US carriers Delta Air Lines and Northwest Airlines are combining to form the world’s largest airline if regulators and stockholders approve the deal.
In short, the combination strategy is focused on squeezing enough operating efficiencies out of a huge global network — and likely from culling weak-performing domestic flights — to make a mammoth enterprise strong enough to survive the current fuel crunch.The third and fifth largest airlines will marry under the name Delta with a combined value of $17.7 billion, the two announced after their boards approved the merger yesterday.
The merger boasts the creation of the world’s largest airline in terms of fleet, destinations and total passengers.
“Combining Delta and Northwest will create a global flag carrier strongly positioned to compete with foreign airlines that are continuing to increase service to the country-region,” a joint statement said.
The terms of the all-stock transaction call for Northwest shareholders to receive 1.25 Delta shares for each Northwest share they own.
The deal was announced as skyrocketing fuel costs, a suffering economy and increasing dissatisfaction among travelers have put a chokehold on the airline industry.
Both Delta and Northwest emerged from Chapter 11 bankruptcy last year.
The transaction was forecast to generate more than $1bn in annual revenue, with one-time cash costs for integrating the two airlines also set at $1bn.
A Delta-Northwest merger, tipped for weeks, was complicated by opposition from pilots who could not reach agreement on a combined system for establishing seniority.
“Delta 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,” the statement said.
It cited staggering job losses and fuel prices that have doubled since last year as primary reasons for the merger.
“In an industry where the US network carriers have shed more than 150,000 jobs and lost more than $29bn since 2001, the combination of Delta and Northwest creates a company with a more resilient business model that is better able to withstand volatile fuel prices than either can on a standalone basis,” it said.
The merger must be approved by shareholders of both companies and is subject to antitrust review, a process that is expected to be completed later this year, Delta said.
The merger would increase international and domestic reach without reducing the number of hubs, serving “140 small communities in the