Transcripts

Delta & Northwest May Be Filing A Merger Flight Plan

JEFF YASTINE: President Bush got an update on the status of the U.S. airline industry's plane safety inspections. At the president's cabinet meeting today, Transportation Secretary Mary Peters said she will make sure flaws in the maintenance reporting system are fixed. American Airlines ran a normal schedule yesterday after canceling more than 3,000 flights last week to re-inspect and re-secure wiring.

SUSIE GHARIB: Passengers, pilots and investors are eagerly awaiting news of a merger between Delta and Northwest Airlines. The two companies have been in intense talks about a tie-up and an announcement could come as early as this week. With fuel costs rising, the industry is looking to consolidate. But as Darren Gersh reports, it's not clear a deal will fly with politicians or passengers.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In theory, airline mergers take seats out of the sky, helping airlines cut costs and raise ticket prices. In reality, politicians, powerful pilots unions and regulators aren't eager to see that happen. Unions at Delta and Northwest are trading elbows over seniority that determines flight schedules and pilot pay. Morningstar's senior airline analyst Brian Nelson, says Washington will have a say, too.

BRIAN NELSON, SR. AIRLINE ANALYST, MORNINGSTAR: This industry is very much politicized. I think that Congress is definitely going to be up in arms in terms of making sure that service to small communities is still intact and this could be -- present significant opposition to any large deal.

GERSH: A tie-up of Delta and Northwest would get an extra hard look because it would likely lead to a wave of other airline deals. Northwest now holds special golden shares, giving it the right to veto any merger done by rival Continental. A Northwest Delta deal would end that arrangement.

NELSON: A Northwest-Delta deal could then lead to a United- Continental accord. And basically, instead of having six legacy carriers, we would then be down to four across a domestic landscape.

GERSH: Analysts say the real goal here is not domestic. Long-haul routes to Asia are still closely regulated, which means business class travelers are paying thousands of dollars to do deals in the Far East. Delta, which offers many flights to Europe, is particularly keen to get access to Northwest's routes to China and Japan. Analyst Clifford Winston says all U.S. airlines are trying to find ways to add more flights over the Pacific.

CLIFFORD WINSTON, AIRLINE ANALYST, BROOKINGS INSTITUTION: They can be very lucrative and you don't have to worry about competition driving those fares down, as compared within the domestic U.S., where you do have competition from low-cost carriers.

GERSH: But most airline analysts agree mergers alone won't change the immediate competitive realities of the airline business. Jet fuel prices are up more than 50 percent this year and a sagging economy means passenger revenues are likely to be down for a while. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.