Delta, Northwest Airlines Treat Merger As a Done Deal

April 17, 2008 -- Anderson, Delta's CEO, and Steenland, Northwest's, touted their vision in glowing terms Tuesday as a public relations campaign to promote the merger began in earnest.

In reality, the merger announced Monday night already is facing challenges, ranging from lawmakers and consumers worried about reduced competition, abandoned hubs and higher prices for both domestic and international flights, to distrustful employees and some industry veterans who have seen past proposals crater before consummation.

The stock market signaled its concerns Tuesday. Both carriers' shares tumbled on a day when the Dow Jones industrial average rose 60 points.

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. That drops the value of stock Delta will give current Northwest shareholders in exchange for their Northwest shares to about $2.7 billion, from the $3.1 billion it was worth Monday.

Still, the early betting in and around the airline industry, on Wall Street and in Washington, D.C., is that the Justice Department's antitrust division will sign off on the deal by year's end.

That's partly because the carriers just last week received grants of antitrust immunity from regulators in both the USA and the European Union for their four-way trans-Atlantic alliance with Air France and its sister airline, KLM. Now, Delta and Northwest leaders figure getting antitrust clearance for the combination of two carriers that compete head-to-head on just 12 domestic routes should be a cinch.

Anderson told analysts Tuesday that it's a case of perfect timing for winning antitrust approval for the merger.

Lawyer Roger Fones, who headed the Justice Department's antitrust division until 2005, more or less agrees. "The industry looks a lot different than when I was in government" and directed the review that led to the Justice Department's 2001 decision to block a proposed merger between United and US Airways, he said.

Unlike the situation seven years ago, "When the government looks at individual markets, it will see that the market shares of low-cost carriers are higher," he said.

Low-cost airlines such as Southwest Airlines now carry about a third of all U.S. travelers, up from less than 15% of the domestic market in the mid-1990s.

Fones, now a partner at Morrison Foerster in Washington, also said the carriers' expectation that the Justice Department's review could be completed before year's end is realistic so long as the parties promptly provide all the data and information that Justice Department lawyers request. Delta and Northwest want a decision before next year's change in administrations. But such a quick review would be remarkable, given the length of past airline antitrust review cases not involving failing carriers in the past 20 years.

The airlines' merger announcement has set off speculation about other possible airline mergers behind it. Continental, which has previously held discussions with United Airlines, told employees Tuesday that it has to reconsider staying independent and "make sure we remain a strong long-term competitor."