Delta-Northwest deal faces many hurdles
Written on February 23, 2008
A possible deal between Delta Air Lines Inc and Northwest Airlines Corp faces severe challenges that beg the question: Can this merger work?
Delta (DAL.N: Quote, Profile, Research) and Northwest (NWA.N: Quote, Profile, Research), in the final stages of merger talks, according to people briefed on the matter, are expected to face a tough antitrust review.
Additionally, they face powerful politicians railing against a merger, labor groups wanting a stake in the new company and better integration terms, and a consolidation process that could take years to complete.
“Even if the deal is approved, of which there is a 30 percent chance at this point, integrating the computer systems, the labor and the fleets will take a very long time,” Morningstar analyst Brian Nelson said in an interview.
After racking up $35 billion in losses and finally emerging from a five-year slump in 2006, U.S. airlines are hoping that mergers could lead to higher fares as combined carriers reduce flights and use their increased market power to raise prices.
As merger talks between Delta and Northwest hurtle along, Delta, the bigger in size, is expected to be the controlling company in a stock-swap deal that would create the world’s largest carrier by traffic.
Delta has a market value of $4.7 billion, while Northwest is worth $4 billion faxless payday advance. The value of any deal remains unclear.
Integrating the two labor forces could take years unless the two unions agree to terms before a merger is announced. US Airways (LCC.N: Quote, Profile, Research), which merged with America West in 2005, still operates its staff with two separate labor contracts and has had trouble integrating its customer reservation systems.
Filed in: economics.