Delta and Northwest Announce Merger
Travelers could see higher prices and fewer flights.
April 14, 2008— -- Delta and Northwest have agreed on a merger to create the largest airline in the world.
The boards of both airlines — which operate more than 2,700 daily flights combined — approved the combination Monday night after months of negotiations. Faced with skyrocketing fuel prices, grounded planes, canceled flights and soaring ticket prices, the carriers hope a merger will help them stay afloat during difficult times.
There will be no hub closures and Delta's Richard Anderson will be CEO of the merged operation, which will keep the Delta name and Atlanta headquarters, the airlines said in a statement.
The merger combines Delta's strengths in the South, Mountain West, Northeast, Europe and Latin America with Northwest's routes in the Midwest, Canada and Asia. Delta pilots reached an agreement on post-merger contract, the airlines said, and employees will get seniority protection and equity in the new airline.
According to a memo to employees, non-pilot staff of the two carriers will get a 4 percent equity stake in the new company on closing of the deal, to be allocated based upon relative payrolls of the companies and individual employee earnings. Also at closing, Delta frontline employees will get pay increases.
Northwest investors will get 1.25 Delta shares for each share they hold -- that's 17 percent more than today's closing price. The combined airline will have about $35 billion in annual sales and 75,000 employees, according to Reuters.
The International Association of Machinists and Aerospace Workers' said it opposes the deal because it's not in the best interests of employees or the communities served by the carriers. "We will do everything legally possible to oppose any merger that threatens our members' jobs, labor contracts, pensions, seniority and their right to union representation," the union said in a statement late Monday.
The deal comes as four major airlines have declared bankruptcy in the past three weeks. Others have recently tried to avoid a similar fate by raising fuel surcharges, reducing frequent flier mile benefits and charging a fee for an extra bag.
That's why, according to many aviation analysts, the merger is necessary to make the ailing industry healthy again.
"We have too many airlines with too many hubs offering too many seats, which is the reason this industry cannot be consistently profitable," said Ray Neidl, aviation analyst with Calyon Securities.
But for both for airline employees and passengers, a merger could be messy.
For travelers, a marriage between Delta and Northwest could mean fewer flights and higher fares.
Travelers in the Midwest, in particular, could have fewer options because Delta and Northwest both operate major hubs in that region and could drop overlapping flights during consolidation. It's unclear if Cincinnati and Memphis, for example, would remain hub cities as Delta and Northwest come together.
Of all of their routes, only nine of Delta and Northwest's overlap, according to data compiled by the OAG-Official Airline Guide.
If history is any indication, the number of seats available out of certain cities could drop dramatically. The number of seats out of St. Louis dropped by about 75 percent after TWA and American Airlines merged, according to OAG data.
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