Delta-Northwest merger approved

Delta Air Lines has closed its merger with Northwest Airlines following the U.S. Department of Justice approval of the deal Wednesday, creating the world’s largest carrier.

The merger, announced in April, is essentially an acquisition of Northwest by Delta. The combined carrier is called Delta and is based in Atlanta. Eagan, Minn.-based Northwest becomes a subsidiary of Delta.

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“After a thorough, six-month investigation, during which the Division obtained extensive information from a wide range of market participants include the companies, other airlines, corporate customers and travel agents—the Division has determined that the proposed merger between Delta and Northwest is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition,” the Justice Department said in a written statement.

Delta has said the merger will allow it to better compete with foreign airlines that are increasing service to the United States. With Northwest, it adds one of the strongest U.S. carrier’s networks in Asia, and area where Delta had been lacking.

“The two airlines currently compete with a number of other legacy and low cost airlines in the provision of scheduled air passenger service on the vast majority of nonstop and connecting routes where they compete with each other,” the Justice Department continued in its statement. “In addition, the merger likely will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers. Consumers are also likely to benefit from improved service made possible by combining under single ownership the complementary aspects of the airlines’ networks.”

With the close of the deal Northwest shareholders receive 1.25 Delta shares for each Northwest share they own. Delta will also allocate 15 percent of stock to employees.

One of the factors driving the merger was high fuel costs, though oil prices have fallen significantly from the $111 a barrel price when the merger was first announced.

Delta chief executive Richard Anderson is chief executive of the combined company, and Delta chairman Daniel Carp is chairman of the combined company.

The combined airline has about 75,000 employees, serves 375 cities in 66 countries and about 170 million passengers a year. It creates a company with a combined enterprise value of $17.7 billion, which expects to have annual revenue of $35 billion.

The new airline has domestic hubs in Atlanta, Minneapolis, Cincinnati, Salt Lake City, Detroit, Memphis and New York City, and international hubs in Amsterdam and Tokyo.

Delta has promised it will not close any hubs or lay off any front line employees as a result of the merger. However, observers expect the combined airline may eventually be driven to close some of its hubs or lay off more employees as a result of other factors such as economic weakness.

With the merger, Northwest becomes a Delta subsidiary called NWA Inc., merging with a Delta subsidiary called Nautilus Merger Corp. created for the merger. Delta president and chief financial officer Ed Bastian also becomes chief executive and president of Northwest. The combined airline will have executive offices in Atlanta, Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo.

Delta has said it is “committed to retaining significant jobs, operations and facilities in Minnesota.”

Delta and Northwest shareholders approved the deal Sept. 25. Delta said 99 percent of the votes cast were in favor of the deal, while at Northwest 98 percent were in favor. Nearly 70 percent of eligible votes were cast.

Delta and Northwest pilots in August approved a joint labor contract that takes effect with the close of the merger.

The Federal Aviation Administration in September accepted a plan from Delta and Northwest to pursuing a single operating certificate, a process expected to take up to 18 months.

Although the deal was expected to trigger other mergers in the airline industry, no other major U.S. airline combinations have surfaced yet - a factor which may have simplified the review by the Justice Department. The deal faced opposition from U.S. Rep. James Oberstar (D-Minn.), who heads the House transportation committee.

Delta and Northwest, like other carriers, continue to financially struggle with the effects of high fuel costs, economic weakness and heavy competition. The challenges have driven the airlines to add on extra fees and charges, changing the way people travel and frustrating many passengers.

In the third quarter, Delta lost $50 million, or 13 cents per share, attributing the results to high fuel costs. A year ago, Delta reported a profit of $220 million, or 56 cents per share.

Northwest lost $317 million in the third-quarter, or $1.20 per share, compared with a profit of $244 million, or 93 cents per share, during the same period last year.