreign company" owns DHL. The company ships packages inside the United States. It can't very well outsource that sort of thing beyond U.S. borders. In this case, DHL has swapped one U.S.-owned subcontractor for a different   U.S.-owned subcontractor.

In any case, it's implausible to suggest that an Arizona senator's vote in 2003 is directly responsible for the business decisions of an independent company five years later.

– by Joe Miller

Sources