DEL.ICIO.USThe Atlanta Journal-Constitution
Published on: 04/13/08
Delta and Northwest airlines might finally make it to the altar this week, perhaps as soon as Tuesday.
Atlanta-based Delta and its pilots met over the weekend, trying to reach an accord that would give the pilots a pay hike and stake in the combined airline. Such an agreement would leave the thorny issue of combining Delta and Northwest pilot seniority lists to be worked out after a merger announcement.
 Rick McKay/AJC | ||
| Delta Air Lines CEO Richard Anderson addresses the FAA Forecast Conference in Washington in March. | ||
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Northwest pilot union leaders met separately Sunday in Minnesota. Afterward, they issued a memo to rank-and-file pilots saying that they will oppose any merger that does not keep the interests of Northwest pilots "at the forefront of the decision-making process."
The union leaders said any combination must involve "fair and equitable seniority list integration."
If Delta and Northwest combine, their marriage will come after one of the most-troubled and most-watched engagements in recent U.S. business history.
And few predict immediate matrimonial bliss.
The airlines' executives initially tried to get their 11,000 pilots to sign off on a combination of Delta and Eagan, Minn.-based Northwest beforehand, easing the way for smooth integration. When that effort failed, the carriers made a lot of sincere-sounding statements about going it alone.
Now, some people familiar with the matter say, Atlanta-based Delta will try to cut a deal with its 6,000 pilots, roll out the merger and then negotiate with Northwest's 5,000 pilots afterward.
"This is not Plan A or even Plan B. This is Plan C," said Robert Mann, an airline analyst based in New York state. "It's easier because you don't do the hard work [up front]."
What could emerge is a very messy merger that — even if it clears federal regulatory hurdles — would require a legion of lawyers to iron out the details.
"It could go on for years," Mann said.
Northwest and Delta could announce a merger by Tuesday, according to Wall Street Journal and Associated Press reports citing unnamed sources. But past deadlines for the deal have proved elusive. The companies' talks could still fall apart or be prolonged.
No one directly connected with the merger discussions is talking on the record.
To bypass the pilot issues, Delta and Northwest could enter into a merger announcement involving a holding company. That would combine some Delta-Northwest functions, while leaving other areas of the carriers to operate independently — a sort of merger-lite intended to gain some of a merger's benefits while avoiding the stickiest integration issues, such as how to designate pilot seniority, which determines which planes pilots qualify to fly and, therefore, their pay rate.
But even if Delta and Northwest find a way around the pilot issues, they still have to find common ground on other matters. According to two people familiar with the talks, the airlines had been considering a stock swap deal giving Northwest shareholders roughly a 10 percent premium. As negotiations continue, Northwest shareholders could end up with a larger premium, thereby reducing the size of Delta shareholders' holdings. Even if that happens, Delta shareholders probably would still own a majority of the combined company.
The airlines also have to agree on outside investment. In February, Air France said it planned to invest $750 million in a combined Delta-Northwest. But since then, Delta's and Northwest's share prices have plunged. That means Air France's investment would now buy a bigger chunk of the post-merger company, and that isn't sitting well with some major Delta shareholders whose stakes would be diluted, according to one of these people familiar with the talks.
Al Corry, a veteran Delta flight attendant who is attempting to unionize his fellow workers, said he thinks a deal will be announced soon, with or without the pilots' consent. Corry said he worries about the aftermath of a forced consolidation and the savings airline executives hope to realize.
"When you hear the word synergies, you better start running because they're going to let some people go," Corry said.
If a deal is announced, it could have a profound impact on a financially ailing industry that has seen four carriers go under or declare bankruptcy in the last two weeks.
A Delta-Northwest deal would immediately create the world's largest airline, though that distinction could be short-lived. Delta Chief Executive Richard Anderson has said Delta would retain its name and Atlanta headquarters in any scenario.
The deal could set off a series of other mergers. United and Continental could be first in line — that combo would be bigger than Delta-Northwest — and analysts say American Airlines would probably intensify its search for a partner.
All airlines are in a desperate search to cut costs as oil tops $110 a barrel. It is difficult for the carriers to make a profit when oil tops $70 to $80 a barrel. By consolidating, the airlines hope to help offset the high fuel costs through economies of scale.
"It's a very difficult time for the industry," Anderson told Delta's 50,000 workers Friday in his weekly "Right from Richard" recorded message. Roughly half are based at the carrier's huge Atlanta hub. The airline is Georgia's largest private employer.
Anderson did not specifically mention merger talks in his folksy, 8-minute talk, which covered weather problems during the previous week, on-time performance by the airline and an employee drive to supply quilts to a Utah children's hospital.
The former Northwest CEO and Texas prosecutor, however, did spent a portion of the chat discussing "unbelievably high fuel prices," Delta's plan to cut its workforce through voluntary retirements and recent bankruptcies and shutdowns by other airlines.
"At some point in time, this economy will rebound and the strong airlines that act quickly . . . will be the airlines that do well over the long term," Anderson said. "Rest assured we will react quickly to a rapidly changing environment."
— Staff writer Russell Grantham and the Associated Press contributed to this article.
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