Delta, Northwest to create largest airline

The joining of Atlanta-based Delta and Eagan, Minn.-based Northwest, if approved by regulators and shareholders of both companies, will result in combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp.’s American Airlines for the top spot in the U.S.

It would be the biggest carrier in the world in terms of traffic, before any further domestic capacity cuts and any divestitures that might be required by antitrust regulators.

The agreement comes after several months of merger discussions between Delta and Northwest and at one time between Delta and Chicago-based UAL Corp.’s United Airlines. Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap, even though a Delta-United combination could create more scale and have greater synergies.

Years of mounting losses forced Delta and Northwest to file for bankruptcy protection in New York on Sept. 14, 2005. Both emerged from bankruptcy as leaner carriers last spring, after shedding billions in costs during their reorganizations.

While in bankruptcy, Delta fended off a hostile takeover bid by Tempe, Ariz.-based US Airways Group Inc.

Delta said its plan to remain on its own would create more value than US Airways’ $9.8 billion bid, which Delta argued would not pass regulatory hurdles. The value argument never materialized, as Delta’s post-emergence market capitalization started out $1 billion less than US Airways’ bid and less than the $9.4 billion to $12 billion Delta projected. Its market value has fallen precipitously in the months since amid airline industry woes, including high fuel prices and a general inability to gain traction raising ticket prices.

Many analysts predicted an eventual Delta-Northwest merger after Anderson, a former Northwest CEO, was named last August to be the chief executive officer of Delta.

Anderson, who was Northwest’s CEO from 2001 to 2004, immediately sought to quiet those suggestions, telling Delta’s pilots union chairman the morning his appointment was announced that he believed in Delta’s standalone plan and that “he was not coming in as CEO to facilitate a merger with Northwest.”

But eight months later, that’s what Anderson is doing, and many analysts believe he didn’t have a choice amid plummeting airline market values and soaring fuel prices.

Wall Street and some airline executives have pushed for consolidation for years, arguing that too many seats are chasing too few passengers. The resulting discounting has made it hard for airlines to cover their expenses.

However, Northwest and Delta overlap relatively little in the U.S. — which could actually help them gain antitrust approval. Delta’s routes are strongest in the eastern U.S. and to Latin America and Europe. Northwest would complement that with its near-lock in the Midwest along with flights to its Tokyo hub and other points in Asia.

Northwest’s Asian routes have been one of its main appeals to other carriers. It and United are the only two U.S. carriers with the rights to pick up new passengers in Japan and fly them farther into Asia. Delta and Northwest also complement each other internationally because they are both part of a marketing alliance that includes Air France-KLM.

Air France-KLM had said previously it would consider making an investment in the combined company, but that did not play out. Delta said Air France-KLM supports the deal because it would solidify the joint venture involving Delta, Northwest and Air France-KLM.

U.S. airlines get the majority of their revenue from domestic service, though that trend has shifted in recent years as more carriers, particularly Delta and Northwest, have sought to increase international service.

Don't miss this on MSNBC.com Pass it on: Sons of infertile men may be next The eight biggest Olympic marketing debacles TV dead pool: Which shows should go? Cosmic Log: Is this your jetpack? Century after first fatality, safety is in the air

MORE FROM AVIATION

Aviation Section Front

Talks to resume in Boeing strike FAA faulted on airline repair outsourcing Delta, NWA shareholders approve combination As fares and fees rise, passengers want service United may not be alone with fuel hedge losses Union says Boeing strike is about contractors Alaska Airlines to cut capacity, slash jobs Pentagon delays $35 billion tanker competition Why machinists decided to strike Boeing Strike could cost Boeing billions Aviation Section Front   Add Aviation headlines to your news reader: