- The Washington Times - Tuesday, April 15, 2008

Delta Air Lines and Northwest Airlines, reeling from record fuel prices and a weakening economy, agreed to merge last night in a deal that would create the world’s biggest airline.

The combined company would be worth about $17.7 billion and operate as Delta Air Lines.

The airlines hailed the agreement as a way for both of them to achieve cost savings through operating efficiencies.

Both airlines filed for bankruptcy protection in 2005 and emerged last spring as leaner companies with billions of dollars in lower costs.

But the one-two punch of soaring oil prices and passengers forgoing travel plans have again created severe turbulence for the industry.

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    Some financial analysts say consolidation might be the only way to hold off further bankruptcies as the 74 percent jump in jet fuel prices in the past year has forced several smaller airlines out of business.

    In recent weeks, Frontier Airlines, ATA Airlines, Aloha Airlines and Skybus Airlines have all announced that they are shutting down and/or filing for bankruptcy protection. Since 2001, major U.S. airlines shed more than 150,000 jobs and lost more than $29 billion.

    “Together, we are creating America”s leading airline — an airline that is financially secure, able to invest in our employees and our customers, and built to thrive in an increasingly competitive marketplace,” Delta Chief Executive Officer Richard Anderson said.

    However, some lawmakers say the merger could set off a wave of industry consolidations that would diminish competition.

    Continental Airlines and United Airlines also have discussed a possible combination.

    Rep. James L. Oberstar, a Minnesota Democrat, has said a major merger like Delta and Northwest could result in higher fares for passengers and lower quality of service. Mr. Oberstar is chairman of the House Transportation and Infrastructure Committee, which oversees the airline industry.

    But analysts say consolidation could be needed to save the industry.

    “The U.S. airline industry remains too fragmented with too many airlines, too many expensive hub operations and too much capacity being offered, keeping ticket prices down below economical levels, especially in a time when the non-controllable cost of oil continues to rise,” said Ray Neidl, research analyst for Calyon Securities. “Mergers would ultimately enable carriers to reduce costs and enhance revenues through a stricter control of capacity.”

    A Delta and Northwest merger requires government antitrust approval — which is certain to be hotly contested by passenger advocates who say fares will rise.

    The boards of both airlines approved the deal yesterday, but shareholders have not yet voted on it. The new combined airline would be based at Delta”s current headquarters in Atlanta and operate with Mr. Anderson as head of the company.

    The deal calls for a $3.1 billion all-stock transaction in which each Northwest share will be exchanged for 1.25 Delta shares. It would give shareholders a 16.8 percent premium based on yesterday’s closing price. The cost combining their operations are estimated at $1 billion.

    The merged company would offer trips to more than 390 destinations in 67 countries. It would operate with more than $35 billion in annual revenue, nearly 800 aircraft and about 75,000 employees.

    “The new carrier will offer superior route diversity across the U.S., Latin America, Europe and Asia and will be better able to overcome the industry”s boom-and-bust cycles,” said Doug Steenland, chief executive officer of Eagan, Minn.-based Northwest.

    The carriers still need to integrate their unionized work forces, which already has run into complaints from their pilots and other employees over issues such as seniority.

    The deal would propel the combined company ahead of Fort Worth, Texas-based AMR Corp.’s American Airlines in terms of the most passenger traffic.

    Northwest was founded in 1926 to carry air mail from Minnesota’s Twin Cities to Chicago with two rented biplanes. It flew its first ticketed passengers the next year.

    Delta began its first passenger flights from Dallas to Jackson, Miss., in 1929.

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