Delta Air Lines Inc and Northwest Airlines Corp have agreed to merge to create the world’s biggest carrier, but they must now convince anti-trust regulators and labour unions to move forward. The joined Delta and Northwest would have combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp’s American Airlines for the top spot in the United States. The combined carrier would be the biggest in the world in terms of traffic, before any capacity cuts and divestitures that might be required by US anti-trust regulators. Shareholders at both carriers must approve the deal. The transaction calls for Northwest shareholders to get 1.25 Delta shares for each Northwest share. That values Northwest at almost $3.63 billion based on 277 million Northwest shares that the companies said are outstanding, although the final value will shift with the share prices until the day the deal closes.
The agreement comes after several months of discussions between Delta and Northwest and at one time between Delta and Chicago-based UAL Corp’s United Airlines. Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap. The takeover calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Delta CEO Richard Anderson. If the share-swap becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 per cent premium over Monday’s closing stock prices. The announcement includes some details that should help build political support. The airlines said they would close none of their hubs. And they said they would try to limit job cuts. The two airlines employ more than 80,000 people.
“They’re facing a bit of a delicate balancing act there, because in order to build labour and political support for the deal they would not want to have any layoffs or close or shrink hubs,” said S&P analyst Philip Baggaley. “On the other hand almost everyone agrees that one of the few ways that US airlines can return to profits would be to reduce the amount of capacity” in the US market.
Two of Northwest’s largest unions, however, immediately declared their opposition. Most importantly, the airlines will need anti-trust approval from US regulators. In 2001, an attempted merger of United Airlines and US Airways fell apart amid antiitrust concerns. Executives at Delta and Northwest said they are aiming to close...
