Airline world to get new top dogby Multiple Authors on Apr. 15, 2008, under Edge
Delta Air Lines and Northwest Airlines on Monday night announced plans to merge their vast domestic and international networks, creating the world’s largest airline.
The proposed merger would be the largest U.S. airline deal ever, creating a global giant with more than 800 jets, 6,400 daily flights and nearly $32 billion in annual revenue. The carriers estimate the value of the new company at $17.7 billion dollars, far above their current market value.
The proposal could also be a catalyst for further consolidation among the big airlines at a time when the industry is threatened by steep losses from high fuel prices and a weakening economy.
If the merger closes, the new airline will be named Delta and headquartered in Atlanta, where Delta is based. Delta CEO Richard Anderson will be its CEO.
“Delta and Northwest are a perfect fit,” Anderson said Monday. He said the proposal “combines end-to-end networks that open a world of opportunities for our customers and employees.”
Under the plan, shareholders in Delta and Northwest would exchange their shares for stock in the merged company. Northwest shareholders would get 1.25 shares in the new Delta for each Northwest share.
The merger needs the approval of the Department of Justice, which will determine whether it violates antitrust laws. That review will take months.
The deal would join two big airlines with complementary route networks. Delta is the leading U.S. airline in the trans-Atlantic market and has strong domestic routes, especially in the Northeast, South and West. Northwest — once known as Northwest Orient — has been one of the leading U.S.-Asia carriers for more than half a century, and it’s a formidable domestic presence in the upper Midwest. The new Delta would have major hubs in Atlanta, Detroit, Minneapolis/St. Paul, New York, Amsterdam and Tokyo.
The airlines’ announcement drew immediate opposition from Northwest’s pilots because it does not guarantee them immediate benefits if the deal closes. Delta reached an agreement with its pilot union’s leadership that will give pilots a 3.5 percent stake in the combined airline and other benefits, while giving management the flexibility to boost revenue.
The merger also faces opposition from some powerful members of Congress and other labor groups.
However, executives at both carriers felt pressured to proceed. Jet fuel prices have risen more than 60 percent in a year.
Since Christmas, five small airlines have shut down. Last week, Denver-based Frontier Airlines sought Chapter 11 bankruptcy protection.
Analysts predict Delta and Northwest will post first-quarter losses.
Merger at a glance
Terms of the proposed merger between Delta Air Lines and Northwest Airlines:
— All-stock deal. Northwest shareholders receive 1.25 new Delta shares for each Northwest share.
— World headquarters would be in Atlanta, and all current hubs would be maintained.
— Delta pilots would get 3.5 percent equity in the new company, and non-pilot employees of both companies would receive 4 percent equity.
— Deal is expected to close later this year if necessary approvals are obtained.
By Dan Reed, Marilyn Adams