lowecur
Well-known member
- Joined
- Sep 14, 2003
- Posts
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Looks like even though a DL/NWA consolidation would save $1.5B through the closing of CVG/MEM, Pardus/Bethune think a DL/UAL deal(savings of approx $600M) would face less opposition from regulators.
Gee, I wonder if they have a higher vested interest in that choice?
imp:
January 11, 2008
Delta Executives Consider Merger Talks
By JEFF BAILEY
Executives of Delta Air Lines, facing increasingly grim economic conditions, plan to ask the carrier’s directors on Friday for permission to engage in merger discussions with United Airlines and Northwest Airlines, a step that could push the industry’s much-talked-about need to consolidate closer to reality.
Oil at nearly $100 a barrel, a slowing economy and airline workers demanding raises to compensate for the pay cuts in recent bankruptcies are all conspiring to snuff out the industry’s nascent recovery. That has executives and investors looking at possible mergers as a way to cut costs and stay profitable.
News of the proposal to Delta’s board sent airline stocks soaring.
But mergers are highly risky in the airline business. Complex old computer systems do not mesh easily. Political opposition can crop up when service to a city or state is threatened with cuts. And labor unions — crucial to providing good service and a smooth operation — can effectively torpedo a deal if they choose.
Despite all that, the likelihood of a major deal appears more probable than it did last year because the cost of doing nothing could be another round of big losses, and even bankruptcies.
Big airlines remain deeply in debt, and revenue could decline sharply in a recession.
Delta was urged in November by a large shareholder, Pardus Capital Management, to seek a merger with United. Pardus argued the two carriers would save $585 million a year by combining. Pardus said a merger with Northwest could save $1.5 billion a year, largely by shutting two hubs.
The most likely candidates would be the Memphis operation of Northwest and the Cincinnati operation of Delta. But doing that inevitably would attract political and union opposition. Thus, Pardus favored a deal with United.
“What we were doing is trying to make something that is civilized,” said Gordon M. Bethune, a former Continental Airlines chief executive who is advising Pardus.
Delta, led by its new chief executive, Richard H. Anderson, and a special board committee, has been studying possible combinations with other airlines.
A person close to the situation Thursday confirmed that Mr. Anderson would be asking directors for approval to proceed into direct talks with United, operated by UAL, and Northwest. The proposal to directors was reported Thursday by The Wall Street Journal on its Web site.
Delta, United and Northwest all declined comment.
If the Delta board consents to merger discussions, any deal could still take months to work out and talks could easily fall apart.
Airline industry executives generally assume that both United’s chief executive, Glenn F. Tilton, and Northwest’s, Douglas M. Steenland, want to sell their companies.
Shares of Northwest leapt 32 percent on the news, to $15.85; United rose 24 percent, to $32.29; and Delta jumped 18 percent, to $15.98.
Shares of other big carriers rose as well, as investors anticipated a possible industry realignment.
Continental rose 24 percent, to $23.25. US Airways rose 15 percent, to $12.55. AMR, the parent of American Airlines, climbed 13 percent, to $13.41.
For consumers, one or more airline mergers could mean reduced service in some areas and higher fares. Delays and other service lapses might also increase, at least temporarily, because of the difficulty of combining airlines.
Delta pilots signaled Wednesday, in a letter from their chairman, Lee Moak, that they might be willing to support a merger. “Consolidation may indeed be at our door,” Mr. Moak said in a letter to other pilots. “We do not oppose consolidation, and may even determine that consolidation is desirable.”
For pilots, relative seniority is paramount in mergers, and it appears Delta pilots may be only slightly junior, on average, to United’s pilots.
The merger of US Airways and America West Airlines, completed in 2005, has been rocky in part because US Airways pilots were vastly senior to America West pilots, and merging seniority lists has led to litigation and prevented the company from operating as a single airline.
Mr. Anderson, the Delta chief executive, in a memorandum promised workers in November: “We won’t enter into any transaction with another airline unless we have seniority protection for Delta people.”
Gee, I wonder if they have a higher vested interest in that choice?
imp:January 11, 2008
Delta Executives Consider Merger Talks
By JEFF BAILEY
Executives of Delta Air Lines, facing increasingly grim economic conditions, plan to ask the carrier’s directors on Friday for permission to engage in merger discussions with United Airlines and Northwest Airlines, a step that could push the industry’s much-talked-about need to consolidate closer to reality.
Oil at nearly $100 a barrel, a slowing economy and airline workers demanding raises to compensate for the pay cuts in recent bankruptcies are all conspiring to snuff out the industry’s nascent recovery. That has executives and investors looking at possible mergers as a way to cut costs and stay profitable.
News of the proposal to Delta’s board sent airline stocks soaring.
But mergers are highly risky in the airline business. Complex old computer systems do not mesh easily. Political opposition can crop up when service to a city or state is threatened with cuts. And labor unions — crucial to providing good service and a smooth operation — can effectively torpedo a deal if they choose.
Despite all that, the likelihood of a major deal appears more probable than it did last year because the cost of doing nothing could be another round of big losses, and even bankruptcies.
Big airlines remain deeply in debt, and revenue could decline sharply in a recession.
Delta was urged in November by a large shareholder, Pardus Capital Management, to seek a merger with United. Pardus argued the two carriers would save $585 million a year by combining. Pardus said a merger with Northwest could save $1.5 billion a year, largely by shutting two hubs.
The most likely candidates would be the Memphis operation of Northwest and the Cincinnati operation of Delta. But doing that inevitably would attract political and union opposition. Thus, Pardus favored a deal with United.
“What we were doing is trying to make something that is civilized,” said Gordon M. Bethune, a former Continental Airlines chief executive who is advising Pardus.
Delta, led by its new chief executive, Richard H. Anderson, and a special board committee, has been studying possible combinations with other airlines.
A person close to the situation Thursday confirmed that Mr. Anderson would be asking directors for approval to proceed into direct talks with United, operated by UAL, and Northwest. The proposal to directors was reported Thursday by The Wall Street Journal on its Web site.
Delta, United and Northwest all declined comment.
If the Delta board consents to merger discussions, any deal could still take months to work out and talks could easily fall apart.
Airline industry executives generally assume that both United’s chief executive, Glenn F. Tilton, and Northwest’s, Douglas M. Steenland, want to sell their companies.
Shares of Northwest leapt 32 percent on the news, to $15.85; United rose 24 percent, to $32.29; and Delta jumped 18 percent, to $15.98.
Shares of other big carriers rose as well, as investors anticipated a possible industry realignment.
Continental rose 24 percent, to $23.25. US Airways rose 15 percent, to $12.55. AMR, the parent of American Airlines, climbed 13 percent, to $13.41.
For consumers, one or more airline mergers could mean reduced service in some areas and higher fares. Delays and other service lapses might also increase, at least temporarily, because of the difficulty of combining airlines.
Delta pilots signaled Wednesday, in a letter from their chairman, Lee Moak, that they might be willing to support a merger. “Consolidation may indeed be at our door,” Mr. Moak said in a letter to other pilots. “We do not oppose consolidation, and may even determine that consolidation is desirable.”
For pilots, relative seniority is paramount in mergers, and it appears Delta pilots may be only slightly junior, on average, to United’s pilots.
The merger of US Airways and America West Airlines, completed in 2005, has been rocky in part because US Airways pilots were vastly senior to America West pilots, and merging seniority lists has led to litigation and prevented the company from operating as a single airline.
Mr. Anderson, the Delta chief executive, in a memorandum promised workers in November: “We won’t enter into any transaction with another airline unless we have seniority protection for Delta people.”
