Northwest, Delta thrust into merger
Delta Air Lines Inc. and Northwest Airlines Corp. agreed to a merger Monday that would create the world’s largest airline and could trigger a wave of industry consolidation and fare increases.
The pact came amid one of the industry’s most tumultuous periods as three airlines collapsed in one week and American Airlines, currently the largest carrier in the world, canceled thousands of flights because of missed aircraft inspections.
Like its competitors, the new airline would have to tackle two challenges plaguing the industry: escalating prices for jet fuel and the cost of maintaining an aging fleet of jetliners.
Delta and Northwest said the merged airline could better utilize its hundreds of airplanes and generate $1 billion in new annual revenue and savings from slashing redundant operations. Delta said the value of the combined airline would be $17.7 billion.
“For the two carriers, this merger is a very important step to keep from going out of business,” said Dana Hobart, an aviation law expert at the Los Angeles firm of Hennigan Bennett & Dorman. “But for the flying public, it’s not so good because there will be reductions in routes and services.”
The latest industry turmoil could boost prospects for the merger’s approval as the airline industry faces record fuel prices and slowing demand for air travel amid an economy that is in or near a recession. Poised for takeoff, analysts said, is a possible combination between United Airlines parent UAL Corp. and Continental Airlines Inc.
For travelers, the Delta-Northwest combination by itself might not immediately lead to widespread fare hikes because the two airlines have relatively few routes that overlap, but further consolidation could mean higher airfares and worsening of service, analysts said.
“It’s good for them, but it’s bad for all of us,” said Richard Gritta, professor of finance and transportation at the University of Portland in Oregon. “More concentration means higher prices and less service. No matter what they say, you’re going to see layoffs.”
The merger is expected to have only a modest effect on travelers in Southern California, where the carriers together account for about 11% of the market share at Los Angeles International Airport. The combined carrier would be the fourth-largest airline operating at LAX behind American, United and Southwest.
Neither Delta nor Northwest has extensive service at other Southern California airports.
But the deal, which would require approval from the U.S. Justice Department, would be huge elsewhere.
It would create a new and expanded Delta with a fleet of 800 planes and 75,000 employees. It would fly more than 105 million passengers annually to more than 390 cities worldwide, and would be the largest airline in terms of fleet, destinations and total passengers.
In a statement, the carriers said the new airline would retain the Delta name and have its headquarters in Atlanta, where Delta currently is based and has its largest airport hub.
The deal involves a stock swap in which Northwest shareholders would receive 1.25 shares of Delta for every Northwest share.
In hopes of winning political support in the Minneapolis area, Northwest’s home base, the combined airline would keep a significant presence there, including maintaining Minneapolis-St. Paul International Airport as a major hub.
“Together, we are creating America’s leading airline, an airline that is financially secure, able to invest in our employees and customers, and built to thrive in an increasingly competitive marketplace,” said Delta Chief Executive Richard Anderson, who would head the combined airline. “Delta and Northwest are a perfect fit.”
But the deal faces significant hurdles from consumer organizations, which are fearful of rising ticket prices, small communities that are worried about losing air service and several powerful members of Congress.
Rep. Jim Oberstar (D-Minn.), the chairman of the House Committee on Transportation and Infrastructure, has already vowed to try to block the merger.
The biggest challenge may come from labor unions, which quickly blasted the deal. The pilots union for Northwest said it would “aggressively” oppose the merger.
The International Assn. of Machinists and Aerospace Workers union, which represents 12,500 Northwest ramp service workers, customer service agents and technicians, also vowed to block the merger.
“We firmly believe this merger is not in the best interest of passengers, employees or the communities these airlines currently serve,” the union said in a statement.
Delta and Northwest said they had no choice but to merge as the airlines face “significant economic pressures from rising fuel costs and intense competition.” Fuel expenses have increased 70% in the last year.
Rising fuel expenses contributed to the demise of three airlines -- ATA, Aloha Airlines and Skybus -- this month.
In addition to being more financially fit to overcome what it called the industry’s “boom-and-bust cycle,” the airline would “also be better able to match the right planes with the right routes, making transportation more efficient across our entire network,” said Northwest Chief Executive Douglas Steenland.
The merger would create few overlaps in domestic routes, and the airlines’ international networks are complementary. Delta has extensive service to Europe and Northwest’s overseas focus is Asia.
--
Times staff writer Martin Zimmerman contributed to this report.
