Delta Merger Articles

[JonnyKnoxville]

Delta Aims for Swift Merger With Northwest or United
Wall Street Journal
January 15, 2008
Delta Air Lines Inc. has opened merger negotiations with both UAL Corp.'s United Airlines and Northwest Airlines Corp., and hopes to negotiate a merger agreement with one of the airlines over the next two weeks, according to people familiar with the situation.
Delta's board gave permission to Chief Executive Richard Anderson on Friday to begin simultaneous talks with both carriers, those people said. Either scenario would create the largest airline in the U.S.
Delta executives, who completed a round of preliminary discussions with United and Northwest before seeking board permission for formal talks, plan to move swiftly and present the preferred partner to Delta directors when they next meet in early February. A deal could be announced as early as mid-February, according to those people.
A spokeswoman for Atlanta-based Delta declined to comment.
Of the two other airlines, Northwest, based in Eagan, Minn., is considered the more likely of the two partners, according to people involved in the matter. Mr. Anderson is the former chief executive of Northwest and remains close to Douglas M. Steenland, his successor there. Tammy Lee, a spokeswoman for Northwest, declined to comment.
Also, a combination with Northwest, the fifth-largest U.S. airline by passenger traffic, is less likely to run afoul of regulators, who are certain to judge any merger for its impact on fares and competition. United is the second-largest airline by traffic, and Delta ranks third.
At the same time, UAL CEO Glenn F. Tilton has been among the most outspoken advocates for consolidation in the airline industry. Jean Medina, a United spokeswoman, declined to comment.
Many airline executives believe consolidation in the industry is necessary, especially in light of oil's rapid rise. They also believe merger talks must happen quickly because such deals are more likely to be approved by federal regulators under the current Republican administration, though completing a merger agreement in just two weeks is viewed as unrealistic by some industry analysts. Analysts predict that once one major merger occurs in the U.S., a wave of other tie-ups will quickly follow.
In addition to competitive hurdles, other issues that will be discussed include labor structures, route networks, and the broader airline alliances that already exist among major U.S. and foreign carriers.

 

[JonnyKnoxville]

Delta merger would face tough antitrust review
Reuters (appeared on USA Today)
January 14, 2008
Delta Air Lines would face an unprecedented airline antitrust review if it decides to propose a merger with either Northwest Airlines or United Airlines parent UAL. Industry consultants, lawyers, and former government officials agree either merger would present the Justice Department with its toughest airline test. And with a crucial election year underway, Congress would certainly weigh in.
Industry consultants, lawyers, and former government officials agree either merger would present the Justice Department with its toughest airline test. And with a crucial election year underway, Congress would certainly weigh in.
"None of this is going to be easy," said Darryl Jenkins, a Virginia-based airline consultant. "This is an awfully big merger. No matter who does it, it will be looked at very carefully."
A Delta merger review would include serious scrutiny of large international route networks. It would also test a popular assumption that the merger parties would get more favorable treatment from the Bush administration compared with a possible Democratic one in 2009.
Antitrust lawyers polled by Reuters said none of the leading presidential candidates was considered an antitrust maverick, although Democrats have had a reputation for being more aggressive than Republicans in challenging mergers.
James Burnley, a former transportation secretary under President Ronald Reagan, said there is merit in rolling out something soon to ensure scrutiny by Republicans, but "that doesn't mean anyone gets a free pass."
Delta management wants to begin formal merger talks with Northwest and United, the Wall Street Journal reported last week. The airlines have not commented.
For sheer size and reach, No. 3 Delta hooking up with either No.2 United or No. 5 Northwest is only comparable to an earlier bid by United to swallow US Airways. That attempt collapsed in 2001 after an lengthy antitrust review, completed by the Bush Justice Department, raised serious competition concerns.
All experts agreed Congress would seek to have influence. Lawmakers - worrying about the impact on airline service to their districts, jobs, and ticket prices - could not halt a merger outright. However, they could pressure the White House and antitrust enforcers.
Delta appealed to lawmakers in its successful effort to turn back a hostile merger bid from US Airways last year.
Two aviation heavyweights in the Democratic-run House, Reps. James Oberstar of Minnesota, where Northwest is headquartered, and Jerry Costello of United's home base of Illinois, are both skeptical of big mergers. They have signaled in recent months at hearings and in interviews that the industry should proceed carefully.
The most comparable period for consolidation, experts say, was the mid 1980s when a flurry of merger activity involving healthy or relatively healthy companies.
A merger between Delta and Northwest, or with United, would be unprecedented, because of their size and the fact that all three carriers are financially stable.
The Bush administration has approved two big airline mergers: American Airlines acquisition of TWA in 2001 and the merger of US Airways and America West in 2005. Both involved financially distressed companies, US Airways and TWA, a situation that generally gets a more sympathetic government review.
The paramount concern for the government would be the market share of a United-Delta or Northwest-Delta combination.
Delta and United together comprise nearly a quarter of domestic service based on passenger traffic. Delta and Northwest account for about 18%, the latest Transportation Department figures show.
Dominance on specific routes and at key airports would also be carefully scrutinized. Delta commands 53% of business at its Atlanta hub and a third of flights at Salt Lake City and Cincinnati.
United's share at Chicago's O'Hare airport is 40%; 42% at Denver and San Francisco, and 21% at Washington Dulles. Northwest has 66% of the business at Minneapolis, 60% at Detroit, and half of all flights at Memphis.
Antitrust officials characteristically would seek divestment at certain airports, depending on the merger combination, and target overlapping routes.
One insider, who did not want to speak for attribution because he consults for major airlines, said he did not "see any show stoppers" in airports or routes for either Delta combination.
It is unclear, however, how the Justice Department would view the potential combination of international routes as well as the carriers' deep alliances with foreign carriers. Both Delta and Northwest have close ties to Air France-KLM, while Delta and United are members of competing global alliances.

 

[JonnyKnoxville]

Northwest CEO addresses merger rumors
Associated Press (appeared on USA Today)
January 14, 2008
The chief executive of Northwest Airlines says his carrier could benefit from a merger - if it's the right deal.
As the Delta Air Lines board met to discuss the issue, Northwest Airlines Corp. chief Doug Steenland sent an internal memo to employees Friday saying his airline's board and management team would analyze any deal carefully.
"Most importantly, we will carefully consider the impacts on our own employees and ensure that the outstanding employees of Northwest Airlines are included in this process," he wrote. "The right transaction could be of benefit to our employees, our shareholders and the communities we serve."
Steenland didn't say whether Delta had approached Northwest.
Delta officials were mum on the outcome of that company's board meeting Friday.
According to two people familiar with the situation, Delta's board was expected to be asked to allow formal talks between Delta and Northwest and UAL's United Airlines, with the idea that Delta would ultimately choose to combine with one of the two. The people spoke on condition of anonymity because of the sensitivity of the talks.
Steenland said Northwest, which emerged from Chapter 11 bankruptcy in May, is better positioned than most of its competitors to run profitably. But he said fuel price increases have run above the carrier's projections, making it harder to maintain the same level of profitability and reinvest profits.
And he warned that Northwest, based in suburban Eagan, can't control or predict what other carriers or airline shareholders might do.
"Doing nothing could be our worst alternative," he said. "If we wait to react to what others do we could be left with options that are undesirable or with no options at all.
"You can be sure that we are giving this very important issue the serious attention it deserves - and that we will weigh carefully the strategic implications of each course of action available," he wrote.
Steenland also said in his memo that Northwest management would continue its policy of not commenting on rumors or speculation about talks with other airlines.

 

[JonnyKnoxville]

Column: Mergers Benefit Airlines; Shame About the Fliers
Wall Street Journal
January 15, 2008
Some corporate mergers have little effect on customers. But when big airlines merge, it changes life for travelers, leading to higher ticket prices, poorer service and maybe even a switch in the credit card you carry.
For the fractured airline industry, where nine big airlines fight coast-to-coast, removing large competitors and bulking up flight schedules could be a way to better survive high oil prices and recession instead of the bankruptcies and turmoil of past downturns. That's why Delta Air Lines Inc. may be considering formal merger talks with either UAL Corp.'s United Airlines or Northwest Airlines Corp., and why analysts think multiple major marriages could lie ahead.
"By default or design, I think it's going to happen. If it doesn't, they'll be back in the tank again," said Gordon Bethune, the former head of Continental Airlines who has been advising some big airline investors on merger prospects.
But for travelers, big-airline couplings historically have meant headaches. Airline employees endure change and disappointment -- which could make them act grumpier toward customers. Some communities could see reduced service if mergers allow the combined airlines to close hub operations -- would a merged Delta and Northwest still need hubs in Cincinnati and Memphis, for example? Higher ticket prices are likely; airlines merge in part so that they will have more pricing power.
But the biggest peril for consumers is poorer service -- late flights, lost baggage, confusion at airports, ticketing troubles and changes in frequent-flier program rules.
Just consider what happened after US Airways Group Inc. merged with America West Airlines. The two carriers now have a stronger network and have seen a boost in revenue they can generate through higher fares and a better mix of business travelers. But consumers have paid a huge price beyond more-expensive tickets.
When the two carriers finally moved to a single reservation system, customers discovered some itineraries had been lost and computer troubles led to long lines at airports, widespread flight delays and disruption. America West managers, who took over larger US Airways, have struggled to fix an inadequate baggage-handling operation in Philadelphia that produced piles of lost suitcases during busy times. US Airways on-time performance plunged; customer complaints soared, according to the Department of Transportation. And the carrier still has to deal with its fractured pilots union, where original US Airways pilots are unhappy about how their seniority was affected by integration with the former America West pilots.
"Airline mergers help stockholders and the company, but not consumers," said Paul Hudson, executive director of the Aviation Consumer Action Project, a nonprofit group.
Travelers could see big changes in frequent-flier programs. Delta, for example, has its mileage program tied to American Express Co., while United miles are earned using J.P. Morgan Chase & Co. cards, and Northwest is aligned with U.S. Bancorp. Typically in airline mergers, customers of the acquired carrier have to switch credit cards to the surviving airline's program.
Credit-card companies could play a bigger role than usual in merger negotiations since several propped up airlines in their bankruptcy reorganizations a few years ago by pre-buying frequent-flier miles to give to customers. American Express, for example, pumped $500 million into Delta. "Plastic plays a big part in changes," says Randy Petersen, president of Frequent Flyer Services, a Colorado Springs, Colo., frequent-flier publisher.
Combining frequent-flier programs could make it tougher for travelers to score free seats and upgrades. More elite-level frequent fliers, for example, may be trying to get upgrades on a specific flight. But it also opens up new destinations where travelers can get free tickets, and lets elite-level fliers use their benefits like early boarding and better seating on more flights.
"Supply and demand evens out a little bit when programs get bigger," Mr. Petersen said.
Mergers also can mean bigger airplanes on some routes if a combined carrier with a larger customer base can substitute a full-size, mainline jet for a 50-seat regional jet. Some transcontinental and international flights could see larger aircraft -- wide-body jets instead of single-aisle planes -- as well.
Mr. Bethune said an analysis of a Delta-United combination forecast a 10% reduction in regional-jet service for customers of those two airlines, and about 15 jets worth of additional mainline flying.
Such a consolidation of airplanes could help ease some congestion in the skies. But at the same time, mergers could lead to more congestion at specific hub airports that get bigger with consolidated traffic. And historically, mergers open up opportunity for new entrants and discount airlines that fill in gaps left by service cuts and find new opportunity when bigger incumbents raise prices.
One of the biggest beneficiaries of past airline mergers: Southwest Airlines Co., which has expanded in cities affected by mergers and has capitalized on bigger-airline service woes and higher ticket prices. US Airways acquired PSA and AMR Corp.'s American Airlines acquired AirCal to give them intra-California flights, but Southwest dominates those markets today. The latest examples of that opportunistic strategy are Philadelphia and Pittsburgh, where Southwest has expanded as US Airways has contracted

 

[JonnyKnoxville]

Delta merger would rouse concern in Congress; Lawmakers don't want base moved
The Atlanta Journal-Constitution
January 13, 2008
One year ago this month, Delta Air Lines then-Chief Executive Gerald Grinstein asked Congress for help in stopping an airline merger.
He insisted that US Airways Group's $9.5 billion offer to acquire his company would harm workers and consumers. Delta should remain "a strong, fiercely competitive, stand-alone airline," he told the Senate Commerce Committee.
Delta's new chief executive Richard Anderson could find himself testifying before Congress too, but this time explaining why a major airline merger would be good for the country.
"If there started to be a wave of mergers, there is going to be congressional interest because smaller communities would not want to lose service," Sen. Johnny Isakson (R-Ga.) said. He predicts lawmakers would look at their home states and wonder: "Am I going to get hurt?"
Numerous news outlets, quoting anonymous sources, said Anderson met with the Atlanta-based company's board Friday, seeking permission to launch formal merger discussions with either Northwest or United airlines. Delta would not comment.
But the very notion of a Delta-initiated merger stirred up Wall Street speculation that the airline industry, plagued by high fuel prices, excess capacity and a slowing U.S. economy, may be ready for a wave of consolidation.
Both the Transportation and Justice departments would have to approve any airline merger. Many Wall Street analysts have said carriers likely would want to push forward with deals soon, hoping to get them approved this year by the Bush administration's business-friendly antitrust authorities.
Congress cannot directly prevent an airline merger, but can hold hearings to examine the deals and apply political pressure. In general, lawmakers fear that an industry dominated by giants would forget about smaller, remote communities.
The wariness is bipartisan. Florida's Rep. John Mica, the House Transportation Committee's senior Republican, said even free-market conservatives are reluctant to endorse airline mergers.
"I myself have mixed emotions because I know there are some benefits that can come from consolidation, but I am worried about the loss of competition," Mica said. "I'm not sure having just a few carriers would be good for consumers."
Last year when Delta's independence appeared threatened by Tempe, Ariz.-based US Airways, Sen. Jay Rockefeller (D-W.Va.), who chairs the Senate's aviation subcommittee, provided an example of how Congress can apply political pressure. During the hearing, he floated the idea of imposing regulations to force more air service to rural areas.
"I am becoming increasingly convinced that some regulation may become an option to make sure small communities are not harmed by consolidation," Rockefeller said at the time.
US Airways CEO Douglas Parker tried to win over Congress, saying the merger he was proposing would lower costs, boost operational efficiencies and allow the combined airline to cut fares in "dozens of new markets."
But Grinstein told them that 10,000 jobs would have to be cut from the airlines to make the merger work.
During a break at that hearing, Grinstein told reporters he wanted Congress to pass a nonbinding resolution urging the Bush administration to block the deal. But the takeover bid fizzled out before it ever came to a showdown in Washington.
Isakson said he would not necessarily object to a 2008 merger with another carrier, as long as Delta emerged as the surviving company.
"This is a business world," where corporations have to boost profits, he said. But having said that, he will fight to keep the headquarters in Atlanta, no matter what Wall Street wants.
"It's a great brand with a great reputation that is very much linked to Georgia," Isakson said. "It would be a real blow" if Atlanta did not continue to serve as the company's headquarters and primary hub.
Rep. David Scott (D-Ga.) said Georgia's House representatives likewise are focused on "the importance of Delta staying in Atlanta."
But if Delta were to try a merger with Northwest, Georgians could find themselves fighting Rep. James Oberstar. He is the House Transportation Committee's chairman and a Democrat from Minnesota, where Northwest is headquartered.
In an e-mail, Oberstar's spokesman Jim Berard said, "Rep. Oberstar certainly can be expected to work to maintain NWA's presence in Minnesota."
TALKING POINTS

• Aug. 21: Delta's board names Richard H. Anderson as chief executive succeeding Gerald Grinstein, effective Sept. 1. Anderson was a top executive at UnitedHealth but had previously run Northwest Airlines.
• Aug. 22: "I do not come here with any merger intentions," Anderson says in a visit to the Atlanta airport.
• Aug. 30: Chief Operating Officer Jim Whitehurst, who had been a CEO candidate, leaves Delta.
• Oct. 16: Anderson tells analysts a merger "could make sense for Delta if it's done sensibly and from a position of strength." He later says he was restating company position in response to frequent questions and "wasn't trying to kick off anything."
• Nov. 14: Reports surface that hedge fund Pardus Capital urged Delta and United to pursue merger, igniting speculation that a worsening industry outlook and falling stock prices could spark consolidation. The airlines denied having talks.
• Nov. 15: Anderson, in a congressional hearing, tells inquiring lawmakers: "There are no discussions ... There have been no discussions."
• Nov. 29: Delta's top operations executive retires; his replacement is Stephen Gorman, who worked with Anderson at Northwest.
• Wednesday: With stock prices down sharply in recent weeks and new worries about travel demand and overcapacity, merger talk percolates anew. Delta's pilots' union chairman tells pilots, "Consolidation may indeed be at our door."
• Thursday: Reports surface that Anderson will seek board approval to pursue formal merger talks with Northwest and United, though no deal may result.

 

[JonnyKnoxville]

Delta lets the guessing continue on merger talks
The Atlanta Journal-Constitution
January 12, 2008
Delta Air Lines refused to show its hand after its board of directors apparently met Friday to consider a management request to authorize merger talks with United and Northwest airlines.
A spokesman for the Atlanta airline declined to confirm either the meeting or that it was to consider a request from Delta Chief Executive Richard Anderson to begin formal talks with the two airlines, as was widely reported Thursday.
"Delta has a longstanding policy not to comment on board meeting dates or agendas," said spokesman Kent Landers.
"Our board is working with management to look at all strategic options to remain a leader in the industry, including potential consolidation transactions," Landers said. He said Delta "won't provide updates on the board's process."
Delta's board was expected to meet Friday in New York to weigh Anderson's request to ratchet up earlier talks with the two rival airlines with an aim to pick the best deal, according to a person familiar with the matter. The airline has held exploratory talks with United and Northwest since late last year.
Even if formal talks are approved, it's far from certain a merger will follow - or that a proposed deal could survive regulatory scrutiny or possible opposition from politicians or consumer advocates.
Either combination would create the world's largest airline and mark the biggest merger ever among two U.S. carriers.
Anderson arrived at Delta on Sept. 1 saying he had no plans to pursue a merger. But in recent months, amid souring industry conditions and slumping airline stock prices, he has made no secret he's open to a deal if Delta is in the driver's seat.
After an investment firm pushed Delta last November to seek a merger with United, Delta announced that it had hired financial and legal advisers and created a committee of its directors to look at options ranging from remaining independent to merging with another airline.
On Wednesday, the head of Delta's 7,200-member pilots union, Lee Moak, said he was reactivating a committee to deal with a potential merger deal, which he said "may indeed be at our door." A union spokeswoman declined to comment Friday.
Most airline shares have tanked in recent weeks as crude oil prices jumped to nearly $100 a barrel, driving up the cost of fuel, most carriers' biggest expense.
Delta's, United's and Northwest's shares rebounded after news of possible talks surfaced this week. But they still are well below last year's peaks, and Delta's market value - roughly $4.2 billion - is less than half of what US Airways offered in an unsuccessful buyout bid last year.
Northwest and United also have declined to comment on the latest merger scenarios.
The three carriers' stock prices retreated Friday after getting a boost Thursday on news reports of the possible negotiations.
Delta's shares dropped 50 cents to $15.48, while Northwest's shares fell 4 cents to $15.81. United's parent UAL Corp. closed at $32.07, down 12 cents.