Delta, Northwest on verge of a merger
If approved, the deal would create the world's largest airline and could be followed by more consolidation.
By Peter Pae, Los Angeles Times Staff Writer
February20, 2008
Delta and Northwest are close to a deal that would create the world's largest airline and jump start what is expected to be the industry's biggest consolidation wave in decades.
The long-awaited pact between Delta Air Lines Inc., the nation's third-largest airline, and No. 5 Northwest Airlines Corp. could come as early as today if there is an agreement by the pilots union for a common contract.
The marriage, which would require regulatory approval, would create a new and expanded Delta with a fleet of 1,115 planes and 85,000 employees. It would fly more than 130 million passengers annually to more than 1,100 cities worldwide.
The combination also would bring together two airlines that each emerged from Bankruptcy Court protection only a year ago.
While the combination could result in higher fares in some markets, widespread or prolonged hikes are less likely because the two airlines have few routes that overlap, analysts said. Also, the new carrier could face increased competition as low-cost airlines expand into markets it cuts back service in.
Locally, the effect is expected to be minimal because the two airlines together account for about 11% of the market share at Los Angeles International Airport.
Neither Delta nor Northwest has extensive service to other Southern California airports.
"The impact on fares will be neutral," said Terry Trippler, an aviation consultant who runs travel advice website TripplerTravel.com. "I can't find too many places where these two airlines combining would create a monopoly."
A deal could still be delayed or even scuttled, particularly if the two airlines' pilots are unable to come to an agreement on meshing their seniority lists and other work-related issues. Delta and Northwest don't want to repeat the expensive labor issues that have hindered the merger of US Airways and America West.
On Tuesday, U.S. Sen. Amy Klobuchar (D-Minn) said in an interview with Reuters that she had spoken with Delta Chief Executive Richard Anderson earlier in the day and was told that a deal had not yet been struck.
But Anderson told the senator that they were working toward a deal and were looking at getting support from the pilots' unions.
If a deal is struck, the new airline would retain the Delta name and have its headquarters in Atlanta, where Delta currently has its largest airport hub. In hopes of winning political support in Minneapolis, Northwest's home base, the combined airline is likely to keep a major presence there, including maintaining Minneapolis-St. Paul International Airport as a major hub.
The deal is expected to encounter significant scrutiny from regulators, but the airlines anticipate that it would be less under the current Republican administration, which is seen as being business friendly.
Big airlines are in a hurry to merge this year to avoid the possibility of tighter restrictions if a Democrat was to capture the White House in November.
Analysts believe the next possible combination could involve United Airlines owner UAL Corp., the nation's fourth largest, and No. 6 Continental Airlines Inc.
Southwest Airlines Co. reportedly is considering a merger with US Airways Group Inc., leaving only AMR Corp.'s American Airlines without a major merger partner.
"The orchestra is playing and the dance is beginning so you better pick a partner or you'll lose out," Trippler said.
The latest move to consolidate comes less than a year after several major airlines emerged from bankruptcy reorganization and began posting profits for the first time since the Sept. 11, 2001, terrorist attacks. Airlines such as Delta, Northwest and United got hammered by a dramatic drop in air travel in the aftermath of the attacks, losing billions of dollars in revenue.
A Delta-Northwest deal would mark the latest attempt at mergers that have otherwise been unsuccessful, including last year's hostile bid for Delta by US Airways as well as an attempt by United and Continental to tie the knot in 2001.
Analysts contend that the current environment is ripe for mergers. After six quarters of profits, U.S. carriers reported their first quarterly losses after being hit hard by high fuel prices, which are not expected to drop significantly any time soon.
International carriers also have stepped up competition for overseas travel and low-cost carriers such as JetBlue Airways Corp. and Virgin America have been snatching away domestic passengers.
