Delta And Northwest Planned Merger Still Has Obstacles

After racking up $35 billion in losses and finally emerging from a five-year slump in 2006, US airlines are hoping that mergers could lead to higher fares as combined carriers reduce flights and use their increased market power to raise prices.  The airlines also feel an urgent need to consolidate and cut costs in order to weather high fuel prices, a weak economy and a growing competitive threat from European carriers as trade barriers fall on trans-Atlantic travel.  This merger could also speed up another tie-up, that of Continental Airlines and United Airlines.  Those two carriers have laid most of the groundwork for a merger, two people briefed on the matter said, and could have a deal ready "pretty quickly" following the Delta and Northwest announcement, one of them said.

The new Delta Air Lines will still be headquartered in Atlanta and operate under Delta's flag, but with over $35 billion in annual revenue and about 75,000 employees. Delta Chief Executive Richard Anderson will lead the combined airline.  Delta's pilots would get a 3.5 percent equity stake in the new company while US-based non-pilot employees of both airlines would be given a 4 percent equity stake upon closing of the deal.  The deal will combine Delta's strong Atlanta hub and its trans-Atlantic route network, with Northwest's extensive Asian presence, including a hub in Tokyo. There will be no hub closures, Delta said.  Analysts say it would be tricky for Delta to deliver on its promise to retain all hubs.

Previous talks stalled in February after pilots' unions at Delta and Northwest failed to agree on how to combine the seniority lists of the two groups.  Delta previously had indicated it would delay merger plans until pilots, the airline's only major unionized group, agreed to an integration deal.  But the airlines have decided to go ahead with the merger to create efficiencies that will offset high fuel prices and enable the new carrier to better compete internationally.   Delta and Northwest said the deal promises to generate $1 billion in annual revenue and cost synergies.  The Northwest pilots union said in a statement: "This agreement clearly disadvantages NWA pilots both with respect to economic issues and seniority list integration.  The NWA MEC will use all resources available to aggressively oppose the merger."

Delta, the third-largest US carrier and Northwest, the fifth-largest, still have to get the deal past antitrust authorities, which have scuttled previous airline merger proposals, and overcome objections from pilots' groups and other employee unions.

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