Delta to acquire Northwest for $3.63b

Delta Air Lines Inc, one year removed from bankruptcy, agreed to buy Northwest Airlines Corp in a $3.63 billion stock deal that would create the world's largest carrier and may unleash more industry consolidation.

The airline will keep Delta's name, Atlanta headquarters and chief executive officer, Richard Anderson, 52. The purchase will create a total of $1 billion in new revenue and savings and won't shut any hubs, the companies said on Monday in a statement.

Delta, the third-biggest US airline by traffic, is betting that combining with No 5 Northwest will help blunt a 74 percent surge in jet fuel over 12 months. The move also is likely to hasten merger talks among rivals, including United Airlines, to counter the new Delta's wider network.

"The assumptions are fairly optimistic," said George Hamlin, managing director of New York-based consulting firm ACA Associates. "Given high fuel prices and going into a recession, it makes you wonder how things will improve."

Each Northwest share will be exchanged for 1.25 Delta shares, a 16.8 percent premium based on Monday's closing price, the airlines said. Northwest investors will get $13.10 per share, valuing the company at $3.63 billion. Northwest had 277 million shares outstanding, Delta Chief Financial Officer Ed Bastian said. It had 236.4 million shares as of Jan 31, according to Bloomberg data.

The deal will include one-time cash costs of $1 billion, the companies said. Northwest CEO Doug Steenland, 57, will sit on the new airline's board, and Bastian will keep his roles as Delta's president and CFO.

Shareholders for Delta and Eagan, Minnesota-based Northwest would have to approve the transaction, which also would need clearance from federal antitrust regulators. While Delta pilots would get a 3.5 percent equity stake in the airline and a board seat under a new contract, Northwest's pilots said they would "aggressively oppose" the tie-up.

The combined carrier would vault past AMR Corp's American Airlines as the world's largest by traffic, and would have 800 aircraft and 75,000 employees.

With a bigger Delta reshaping the competitive landscape for US airlines, other carriers may renew their interest in finding a partner.

Continental Airlines Inc, No 4 in the US by traffic, has held talks with UAL Corp's United, the world's second-largest carrier, and has met with American, a person with knowledge of the matter said Feb 15.

The slowing US economy, which is starting to dampen travel demand, also is weighing on the industry.

The eight largest US carriers may post a combined first- quarter loss of $1.4 billion, Mer rill Lynch & Co analyst Michael Linenberg wrote on Monday in a note to clients, before AMR leads off the airlines' earnings reports today.

Four small US airlines filed for bankruptcy in the past month: Frontier Airlines Holdings Inc, Skybus Airlines Inc, Aloha Airgroup Inc and ATA Airlines Inc.

A combined Delta-Northwest will control about 25 percent of the US air-travel market, estimated Ray Neidl, an analyst at Calyon Securities in New York. Delta and Northwest and their regional partners carried 176 million people last year.

Delta's biggest contributions to the new carrier include trans-Atlantic routes to Europe and a network in Latin America, while Northwest has Pacific routes including access to the restricted Narita Airport in Tokyo.

Adding overseas flights was part of each airline's strategy to return to profit after bankruptcy.

"With Delta and Northwest bulked up, they can compete globally," former Continental CEO Gordon Bethune said in an interview. "They will have enough of the market that if they say, we need another $5 per ticket, they can get it."

Delta has US hubs at Atlanta, New York's Kennedy airport, Cincinnati and Salt Lake City. Northwest's are in Minneapolis, Detroit and Memphis, Tennessee. Northwest also operates hubs in Amsterdam and Tokyo.

Agencies

(China Daily 04/16/2008 page16)