Here's another article on it....
Delta, Northwest Deal Would Link Disparate Aircraft Fleets
DOW JONES NEWSWIRES
April 14, 2008 5:22 p.m.
By Ann Keeton Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA), believed to be close to announcing a merger that would form the world's biggest airline by passenger traffic, will have to grapple with two quite different fleets of aircraft.
Typically, airlines get cost synergies from using the same types of aircraft, including similar models made by a single manufacturer. That cuts costs for pilot training and for maintaining aircraft, and allows more flexibility in how routes are flown. But the hundreds of aircraft flown by Delta and Northwest aren't a very good fit. Delta's all-Boeing fleet is relatively young although, at the end of last year, it included 117 older MD-88s, which are no longer made; Delta is the only U.S. carrier that flies MD-90s. Both aircraft types were made by McDonnell Douglas, which was bought by Boeing Co. (BA). Delta also owns a regional airline subsidiary, Comair, which it has considered selling. The regional airline is shedding planes with 50 or fewer seats, which aren't economical with today's high fuel prices. Altogether, Delta operates a fleet of 578 aircraft, with 76 new aircraft on order. Northwest, on the other hand, flies a combination of Boeing and Airbus planes. It operates the second-oldest fleet in the U.S., behind AMR Corp.'s (AMR) American Airlines, and is working to modernize its fleet by gradually taking old DC-9s out of service. Generally speaking, the older the plane, the higher the fuel bill. At the end of 2007, Northwest operated 94 DC-9s out of a total of 519 aircraft. More than 150 planes in the fleet came from Airbus, a division of European Aeronautic Defence & Space Co. (EADSY), Boeing's European rival.
The Minnesota airline has 75 new aircraft on order from both manufacturers, and will be one of Boeing's first U.S. customers for the new 787 Dreamliner. Maintenance plans at the two airlines are quite different: Delta does much of its own aircraft maintenance, while Northwest hires third parties to maintain its fleet.
With the price of oil skyrocketing, the need for airlines to cut costs is acute. For the first time in history, U.S. airlines are trimming domestic capacity to weed out unprofitable routes, even though they may be giving up market share. Airline mergers haven't worked well in the past, partly because they cost so much. In addition to disparate fleets, airlines have to blend together pilot groups - seniority is still a thorny issue for Delta and Northwest - and combine reservation systems, a problem that, along with pilot problems, plagued the US Airways Group Inc. (LCC) merger with America West last year. Airlines this year have been under the gun to complete a merger before the Bush administration leaves office. Investors worry that antitrust views on mergers may be tougher under a new administration.
With so many issues to sort out, Delta and Northwest could be better off creating a holding company to operate two separate airlines, until such time as it made sense to complete a full-fledged merger.
Working together, the two airlines could share aircraft and boost revenue by taking advantage of their complementary route networks, argues airline consultant Bob Mann.
In the domestic market, the regional jets of 75 seats that Delta uses in its Comair unit could efficiently replace Northwest's 100-seat DC-9s. "If they are able to generate more revenue on those routes, Northwest wouldn't need to cut capacity as much," which would also add revenue, Mann said. Delta, which has contracts with other regional carriers, could also contract with other airlines to replace DC-9s at Northwest, Mann said.
At the same time, the two airlines could gain revenue synergies on their successful international routes, Mann said. "If you're the world's biggest airline, you're number one, and American (now the world's largest carrier) is number two. That means you can get more corporate accounts, since companies want to work with the airline that has the most flights to the most destinations."
-By Ann Keeton, Dow Jones Newswires; 312-750-4120;
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