DELTA Air Lines Inc, bankrupt just a year ago, has agreed to buy Northwest Airlines Corp in a US$3.63-billion stock deal to create the world's largest airline.
The airline will keep Delta's name, Atlanta headquarters and chief executive officer, Richard Anderson. The purchase will lead to a total of US$1 billion in new revenue and savings and won't shut any hubs, the companies said yesterday.
The merged carrier will control about 25 percent of the United States air-travel market, estimates Ray Neidl, an analyst at Calyon Securities in New York.
Delta, the third-biggest US airline by traffic, is betting that combining with Northwest, the fifth-largest, will help overcome a 74-percent increase in jet fuel over 12 months. The move also is likely to hasten merger talks among rivals including United Airlines to counter Delta's wider network, said Bloomberg News.
"The assumptions are fairly optimistic," said George Hamlin, managing director of New York-based consulting firm ACA Associates. "Given high fuel prices and going into a recession, it makes you wonder how things will improve."
Each Northwest share will be exchanged for 1.25 Delta shares, giving Northwest investors US$13.10, or 16.8 percent more than Monday's closing price, the airlines said. The deal will include one-time cash costs of US$1 billion, the companies said.
800 aircraft
Delta and Northwest and their regional partners carried 176 million people last year. The combined carrier would vault past AMR Corp's American Airlines as the world's largest by traffic, and would have 800 aircraft and 75,000 employees.
Shareholders of Delta and Minnesota-based Northwest will have to approve the transaction, which also would need clearance from federal antitrust regulators. While Delta pilots would get a 3.5-percent equity stake in the airline and a board seat under a new contract, Northwest's pilots said they would "aggressively oppose" the tie-up.
With a bigger Delta reshaping the competitive landscape for US airlines, other carriers may renew their interest in finding a partner.
Continental Airlines Inc, fourth-largest in the US by traffic, has held talks with UAL Corp's United, the world's second-largest carrier, and has met with American, a source said in February.
"Many airlines exist in the US and all are suffering from oil prices," said Laurent Vallee, a fund manager at Richelieu Finance in Paris. "The way to handle it is through mergers. Maybe others will follow." The slowing US economy, which is starting to damp travel demand, also is weighing on the industry.
Losses ahead
The eight largest US carriers may post a combined first- quarter loss of US$1.4 billion, Merrill Lynch & Co analyst Michael Linenberg wrote in his latest note to clients.
Four small US airlines filed for bankruptcy in the past month: Frontier Airlines Holdings Inc, Skybus Airlines Inc, Aloha Airgroup Inc and ATA Airlines Inc.
Delta's biggest contributions to the new carrier include trans-Atlantic routes to Europe and a network in Latin America, while Northwest has Pacific routes including access to the restricted Narita Airport in Tokyo.
The new Delta doesn't plan to further cut capacity after the tie-up.