(Agencies)
Updated: 2008-04-24 08:34

During an appearance in Boston on Wednesday, Southwest Airlines Co. Chief Executive Gary Kelly cited industry pressures as he suggested that a merger isn't appealing right now to the Dallas-based carrier.

"My own view is that with the current fuel outlook that we have and the near-term economic outlook, the thought of acquiring another airline is just daunting because of the complexity involved and the investment that's going to have to take place up front," Kelly said.

Against that backdrop, as well as labor integration issues and the length of time it will take to get the full cost savings expected, Kelly questioned the merits of the Delta-Northwest combination.

"The implication of the combinations are pretty dire as to whether or not they'll actually be successful," Kelly said.

Delta and Northwest have been trying to sell their deal to the public, employees, federal regulators and Wall Street. Delta executives said Wednesday they believe the deal will help create long-term value for shareholders. So far, investors appear unconvinced.

The stock declines since the deal was announced have shaved roughly $1.4 billion off the value of the deal to Northwest shareholders. The initial value was $3.6 billion.

The carriers have not committed to cut a specific number of U.S. flights beyond what they have disclosed separately. Analysts say that limits the cost savings or higher fares the airlines could reap from the deal.

Delta and Northwest haven't ruled out further capacity cuts in the future. Delta is already cutting jobs, and both airlines are grounding some planes.

Northwest has been successful in charging passengers more for international flights. But many of the domestic fare increases attempted by Northwest and other airlines have been rolled back in recent months after one airline or another decided not to match it.

Meanwhile, pilots at Delta and Northwest are looking to resume talks on merging their work forces. The Air Line Pilots Association said negotiators will aim to work out a joint union contract before the two airlines combine. Once that is done, the chairmen of the two unions say they want to negotiate a seniority agreement.

The lack of a seniority agreement is what kept them from making a deal before Delta and Northwest announced plans to join.

Northwest pilots had vowed to kill the tie-up because they were left out of contract talks at the end. They say they still oppose the combination, but that a joint contract with Delta pilots would be a step in the right direction.

Northwest suggested Wednesday that it may lose money for the full year. Bastian said Delta expects to be slightly profitable in the second quarter.

Delta shares fell 24 cents, or 3.5 percent, to close at $6.56 on Wednesday, while Northwest fell 37 cents, or 5 percent, to $7.10. Southwest rose 39 cents, or 3.3 percent, to $12.17.

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