Additional speculation ??
UPDATED: 7:58 p.m. April 14, 2008
Delta, Northwest reach agreement on merger
Combined company will keep Delta name, Atlanta base
By RUSSELL GRANTHAM, RACHEL TOBIN RAMOS, JIM THARPE
The Atlanta Journal-Constitution
Published on: 04/14/08
BREAKING NEWS ... BREAKING NEWS ... BREAKING NEWS
Delta and Northwest airlines announced Monday that they will combine forces to create the world's largest airline to be based in Atlanta and to be called Delta.
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The boards of Delta Air Lines and Northwest Airlines are scheduled to meet Monday night to decide whether to approve a merger that would create the world's largest airline in terms of traffic, according to people familiar with the talks.
If it is approved, these people said, the companies are likely to announce the deal Tuesday, although one person said details could be revealed Monday evening.
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A senior Delta pilot briefed on the talks said he expected the deal to be announced Tuesday, possibly after the market closes.
The pilot said the Delta pilots tentatively agreed to contract changes aimed at allowing the merger to go forward, in exchange for a pay raise and an equity stake in the new company.
Another indicator that something big is afoot: Delta requested that a meeting room large enough for hundreds of people be made ready by Monday evening at the former Georgia International Convention Center at the Sheraton Gateway near the airport.
According to one person familiar with the arrangements, Delta has reserved the facility to meet with 400 or more of its top executives and managers sometime Tuesday. Workers were busy Monday setting up chairs and audio-visual equipment in the cavernous room.
"We've been told to get the room ready," said one employee. "We weren't told a time, but told we'd be advised on a need-to-know basis."
Delta officials declined comment. "We have made no announcement regarding any scheduled events," said Delta spokeswoman Susan Elliott.
A Delta-Northwest merger is expected to spark a wave of airline consolidation.
"The betting line is that once Northwest is announced there will be a United-Continental announcement," said airline analyst Robert Mann. The United-Continental marriage would create a larger carrier than the Delta-Northwest union.
That, Mann said, would leave American Airlines searching for a partner.
"This is a tectonic shift in the industry structure," Mann said. "We could go from six big carriers to perhaps three overnight."
Delta and Northwest airlines are intent on reviving their earlier deal as an antidote to deteriorating industry conditions. Jet fuel prices soared in recent weeks, adding hundreds of millions of dollars to airlines' annual fuel bills. A likely recession threatens to drive down travel demand and ticket prices. Four smaller airlines filed for bankruptcy or ceased operation in recent weeks.
Atlanta-based Delta and Eagan, Minn.-based Northwest hope a merger will allow them to trim some costs while reaping more revenues by stitching together their largely complementary route networks.
Delta, the nation's third-largest carrier, has key hubs in Atlanta and New York and extensive trans-Atlantic routes. Northwest, the fifth-largest airline, has a large Asian network and big hubs in Detroit and Minneapolis.
Minnesota Gov. Tim Pawlenty said Monday afternoon that a Northwest-Delta deal "appears imminent," and he warned that the state will act to enforce Northwest commitments to keep its hub and headquarters in Minnesota. People close to the talks have said plans call for the combined company to retain the Delta name and be based in Atlanta.
"We're going to have to just wait and see what the deal is and what it represents for our state before we can respond in any detail," he told reporters at an unrelated news conference.
"We expect them to fulfill those commitments. If they don't intend to do that they are going to have to pay us money or they are going to have to re-negotiate in some way that is favorable to our state," Pawlenty said.
It's unclear how one would-be player will figure in the possible mega-merger. Air France-KLM no longer may invest in the planned merger, or it may reduce its planned stake, according to two people familiar with the talks. The European company, currently the world's largest airline in terms of revenue, said in February that it would invest $750 million into a combined Delta-Northwest.
Delta's and Northwest's investors object to their holdings being diluted by an Air France investment, according to one of the people. Some investors and airline executives also believe Delta and Northwest, with roughly $6 billion in combined cash reserves, don't need a cash injection from Air France-KLM.
All four carriers are key partners in the SkyTeam alliance, a agreement among several airlines to share routes and passenger privileges.
Negotiations with pilots may continue after a merger announcement. Delta and Northwest may try to forge an agreement later with Northwest's pilots before the deal is closed, according to one of the people.
Earlier plans to announce a Delta-Northwest merger in February foundered when the two carriers' pilots unions were unable to work out an agreement on how to merge their seniority lists. Seniority is a key factor to pilots because it determines what aircraft they fly and what schedules they hold.
In recent weeks, Delta and Northwest decided to resume talks with an aim toward initially cutting a deal solely with Delta's pilots.
The senior Delta pilot said the latest agreement the union has tentatively reached with its pilots offers fewer incentives because the industry's prospects have dimmed in recent months.
"It's not the Olympic gold medal," said the pilot. "It's the silver because we couldn't work together with Northwest. Gas prices and the economy are relegating all labor groups to hold their position. For us to get a pay raise is a miracle."
The pilot also said this is the first airline merger in the "history of aviation" in which a pilot's group has been included before a merger announcement. "It's all due to Lee Moak's leadership," said the pilot, referring to the chairman of Delta's pilots union. "We're the ones that drove the process."
The tentative deal between Delta's pilots and management would need to be ratified in a vote by pilot union members 30 days after a merger is announced. Northwest pilots could be added to the deal, said the pilot, at which time there could be additional pay raises.
"We've made some gains in this agreement, and are hoping to add gains," said the pilot.
The pilot was "cautiously optimistic" about the success of a combined Delta-Northwest carrier, given current economic conditions.
The pilot said the combined airline will be a "global powerhouse. If we can get this done quickly, we're going to be unbeatable."