Delta, Northwest To Create World’s Biggest Airline
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Delta Air Lines Inc., one year removed from bankruptcy, agreed to merge with Northwest Airlines Corp. in a $3.1 billion stock deal that would create the world’s largest carrier and may unleash more industry consolidation.
The combined airline will keep Delta’s name, Atlanta headquarters, and its chief executive officer, Richard Anderson, the companies said yesterday in a statement. Each Northwest share will be exchanged for 1.25 Delta shares, a 16.8% premium based on today’s closing price.
Delta, the third-biggest American airline by traffic, is betting that acquiring no. 5 Northwest will help it weather a 74% surge in jet fuel over 12 months. The move is likely to spur rivals including United Airlines to hasten talks on tie-ups to counter the new Delta’s wider network and cost savings. “This deal makes more sense than just about any you could imagine,” a Forrester Research Inc. analyst in San Francisco, Henry Harteveldt, said before the announcement. “The overlap is minimal, and they’ll gain international routes they both need.”
The merger will include one-time cash costs of $1 billion, the airlines said. The carrier will have 800 aircraft and 75,000 employees.
The transaction requires approval from shareholders of Delta and Eagan, Minn.-based Northwest as well as from federal antitrust regulators. The combined carrier would vault past AMR Corp.’s American Airlines as the world’s largest by traffic.
Other mergers may be in the offing.
Continental Airlines Inc., no. 4 in America by traffic, has held talks with UAL Corp.’s United, the world’s second-largest carrier, and has met with American, a person with knowledge of the matter has said.
The eight largest American carriers may lose a combined $1.4 billion in the first quarter, Merrill Lynch & Co. analyst Michael Linenberg wrote yesterday in a note to clients.
A combined Delta-Northwest will control about 25% of the American air-travel market, estimated an analyst at Calyon Securities in New York, Ray Neidl. Delta and Northwest and their regional partners carried 176 million people last year.
