The Delta-Northwest Merger Lands Makes Its First Successful Stop
Tuesday, April 15, 2008PAUL KANGAS: They have made a deal. Delta, the nation's third largest airline, is buying the fifth largest, Northwest, in an all-stock transaction valued at $3.6 billion. The combined company will be called Delta, will be based in Atlanta, and would be the world's largest airline. But, as Scott Gurvey reports, it may have a bumpy ride getting to that point.
SCOTT GURVEY, NBR CORRESPONDENT: The combination of Delta and Northwest has been in the works for months, even years, and it still faces turbulence as the two strive to create the world's largest airline.
At a news conference today, executives admitted the 77 percent increase in the cost of jet fuel over the last year added urgency to the deal. But Delta CEO Richard Anderson said globalization has made scale and scope the paramount concerns.
RICHARD ANDERSON, CEO, DELTA: As open skies progress around the world, we as a country have got to have a strong, stable airline industry, and this transaction creates that flag carrier for the United States around the world. So, strategically, particularly given our alliance connections, it makes a lot of sense.
GURVEY: CEO Douglas Steenland of Northwest agreed, noting his airline had to drop its Tokyo-to-New York route because it lacked the domestic service to feed into it.
DOUGLAS STEENLAND, CEO, NORTHWEST AIRLINES: Now, because of the strong presence that Delta has at JFK, we're going to be able to relaunch that service and get back into the non-stop JFK-Tokyo market, which is really going to be a plus for travelers, provide additional competition, and it's a good example where having larger scale domestically allows us to better use that very valuable resource that we have.
GURVEY: The companies took the unusual step of trying to get their pilots' OK before announcing the deal. Delta's said yes; Northwest's did not. Today, Northwest's pilots promised to aggressively oppose the merger.
Delta VP Mike Campbell says talks with the unions will continue.
MIKE CAMPBELL, EXECUTIVE VP, DELTA: Now that we've announced, we still have eight or nine months during the regulatory process to bring them on board. And if we succeed in that, it will be revolutionary, and it will be a game changer.
GURVEY: The main issue concerns the combination of pilot seniority lists. The company can impose a procedure, but it will make for a difficult work environment.
Regulators promise a tough review. Congressman Jim Oberstar, chairman of the House Committee on Transportation and Infrastructure, promised hearings, and said he thinks the deal is bad for consumers.
REP. JAMES OBERSTAR (D-MN), CHAIRMAN, TRANSPORTATION & INFRASTRUCTURE: The proposal offered yesterday by Delta and Northwest to merge will be probably the worst development in aviation history in the aftermath of deregulation in 1978.
GURVEY: But analyst Jim Corridore of Standard & Poor's says he still thinks the deal will be approved.
JIM CORRIDORE, S&P: There's not a lot of overlap between Delta and Northwest, so we're not looking at cutting out markets, cutting out flights, cutting out employees. Delta and Northwest are committed to maintaining their hubs, maintaining their routes. So I think that that will allow it to go through.
GURVEY: Analysts say today's deal makes others more likely. Most consider a combination of United and Continental may be the next one announced. Continental's chairman says his company is considering all possibilities.
Scott Gurvey, Nightly Business Report, New York.
