Delta Says No Merger Yet, Deal Must Meet Conditions
Airwise.com, 2/27/2008
Delta Air Lines cooled expectation that it was ready to merge with Northwest Airlines, saying there was no deal yet and that it had a strong stand-alone plan.
The carrier's chief executive, Richard Anderson, said in a memo to employees that a potential merger has been elusive after months of reviewing its strategic options.
"To date, we have not arrived at a potential transaction that meets all of our principles. Rest assured that we will not complete a transaction unless all of these conditions are met," Anderson said. "We have a strong stand-alone plan."
Industry and other sources have said in recent weeks that Delta and Northwest were close to a merger agreement but labor issues were holding up a formal proposal.
In a separate note to employees at Northwest, that company's chief executive, Doug Steenland, said the airline believes "consolidation among network carriers is inevitable."
Steenland said Northwest continues to consider options that would provide greater long term security and growth for employees and create value for shareholders, and benefit customers and service.
Mike Boyd, an industry consultant, said the Delta memo, "underscores again" that neither airline needs to merge. "This is something they want to put together but it is not a merger of absolute necessity," Boyd said.
Delta and Northwest emerged from bankruptcy protection last year with lower costs and cash on hand. Both have strong domestic and growing international networks -- Northwest to Asia and Delta to Europe.
Conditions for a deal cited by Anderson include a guarantee that worker seniority be protected, a crucial issue that pilots at both airlines have tried unsuccessfully to sort out for weeks in joint negotiations, several industry sources have said.
Managements at Delta and Northwest want the support of the 11,000 pilots at their companies before proposing a merger to their respective boards, shareholders and the government.
They also have said they want to avoid worker integration problems that have plagued other airline mergers, including the one between US Airways and America West Airlines in 2005 and the Northwest-Republic merger 22 years ago.
But seniority rankings, which determine everything from a pilot's wages, hours worked, routes flown, and vacation time, are excruciatingly difficult to merge.
Delta pilots generally make more money and fly newer planes than their counterparts at Northwest, while Northwest pilots tend to have more years of experience and want to protect their seniority.
The conditions of a merger also require a combined airline be called Delta and it must be headquartered in Atlanta, a point that industry sources have said Delta and Northwest apparently had resolved.
Anderson also said a merged company would have to strengthen its network and accelerate plans for international expansion. He and Northwest's Steenland have said previously they prefer a combined company that would grow and create more jobs.
(Reuters)