Executives at Delta Air Lines DAL Friday will seek board approval to launch detailed merger talks with United Airlines and Northwest Airlines.
Sources with knowledge of the proposal to the board confirmed that CEO Richard Anderson is seeking authority to start talks with the airlines because their route networks complement Delta's. The sources asked not to be identified because they're not authorized to speak publicly.
Chicago-based United UAUA and Minneapolis-based Northwest NWA are strong in the Midwest and West and across the Pacific. Atlanta-based Delta's is concentrated in the East and across the Atlantic.
If successful, a merger of No. 3 Delta, with No. 2 United or No. 5 Northwest, would produce the biggest airline in the USA, eclipsing Fort Worth-based American. It could also set off a chain reaction of consolidation among the USA's biggest air carriers.
The online edition of The Wall Street Journal reported Thursday afternoon the Delta board proposal. Share prices soared, with United closing up 23.7% for the day; Northwest up 32.0%, and Delta up 18.2%.
Delta, Northwest and United declined to comment specifically on the board proposal or prospects for a merger. But Delta spokeswoman Betsy Talton said that Delta's board months ago established a special committee and hired advisers to explore strategic options, including a merger. United spokeswoman Jean Medina said her airline's position on "the need for consolidation" is well known.
Despite huge increases in fuel costs and intensifying competition from discounters, large U.S. airlines, since 9/11, have decided to combine operations only once: the America West-US Airways deal in 2005.
And prospects for a Delta merger now are far from certain. Calyon Securities' Ray Neidl noted that even if Delta's board gives its approval, "it's just permission to start formal talks. Nothing may come of it and they still would have to get regulatory blessing."
Airline mergers are unusually difficult because of federal scrutiny, labor union resistance and the industry's volatility. Delta emerged from Chapter 11 bankruptcy reorganization last year after rebuffing a $10 billion hostile takeover attempt by US Airways.
Former Delta CEO Gerald Grinstein, who opposed the merger, rallied employees with a "Keep Delta My Delta" campaign, and persuaded Delta's bankruptcy creditors to reject the deal.
Fuel is an airline's largest single expense, and the price of crude oil this month hit an all-time record of $100 a barrel. Consolidation could let airlines eliminate redundant airport hubs and overlapping routes, compete better against foreign carriers and raise fares.