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Delta, Northwest to form air giant

$3.1 billion merger may have ripple effect; Passengers could find high costs, fewer options

Email|Print|Single Page| Text size + By Nicole C. Wong
Globe Staff / April 15, 2008

Delta Air Lines Inc. and Northwest Airlines Corp. agreed last night to a $3.1 billion dollar merger that would create the largest airline in the world.

The combined carrier would be called Delta, and would have the largest market share at Boston's Logan International Airport. The all-stock deal, subject to shareholder and government approvals, is likely to be a bittersweet one for travelers. The combination would allow many passengers to fly to more destinations on a single airline, but also could mean higher ticket prices, fuller planes, and fewer choices in flights.

Analysts say the merger is also likely to set in motion a wave of consolidation in the troubled US airline industry. Record-high oil prices and a deteriorating economy have forced four small US carriers to declare bankruptcy in recent weeks and shut down. That has left remaining airlines scrambling to increase revenue and cut costs - something Delta and Northwest officials say their merger would do.

"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," the airlines said in a joint press release last night.

Both airlines emerged from Chapter 11 bankruptcy reorganization last year.

The deal is expected to generate more than $1 billion in annual revenue and cost savings by creating a bigger route network, reducing overhead, and improving operational efficiencies. Combined, the new carrier would bring in about $35 billion in annual revenue, fly to more than 390 destinations in 67 countries, operate a fleet of 800 aircraft, and employ about 75,000 people worldwide.

While it wasn't immediately clear whether squeezing efficiencies out of operations meant cutting flights, Atlanta-based Delta and Eagan, Minn.-based Northwest said they would maintain both carriers' airport hubs, including ones in Atlanta, Cincinnati, Detroit, and Minneapolis/St. Paul. The combined carrier would be headquartered in Atlanta, and Delta chief executive Richard Anderson would become the new company's CEO.

The Delta-Northwest transaction is expected to accelerate a deal between United Airlines Inc. and Continental Airlines Inc., which some analysts believe could be announced within weeks. Additionally, US Airways has said it will aggressively try to join in on the consolidation action, although it is not clear with whom it would team up. Any combination would be subject to antitrust review by the Department of Justice.

Last night the Delta-Northwest merger faced opposition from the International Association of Machinists and Aerospace Workers union, which represents 12,500 Northwest employees who are the only workers at either airline with an active, secure defined benefit pension plan.

"Northwest and Delta have both lobbied Congress for pension relief. Both have also frozen their underfunded pension plans. If this ill-advised mega venture fails, the liability for these plans will fall on the Pension Benefit Guaranty Corporation, and ultimately the American taxpayer," the union's general vice president Robert Roach Jr. said. "We will do everything legally possible to oppose any merger that threatens our members' jobs, labor contracts, pensions, seniority, and their right to union representation."

The Delta-Northwest combo, which is expected to complete regulatory review this year, may not benefit or burden Boston nearly as much as other major cities where the two airlines operate.

That's because the new Delta, which would become Logan's largest airline with 21.7 percent of the passenger market share, would still not be big enough to fully insulate itself from aggressive competition, according to officials at the Massachusetts Port Authority, which runs Logan. Currently, American Airlines Inc. is Logan's number one carrier with 16.7 percent of the passenger market.

And the new Delta probably would not cut any Logan routes because there is no overlap between the nonstop destinations either airline currently flies from Boston. Delta's network focuses on the South, Mountain West, Northeast, Europe and Latin America while Northwest's network is strong in the Midwest, Canada, and Asia.

The biggest change Boston travelers would likely notice is where they catch some of their flights. It would make sense for Northwest to relocate its four gates from Terminal E to be alongside Delta's 12 gates in the newer, partially occupied Terminal A, said Massport spokesman Matthew Brelis.

Both Delta and Northwest have retrenched from Logan in recent years and probably won't add new routes any time soon.

"Boston won't see much change, at least in the near term," said Henry H. Harteveldt, principal airline analyst at Forrester Research Inc. "It's highly unlikely that in the current weak economy, and with fuel prices being so expensive, that the combined Delta-Northwest will resurrect Northwest's former transatlantic hub at Logan."

Nicole C. Wong can be reached at nwong@globe.com.

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