Delta and Northwest create world's biggest carrier 15 APR 2008: Almost there. Delta Air Lines Inc. and Northwest Airlines Corp., squeezed by record high fuel prices and a slowing economy, are merging in a stock-swap deal that would create the world's biggest carrier. The combined airline, will be called Delta, will have an enterprise value of US$17.7 billion, and will be based in Atlanta. Delta CEO Richard Anderson will head the company.
The boards of both companies gave the deal the go-ahead Monday.
Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. The exchange ratio represents a premium to Northwest shareholders of 16.8% based on closing stock prices Monday.
Delta chairman Daniel Carp will become chairman of the new board of directors and Northwest chairman Roy Bostock will become vice-chairman. Delta president and chief financial officer Ed Bastian will retain his titles.
Job cuts and union issues to come
There will be an unspecified number of job cuts or transfers through the consolidation of overlapping corporate and administrative functions, Delta said. The two airlines employ more than 80,000 people combined. Existing pension plans for both companies' employees will be protected.
Delta doesn't plan to close any of the two airlines' hubs.
Delta also said that it has agreed with its pilot leadership to extend its existing collective bargaining agreement through the end of 2012. The agreement, which is subject to pilot ratification, will allow the combined company to realize the revenue synergies of the transaction. It also provides the Delta pilots a 3% equity stake in the new company and other enhancements to their current contract.
The agreement does not cover Northwest pilots.
Delta said it will use its best efforts to reach a combined Delta-Northwest pilot agreement, including resolution of pilot seniority integration, prior to the closing of the merger.
US-based non-pilot employees of both companies will get a 4% equity stake in the new airline when the deal closes.
Northwest pilots and the union representing most of Northwest's ground workers immediately announced they would fight the combination.
Dave Stevens, chairman of the Northwest branch of the Air Line Pilots Association, said in a prepared statement, “The risk to Northwest Airlines and to the Northwest pilot group from letting this merger proceed, as it is now structured, is simply too great.''
Northwest didn't consult with the union that represents its baggage handlers, ramp workers and ticket agents, said Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers.
”If the airline wanted the support of their employees they should have brought us in and discussed it with us earlier,'' he said.
Lee Moak, head of Delta's pilots union, said Delta hopes cooler heads will prevail.
”It takes two to fight,'' Moak told The Associated Press. ``We don't see a fight here. We see a co-operative relationship with the Northwest pilots to bring everybody to parity as soon as possible.''
The two pilots unions were unable to agree on integrating seniority lists before the combination was announced.
The announcement comes a year after the two carriers emerged from Chapter 11 bankruptcy protection. Both carriers are losing money again but are in much better shape than the four much-smaller airlines that have filed for bankruptcy or gone out of business in recent weeks.
The deal will need antitrust approval, and integrating the work forces of fully unionized Northwest and Delta, where pilots are currently the only major unionized work group, will be tricky.
Consolidation creates synergies
The joining of Atlanta-based Delta and Eagan, Minn.-based Northwest, if approved by regulators and shareholders of both companies, will result in combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp.'s American Airlines for the top spot in the US.
It would be the biggest carrier in the world in terms of traffic, before any further domestic capacity cuts and any divestitures that might be required by antitrust regulators.
Wall Street and some airline executives have pushed for consolidation for years, arguing that too many seats are chasing too few passengers. The resulting discounting has made it hard for airlines to cover their expenses.
However, Northwest and Delta overlap relatively little in the US which could actually help them gain antitrust approval. Delta's routes are strongest in the eastern US and to Latin America and Europe. Northwest would complement that with its near-lock in the Midwest along with flights to its Tokyo hub and other points in Asia.
Northwest's Asian routes have been one of its main appeals to other carriers. It and United are the only two US carriers with the rights to pick up new passengers in Japan and fly them farther into Asia. Delta and Northwest also complement each other internationally because they are both part of a marketing alliance that includes Air France-KLM.
US airlines get the majority of their revenue from domestic service, though that trend has shifted in recent years as more carriers, particularly Delta and Northwest, have sought to increase international service.
Months of discussion and predictions
The agreement comes after several months of merger discussions between Delta and Northwest and at one time between Delta and Chicago-based UAL Corp.'s United Airlines. Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap, even though a Delta-United combination could create more scale and have greater synergies.
Many analysts predicted an eventual Delta-Northwest merger after Anderson, a former Northwest CEO, was named last August to be the chief executive officer of Delta.
Anderson, who was Northwest's CEO from 2001 to 2004, immediately sought to quiet those suggestions, telling Delta's pilots union chairman the morning his appointment was announced that he believed in Delta's standalone plan and that ``he was not coming in as CEO to facilitate a merger with Northwest.''
But eight months later, that's what Anderson is doing, and many analysts believe he didn't have a choice amid plummeting airline market values and soaring fuel prices.
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