With merger final, it’s all in details for Delta

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.

Atlanta-based Delta and Eagan, Minn.-based Northwest said it will be business as usual for their customers for now. Customers should continue to book and check in for flights with the airline operating their flights as they did before the merger. The combination of the two airlines’ operations will occur gradually over a two-year period.

“Now the real work comes in terms of the integration,” said Delta chief executive Richard Anderson.

The merger, announced in April, is essentially an acquisition of Northwest by Delta. The combined carrier is called Delta and is based in Atlanta.

Delta plans to add its code to nearly all Northwest flights by the end of this year, allowing more connections. It will fully combine the two carriers’ flight schedules by next summer. Delta has about 25,000 employees in Georgia and is the largest carrier at Hartsfield-Jackson International Airport.

The Justice Department in a written statement announcing the close of its investigation into the merger said, “After a thorough, six-month investigation, during which the Division obtained extensive information from a wide range of market participants including 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 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.”

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, an area where Delta had been lacking.

The merger is expected to cost as much as $600 million, but Delta also expects the combination will allow it to gain $2 billion in synergies.

The process of cutting costs in the merger has already begun at Delta and Northwest. Some officers have been told they will not be part of the combined airline, other employees would need to move to Atlanta or other locations to keep their jobs and some will stay with the company for a limited period during the transition. Many will remain at the combined airline.

The new Delta has about 75,000 employees and 770 planes. It serves 375 cities in 66 countries and about 170 million passengers a year. The company expects to have combined annual revenue of $35 billion.

Its domestic hubs are in Atlanta, Minneapolis, Cincinnati, Salt Lake City, Detroit, Memphis and New York City. International hubs are in Amsterdam, the Netherlands, and Tokyo.

The Memphis hub from Northwest will be “a very important part of our Southeastern strategy,” said Delta president Ed Bastian. “When you look at Atlanta here, for Delta, we are constrained. We’re out of room on the gates.”

“Memphis is going to be a great opportunity” for any growth in the region, Bastian said.

Delta plans to maintain a number of operations in the Minneapolis area, including reservations, a training center and pilot and flight attendant bases along with its airport operations.

It has promised it will not close any hubs or lay off 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 close of the deal, Northwest shareholders receive 1.25 Delta shares for each Northwest share they own, making it a $2.6 billion stock-swap deal. Delta also will soon allocate 15 percent of stock to employees. Northwest becomes a Delta subsidiary called NWA Inc. and Northwest stock will be delisted.

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

But Anderson, who will continue as chief executive of the combined company, said the merger “becomes even more important as we face uncertain economic times.”

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 that 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.

In a statement Wednesday, Oberstar said the Justice Department’s decision to approve the merger signals the end stages of airline deregulation.

“From the outset, I have expressed concern that a merger between these two carriers will trigger additional mergers among the remaining major carriers, resulting in the worldwide consolidation of air service into a handful of global mega-carriers. That was not what Congress intended when it voted for airline deregulation in 1978.

“Creeping consolidation in the airline industry will likely mean fewer choices, higher fares, and diminished levels of service for the traveling public,” he said in the statement.

Others, including the Business Travel Coalition and the American Antitrust Institute, voiced similar concerns Wednesday about the effects of the merger on travelers.

The close of the deal caps a series of steps Delta has made toward the merger. Delta and Northwest shareholders approved the merger deal Sept. 25. The two airlines recently settled a lawsuit filed in U.S. District Court in San Francisco by travelers seeking to block the merger, dismissing the case with prejudice.

Yet to be resolved is a combined pilot seniority list. The pilots remain in an arbitration process on the matter, and continue negotiations. They have agreed to delay the date for an arbitration decision from Nov. 20 to Dec. 20 at the latest.

Delta and Northwest, like other carriers, have been struggling with the effects of high fuel costs, economic weakness and heavy competition.

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.

Standard & Poor’s equity analyst Jim Corridore said the biggest risk for the combined Delta is having “huge international exposure at a time when the global economy is slowing.” Still, he said, “there’s really good opportunity to create a company that’s stronger.”

WHAT IT MEANS

Q: Should I continue to book flights through Delta and Northwest?

A: Yes. There will be no immediate changes to operations, and customers should continue to do business with both Delta and Northwest. More questions and answers, A14

 HISTORY OF DELTA'S MERGERS AND ACQUISITIONS  
1924: Huff Daland Dusters 
Subsidiary of Huff Daland 
1928: Delta Air Service Incorporated 
1929: First passenger flight 
1930: Delta Air Corp. 
Name adopted 
1933: Pacific Seaboard Airlines 
1934: Delta Air Lines 
Restarted passenger service 
1935: Chicago & Southern Air Lines 
Name change 
1945: Delta Air Lines 
Official name change 
1953: C & S Air Lines 
Merged with Delta 
1953-1955: Delta Air Lines doing business as Delta - C & S 
1972: Northeast Airlines (aquired) 
1987: Western Airlines (acquired) 
1991: Pan Am 
Acquired trans-Atlantic and shuttle routes
2008: Northwest Airlines merges with Delta