Delta, Northwest reach agreement on merger

ATLANTA — Delta Air Lines and Northwest Airlines announced a merger Monday night that they valued at $17.7 billion and said would result in an unknown number of job losses among administrative employees but not frontline workers such as flight attendants. The new airline will be headquartered in Atlanta and will result in no hub closures.

The all-stock deal will forge an airline that will be the largest in the world in terms of traffic, but it is likely to unleash later merger deals that we could be even larger, including a possible deal between United and Continental airlines.

"We believe that consolidation in the airline industry is inevitable and we want to control our future," Delta CEO Richard Anderson said in a memo to Delta's 50,000 employees. "Combining our companies creates an airline with the size, scale and global presence to weather economic downturns and compete long-term in the global marketplace."

Delta and Northwest said the merged company, which will be called Delta, will be better able to withstand rising fuel costs and a looming recession.

The companies said Anderson will head the new airline, which will have more than $35 billion in combined revenue and about 75,000 employees. Delta's chairman, Daniel Carp, will be chairman of the new company, and Delta's Ed Bastian will be the president and chief financial officer.

Northwest CEO Doug Steenland will be on the board of directors.

The deal comes after the boards of Delta and Northwest held separate board meetings Monday.

"In the past, we have said that we were not interested in doing a deal for the sake of doing a deal," Anderson said in the memo. "Our need to respond to the pressures of dramatically rising fuel costs and a softening U.S. economy drove us to take a closer look at all options to strengthen our future."

The announcement follows months of on-again, off-again talks in which the carriers came close to announcing a deal in February that was later stalled when pilots unions at the two carriers failed to reach a related agreement on how to merge members' seniority lists.

Monday, the carriers said they had instead reached a deal solely with Delta's pilots union changing their contract to ease the merging of the two airlines. The Delta pilots will get a 3.5 percent equity stake in the new company under the pact, which will need to be ratified by the 6,000-member union.

U.S.-based, non-pilot employees of both companies will get a 4 percent equity stake in the new airline.

Officials said they hope to reach a deal with Northwest's pilots union as well before the deal is finalized.

A Delta-Northwest merger is expected to spark a wave of airline consolidation.

"The betting line is that once Northwest (Delta merger) is announced there will be a United-Continental announcement," said airline analyst Robert Mann. The United-Continental marriage would create a larger carrier than the Delta-Northwest union.

That, Mann said, would leave American Airlines searching for a partner.

"This is a tectonic shift in the industry structure," Mann said. "We could go from six big carriers to perhaps three overnight."

Delta and Northwest airlines were intent on reviving their earlier deal as an antidote to deteriorating industry conditions. Jet fuel prices soared in recent weeks, adding hundreds of millions of dollars to airlines' annual fuel bills. A likely recession threatens to drive down travel demand and ticket prices. Four smaller airlines filed for bankruptcy or ceased operation in recent weeks.

Atlanta-based Delta and Eagan, Minn.-based Northwest hope a merger will allow them to trim some costs while reaping more revenues by stitching together their largely complementary route networks.

Delta, the nation's third-largest carrier, has key hubs in Atlanta and New York and extensive trans-Atlantic routes. Northwest, the fifth-largest airline, has a large Asian network and big hubs in Detroit and Minneapolis.

Air France-KLM will no longer invest in the planned merger. The European company, currently the world's largest airline in terms of revenue, had said in February that it would invest $750 million into a combined Delta-Northwest.

"At this point in time, the balance sheets are strong," Anderson said in an interview after the merger announcement. He said the combined company should have $7 billion liquidity when the merger closes, expected to happen in December.

Delta's and Northwest's investors objected to their holdings being diluted by an Air France investment. All four carriers are key partners in the SkyTeam alliance, a agreement among several airlines to share routes and passenger privileges.

The tentative deal between Delta's pilots and management would need to be ratified in a vote by pilot union members 30 days after a merger is announced. Northwest pilots could be added to the deal, a senior Delta pilot said, at which time there could be additional pay raises.

"We've made some gains in this agreement, and are hoping to add gains," said the pilot.

The pilot was "cautiously optimistic" about the success of a combined Delta-Northwest carrier, given current economic conditions.

The pilot said the combined airline will be a "global powerhouse. If we can get this done quickly, we're going to be unbeatable."

Russell Grantham and Jim Tharpe write for The Atlanta Journal-Constitution. Journal-Constitution writer Rachel Tobin Ramos also contributed to this article.