The Delta-Northwest Merger Isnt Yet a Done Deal

Talked about for some time and nearly completed last month, the merger of the two airlines was finally announced despite the fact that all concerns of all pilots have not been met, stockholders have to agree and regulatory approval must be won.

The coming together of Delta Air Lines and Northwest Airlines would create an entity with annual revenues projected at $35 billion, with 800 aircraft and 75,000 employees. No cash will change hands as this would be an all-stock transaction, explains Delta. The combined enterprise would be valued at $17.7 billion and be called Delta.

Current Delta chairman, Daniel Carp, would be chairman of a new board of directors. Northwest chairman, Roy Bostock, would become vice chairman. The board would include seven current Delta directors, five Northwest directors and one member of the Air Line Pilots Association.

The airlines have promised that no hubs will be closed, that they will remain in Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York’s JFK, Salt Lake City, Amsterdam and Tokyo’s Narita.

Both airlines are members of the SkyTeam Alliance and claim to have a common IT platform and look to accelerate joint venture integration with Air France/KLM. In a statement reflecting on the merger, Air France/KLM said, “We are confident we can quickly build a global partnership between Delta, Northwest, KLM and Air France in the form of a joint venture offering a network with extremely attractive multiple hubs. This merger between Delta and Northwest facilitates the implementation of this transatlantic joint venture combining the AirFrance-KLM Group and the new Delta group encompassing Northwest.”

One key to the move by the two airlines to finalize the merger was that the 6,000 Delta pilots agreed to a new contract independently of Northwest pilots. To now, mutually acceptable terms regarding seniority and other matters between the two pilot groups could not be reached. Airline management felt it could not go forward with the merger without a pilot accord. As might be expected, 5,000 Northwest pilots are strongly opposed to the merger, saying they “will be disadvantaged in obtaining a joint contract and potentially in the seniority list integration process.”

These pilot issues could present serious problems for the merged airlines. For example, although US Airways and America West merged in 2005, stone throwing between the two airline’s pilots continues today. While the two groups continue to seek agreement without arbitration, America West pilots have evidenced frustration with the process and have begun separate negotiations with US Airways management on future Airbus A330-200 widebody flying.

Promising to hold a series of hearings in the months ahead to examine the consequences of the Northwest-Delta merger, Congressman James Oberstar (Dem.-MN), Chairman of the House Transportation & Infrastructure Committee, claimed that, “If this merger goes forward, other carriers will follow, there will be a cascade of mergers. Other airlines and network carriers will not be able to withstand the potential power of the largest airline in the world; it will be a globe straddling, mega carrier.”

Oberstar’s reference to other mergers no doubt includes one that has been rumored since the first publicly announced moves by Northwest and Delta. It is thought that movement toward a merger has been accomplished by United Air Lines and Continental Air Lines.

Pilots for those two carriers have said that their concerns will have to be addressed before they would agree to such a merger. “The management teams of United and Continental must understand one hard fact. The pilots of our respective airlines will not allow any merger unless management meets or exceeds our demands to be treated fairly and equitably,” they said.

There maybe challenges to the merger from stockholders. As the agreement between the two airlines was announced, Northwest shares fell 8.4%, or 94 cents, to $10.28. Delta's stock price fell 12.6%, or $1.32 a share, to $9.16.

Meanwhile, Delta and Northwest hope to gain approval from the Department of Transportation and Department of Justice before the end of the year, when the merger-friendly Bush Administration leaves office.

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