Delta, Northwest aim to create world’s biggest airline
The merger has been approved by both airline boards
ATLANTA » Delta Air Lines Inc.
and Northwest Airlines Corp.
, squeezed by record high fuel prices and a slowing economy, are combining in a stock-swap deal that would create the world's biggest carrier.
The boards of both companies gave the deal the go-ahead yesterday.
The announcement could spur other airline combinations. The most likely scenario that has been talked about is a potential deal between United and Continental airlines.
Under the terms of the Delta transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. The exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on yesterday's closing stock prices.
That currently values Northwest at almost $3.63 billion based on 277 million Northwest shares that the companies said are outstanding.
Delta said the combined airline, which will be called Delta, will have an enterprise value of $17.7 billion, which includes the combined market values of the two companies and combined net debt. It will be based in Atlanta, and Delta CEO Richard Anderson will head the combined company.
Delta Chairman Daniel Carp will become chairman of the new board of directors and Northwest Chairman Roy Bostock will become vice chairman. Delta President and Chief Financial Officer Ed Bastian will retain his titles.
The new board will be made up of 13 members, seven of whom will come from Delta's board, including Anderson, and five of whom will come from Northwest's board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association, the union that represents pilots from both carriers. Anderson told reporters on a conference call it will be a Delta pilot holding the voting seat.
"We are confident the transaction will go forward and be approved," Steenland said.
There will be an unspecified number of job cuts or transfers through the consolidation of overlapping corporate and administrative functions, Delta said. The two airlines employ more than 80,000 people combined. The company expects no involuntary furloughs of front-line employees and said the existing pension plans for both companies' employees will be protected.
Delta doesn't plan to close any of the two airlines' hubs.
Delta also said that it has agreed with its pilot leadership to extend its existing collective bargaining agreement through the end of 2012. The agreement, which is subject to pilot ratification, will allow the combined company to realize the revenue synergies of the transaction, Delta said. It also provides the Delta pilots a 3.5 percent equity stake in the new company and other enhancements to their current contract.
The agreement does not cover Northwest pilots.
Delta said it will use its best efforts to reach a combined Delta-Northwest pilot agreement, including resolution of pilot seniority integration, prior to the closing of the merger.
U.S.-based non-pilot employees of both companies will get a 4 percent equity stake in the new airline when the deal closes, Delta said.
Northwest pilots and the union representing most of Northwest's ground workers immediately announced they would fight the combination.
Dave Stevens, chairman of the Northwest branch of the Air Line Pilots Association, said in a prepared statement, "The risk to Northwest Airlines and to the Northwest pilot group from letting this merger proceed, as it is now structured, is simply too great."
The two pilots unions were unable to agree on integrating seniority lists before the combination was announced. A joint contract they had reached was never consummated.
The announcement comes a year after the two carriers emerged from Chapter 11 bankruptcy protection. Both carriers are losing money again but are in much better shape than the four much-smaller airlines that have filed for bankruptcy or gone out of business in recent weeks.
The deal will need antitrust approval, and integrating the work forces of fully unionized Northwest and Delta, where pilots are currently the only major unionized work group, will be tricky.
The joining of Atlanta-based Delta and Eagan, Minn.-based Northwest, if approved by regulators and shareholders of both companies, will result in combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp.'s American Airlines for the top spot in the U.S.
It would be the biggest carrier in the world in terms of traffic, before any further domestic capacity cuts and any divestitures that might be required by antitrust regulators.
The agreement comes after several months of merger discussions between Delta and Northwest and at one time between Delta and Chicago-based United Airlines. Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap, even though a Delta-United combination could create more scale and have greater synergies.
Northwest and Delta overlap relatively little in the U.S. Delta's routes are strongest in the eastern U.S. and to Latin America and Europe. Northwest would complement that with its near-lock in the Midwest along with flights to its Tokyo hub and other points in Asia.
Northwest's Asian routes have been one of its main appeals to other carriers. It and United are the only two U.S. carriers with the rights to pick up new passengers in Japan and fly them farther into Asia.
THE HEAD HONCHOS
Delta Air Lines Inc. Chief Executive Richard H. Anderson
» Age: 52
» Career: Became CEO of Delta on Sept. 1, 2007, from an executive position at UnitedHealth Group. From February 2001 until October 2004, Anderson was CEO of Northwest Airlines Corp. He had been executive vice president and chief operating officer at Northwest since 1998. He joined Northwest in 1990 as deputy general counsel and later oversaw technical operations. Worked at Continental Airlines from 1987 to 1990 as an attorney. From 1978 to 1987, he worked as chief counsel to the criminal court judges and as a prosecutor in Houston.
» Family: Married with two children.
» Education: Holds a law degree from South Texas College of Law and a bachelor's degree from the University of Houston.
Northwest Airlines Corp. Chief Executive Douglas M. Steenland:
» Age: 56
» Career: Became chief executive on Oct. 1, 2004. Named president in February 2001. Joined Northwest in 1991 as deputy general counsel. As president, his duties included overseeing Northwest labor relations. Involved in 1993 restructuring and labor concessions. Before joining Northwest, was senior partner at Washington law firm of Verner, Liipfert, Bernhard, McPherson and Hand.
» Family: Married with two children.
» Education: Graduated in 1976 from the National Law Center at George Washington University.