Delta moves toward merger talks with United, Northwest

Delta Air Lines, which has reportedly been interested in a merger for some time now, has requested permission from its board to start "formal" merger discussions with United Airlines and Northwest Airlines soon, with a plan to choose one of the airlines with which to merge.

In the last few years, Delta has carried opposing views on mergers: it exited Chapter 11 bankruptcy last year after successfully fighting off a hostile takeover proposal from US Airways. But soon after leaving bankruptcy, it started exploring its merger options, and has been the target of merger rumors before (such as this past November, with United Airlines). And with a stagnant economy and oil prices at nearly $100 a barrel, mergers might help relieve some of the pressure that the US airline industry is feeling right now.

A Delta-Northwest or Delta-United deal would probably create the world's largest airline (currently American). So which airline could it be? Back in November, Northwest was (and still is) seen as the most likely candidate, because the route structures of the two airlines has less overlap. And Delta CEO Richard Anderson has ties with Northwest, having worked there for 14 years and ultimately rising to the rank of Northwest CEO. But the main problem with a Delta-Northwest tie-up is the fact that two hubs - Delta's Cincinnati and Northwest's Memphis - would probably be shut down, due to their close proximity to each other. This might create trouble from both unions and politicians.

The possibility of a combined Delta-United has been raised before, and United management has been advocating industry consolidation for quite some time. But it will be some time before any merger plans become concrete, and even then, they can still fall apart quite easily. But this time, it appears that the unions - at least at Delta - are more supportive of the merger idea than they have been in the past. Lee Moak, chairman of the Delta pilot's union, said in a letter that “consolidation may indeed be at our door... We do not oppose consolidation, and may even determine that consolidation is desirable.”


Dick said...

In both this blog and in related news articles one point seems to be overlooked -- and mergers won't necessarily help. That's investment in a more modern fleet.

United's US fleet (vs its newer 777's and 747's on international routes) are aging, less reliable, and less interchangable. The reliability of the US fleet is slipping to the point that routes are left uncovered and passengers left without alternatives. Coping has become the name of the game.

Whatever the alternative to the present system, something has to be done to assure a reliable/modern fleet and support systems (primarily reservations flexibility) made which can deal with the constant barrage of failed planes.

Craig said...

We read everywhere that consolidation in the airline industry will ultimately reduce capacity and increase yields across the board. This is very short-sighted. As we saw after 9/11 when the legacy carriers cut back capacity, the low cost carriers will simply pounce on available gates and airplanes and fill that capacity right back up.

It's not a matter of reducing capacity. It's just a matter of which airline will grow and which airline will shrink. As an airline employee, I hope my airline doesn't consolidate just for the sake of a financial transaction to enrich hedge fund managers and airline managements. The industry will end up right back where we are now; but with richer speculators and poorer employees.

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