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The Analyst Magazine:
Delta-Northwest : The High-Flying Marriage
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The recent merger proposal between Delta Air Lines and Northwest Airlines would create the world's biggest airline and could unleash a wave of consolidation in the ailing US airline industry.

 
 
 

Ending months of speculation that something was in the air, Delta Air Lines Inc., the third largest US airline, has agreed to buy compatriot and fifth largest carrier Northwest Airlines Corp. in an all-stock deal of $3.6 bn. This will create world's largest carrier by traffic, by dethroning AMR Corporation's wholly-owned subsidiary, American Airlines, from the top slot. And the combined airline will savor more than $35 bn annual revenue, a fleet of around 800 planes and a workforce of 75,000 people. However, just prior to the announcement of the deal, a standoff with the pilots of both the carriers in finding common ground on how to rank members by seniority threatened to scuttle the deal. But ultimately, the two boards have decided to go ahead with the integration of their operations despite the opposition from the peeved Northwest pilots who have received raw treatment under the new agreement.

After a careful study, the two boards have arrived at a conclusion that a merger is their best chance to survive during the turbulent times of the airline industry, which has been crippled by rising fuel costs, impending recession and increasing dissatisfaction among travelers. Moreover, both Delta and Northwest have received immunity from Chapter 11 bankruptcy last year. So it makes real business sense for both the carriers to go for merger. However, still there remain a few hurdles to cross, with clearance from federal antitrust regulators being the major one. But the experts believe that in all probability the deal will get approval from the antitrust bodies. And the current deal is most likely to trigger a wave of consolidation in the ailing US airline industry.

It is expected that the agreement with a combined enterprise value of $17.7 bn would provide employees with more job security, an equity stake in the merged entity, and solid base for future growth in the face of significant economic pressures arising out from rising fuel costs and intense competition. In the proposed stock swap arrangement, investors will receive 1.25 shares of Delta for each Northwest share they own. And, the deal values Northwest at about $3.6 bn, a 17% premium at the time of deal announcement. Non-pilot employees at both carriers will enjoy 4% share of the equity. While Delta pilots would get a 3.5% equity stake and a board seat under the new contract, Northwest's pilots seem to be disgruntled and said they would `aggressively oppose' the tie-up.

 
 
 

The Analyst Magazine, merging, Delta Air Lines, Northwest Airlines Corpration, Doug Steenland, Airline Industries, Foreign Airline Industries, Global Transportation Companies, Marketing Agreements, Gross Domestic Products, GDP, Global Economy, Liberalization, Privatization, Globalization, LPG.