Fortune - "Why Delta-NWA Won't Work"

[jmreii]

most airline mergers have never work. the shareholders are trying to cash in their chips before there is a dealer change at the crap tables.

 

[General Lee]

This can't be right. Gen Lee said everything would be better. So the only analysts that think this merger is going to be good are going to benefit in some way from the merger? Say it ain't so.

Long-Haul Investing
Tom Van Riper, 02.21.08, 6:00 AM ET
Forbes.com


Airline mergers are usually about cutting: Hub closings, mass layoffs. The proposed $20 billion deal to combine Delta Air Lines and Northwest Airlines promises to take off in another direction.
With minimal overlap between the two major carriers, the hope here is a strengthened company with new traffic streams and few layoffs. No wonder it's popular. "This merger may be intended to grow the sum of the parts, not reduce it," says industry consultant Michael Boyd. "It could be very innovative."
Translation for investors: Little value in the short term. Last year, Delta Air Lines (nyse: DAL - news - people ) and Northwest Airlines (nyse: NWA - news - people ) combined lost over $6 billion on $29.8 billion in revenue. The only significant cost savings expected from a deal would be the elimination of one of the two headquarters--most likely Northwest's, in Eagan, Minn.--so don't expect those numbers to grow anytime soon.
No, the payoff (potentially) comes when the larger airline establishes itself in new routes, mainly in potential high-growth markets like the Midwest and Deep South, along with Asia. Northwest recently announced domestic route expansions, including more service out of the growing Memphis hub. Delta's been pushing into more international routes; it's added more than 60 since 2006. A new, bigger carrier will add a lot more capacity than it would take out.
Delta already flies direct to nine overseas destinations that no one else does, including Dubai and Tel Aviv from Atlanta. Growing its size can give it the pricing muscle to keep others out of its routes. "It makes sense for the long term, as the company gains more pricing power," says Ray Neidl, an airline analyst with Calyon Securities.
But again, shareholders can't expect to realize much of an initial premium--not unless Wall Street is so enamored of the deal it immediately puts a higher multiple on the stock, the odds of which Neidl optimistically calls "uncertain." Delta shares rose 4 cents Wednesday to close at $16.81, while Northwest gained 25 cents to close at $17.22.
Of course, proposing few initial layoffs has a strategic purpose--helping the deal gain regulatory approval and backing from labor unions: A proposal that calls for no hub closings and little job loss takes away a common objection. In the end, it's tough to imagine that a pair of formerly bankrupt airlines struggling to claw their way back in a troubled industry won't be permitted to join forces.
As for the other potential hurdle--the 12,000 pilots at the two carriers haggling over the seniority rules that would determine future pay raises and desirable schedules--is just a hiccup. The pilots have otherwise agreed to a labor deal, signaling they'll go along with the merger. "When pilots aren't shooting each other, you know there's something on the table that looks good," Boyd says.
Does it look as good for investors? Maybe, if they're ready to ride out the systems integration and culture clashes that have historically complicated airline mergers. With both airlines losing money on their own--and oil at $100 a barrel--it beats the alternatives.



Some people really think this will be a good deal, or innovative. We'll see, as long as seniority issues are ironed out fairly. The USAir merger, operationally anyway, was a great merger. Seniority merge-wise, it was not smooth at all. It fit very well together on a map, but not well on a personality or ego level. I think this could be a good fit between DL and NWA, as long as it is done fairly with regards to seniority. The map part will be a great fit.


Bye Bye--General Lee

 

[BLUE BAYOU]

So here's a question, how would a carrier like say CAL where the pilots have a retirement (still) merge with a pilot group that doesn't have one (UAUA)? Kind of makes that deal a sticky one, huh? I really think the Delta/NWA thing is going to happen-- too many signs point in that direction, a former CEO at NWA at Delta, both filed for bankruptcy on the same day, etc...Both pilot groups with no retirements...

 

[Flopgut]

NWA has a frozen pension just like CAL.

 

[AA717driver]

"Deep South"? You mean Gulfport or RSW?

Yep, I can see it now... Delta waltzes into BA and runs AA out of town. The Argentines are just licking their chops 'till Delta arrives.

BTW, how's S.A. working out for UA? TC

 

[jmreii]

So here's a question, how would a carrier like say CAL where the pilots have a retirement (still) merge with a pilot group that doesn't have one (UAUA)? Kind of makes that deal a sticky one, huh? I really think the Delta/NWA thing is going to happen-- too many signs point in that direction, a former CEO at NWA at Delta, both filed for bankruptcy on the same day, etc...Both pilot groups with no retirements...

america west bought a huge problem and now looks like a snake that is having trouble digesting its meal. could it be that they bit off more than they can chew.

 

[Tomct]

america west bought a huge problem and now looks like a snake that is having trouble digesting its meal. could it be that they bit off more than they can chew.

Well one of two things could have happened. 1) They should have just waited the 10-20 days for US to file Chapter 7 and pick from the dead bones. (would have been the best choice.)
2) The pilots put their heads together and stop this childish fighting and get crackin on a GOOD CONTRACT. Unfortunately, I don't see the Easties being this smart and they are going to waste a TON of money and time with the same end result....No Change in Seniority!
Plain Stupidity!!!!

 

[General Lee]

"Deep South"? You mean Gulfport or RSW?

Yep, I can see it now... Delta waltzes into BA and runs AA out of town. The Argentines are just licking their chops 'till Delta arrives.

BTW, how's S.A. working out for UA? TC

We already go to BA, flying a daily 764 down there (used to be a 767-300ER). Doing well I hear. Did you see we are adding more flights to SA? We recently added Quito and Guayaquil, and we added extra sections to GRU and GIG. Brutal allnighters each way, but great layovers down there.


Bye Bye--General Lee

 

[AA717driver]

We already go to BA, flying a daily 764 down there (used to be a 767-300ER). Doing well I hear. Did you see we are adding more flights to SA? We recently added Quito and Guayaquil, and we added extra sections to GRU and GIG. Brutal allnighters each way, but great layovers down there.


Bye Bye--General Lee

Yep. I'm aware. TC

 

[freightdogfred]

Let's face it. The GL has as much credibility on this forum as I do or for that matter, anyone. The only thing that make people think he has any knowledge on the industry is the fact he posts a lot. That doesn't make you an airline wizard...it makes you a loser who lives in your mom's basement.

Actually, I'd say he's got a lot more credibility than you do. He works for an airline, not honking on the government titty like you are.

 

[jmreii]

Well one of two things could have happened. 1) They should have just waited the 10-20 days for US to file Chapter 7 and pick from the dead bones. (would have been the best choice.)
2) The pilots put their heads together and stop this childish fighting and get crackin on a GOOD CONTRACT. Unfortunately, I don't see the Easties being this smart and they are going to waste a TON of money and time with the same end result....No Change in Seniority!
Plain Stupidity!!!!

These days you are better off waiting for door no.1, I do not believe you will ever see door no.2 with this group. They were predictable; it just means america west did not do their homework or half-a$$ it. you definitely get what you pay for.