World’s Largest Airline Created: Delta Air & Northwest
Recent movements towards a merger between Delta Air Lines and Northwest Airlines have been finalised, as the carriers aim to simultaneously alleviate fuel price burdens and enhance competition.
The USD$3 billion deal was announced on Monday, and will effectively create the world’s largest airline.
The terms of the agreement allow Delta to acquire Northwest by swapping Northwest shareholders with 1.25 Delta shares for each unit they own.
The closing price on Monday of USD$11.22 per Delta share informed the USD$13.10 that Northwest shareholders will receive, indicative of a 17 percent premium to Northwest shares.
The recent emergence of US airlines from a five-year decline in 2006 has led to innovative strategies to overcome the USD$35 billion that has been incurred in losses. Mergers are hoped to strengthen market power to raise prices but reduce flights through combined carriers.
The anticipated competition that Open Skies will bring has also increased the urgency for American airlines to improve their situation, coupled with the urgency of fuel prices and a weak economy.
This merger may impact the anticipated partnership of Continental Airlines and United Airlines, according to Reuters.
Delta Air Lines plans to remain headquartered in Atlanta, with Delta Chief Executive Richard Anderson remaining at the head of the merged carrier.
The talks between the companies previously fizzled out in March when the pilots’ unions on both sides failed to agree on how seniority would apply for their roughly 12,000 members in a combined carrier.
Seniority is important for pilots because it helps determine pay, work schedules and the size of aircraft they fly.
Earlier this year, pilots at Northwest had said they would support a merger with another carrier if the workers received a stake in the combined airline.
The pilots of Delta are being given a 3.5 percent equity stake in the new company, and US-based non-pilot employees of both airlines will receive a 4 percent equity stake.
However, Delta had indicated a desire to delay the merger until the pilots agreed to the integration, and the decision to continue in spite of the lack of consensus may be problematic.
“This agreement clearly disadvantages NWA pilots both with respect to economic issues and seniority list integration,� according to the Northwest pilots union.
“The NWA MEC will use all resources available to aggressively oppose the merger.”
Delta has maintained that there will be no hub closures, with continuing operations in their Atlanta hub and trans-Atlantic network, as well as the Asian presence of Northwest.
However, this promise has been doubted by industry experts, such as airline consultant Robert Mann who said that “it would be nice if it were true.�
An additional promise from Delta and Northwestern illustrates a USD$1 billion in annual revenue and cost synergies following the merger.
Mr Mann continues to doubt this confidence, claiming “It’s a very optimistic view on an industry that’s been very dismal for the last couple of weeks.â€?
The third and fifth largest carriers in the US will continue to face obstacles in antitrust authorities and employee unions.
The CEO of Delta, Richard Anderson, maintained that “We said we would only enter into a consolidation transaction if it was right for all of our constituencies; Delta and Northwest are a perfect fit.�
“Together, we are creating America’s leading airline – an airline that is financially secure, able to invest in our employees and our customers, and built to thrive in an increasingly competitive marketplace.�
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This entry was posted on Friday, April 18th, 2008 at 11:47 am and is filed under Travel Updates, Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
