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. |