Clearing Antitrust Hurdle, Delta Clinches Acquisition of Northwest
Thursday, October 30, 2008
Delta and Northwest announced yesterday evening that the two companies had officially merged, hours after the U.S. Justice Department said the deal to create the world's largest airline did not raise antitrust concerns for the government.
The combined airline will be called Delta and headquartered in Atlanta. It will be the world's largest by several measures, including number of passengers flown, departures and destinations. Operations of the two carriers are expected to be combined over the next 14 to 16 months.
In a statement, Delta chief executive Richard Anderson said the merger gave the new company "increased flexibility to adapt to the economic challenges ahead." Anderson will retain the chief executive role at the combined company.
The outlook for U.S. airlines appears to be mixed over the next several months. Already, there are signs that the economic slowdown is leading to a pullback from air travel. Airlines, however, are benefiting from a dramatic drop in oil prices after peaks this summer led to talk of bankruptcies and wider industry consolidation.
After a six-month investigation, the Justice Department's antitrust division removed the last hurdle to the proposed merger yesterday, saying that it "is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition."
Some labor groups have vocally opposed the Delta-Northwest merger from the beginning, fearing that a deal ultimately would cost jobs. And unions have worried that if the merged company failed, worker pensions would be endangered. Analysts said the approval didn't immediately change industry dynamics given that it was long expected.
Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers, said the new airline could prove a behemoth that would be difficult to manage, increasing the chances that the combined carrier would end up in bankruptcy court. The IAM said the two airlines would have more than $28.8 billion in combined debt and $15.6 billion in unfunded pension liabilities.
In a statement, the Justice Department cited the heated competition among carriers in the U.S. market. The department said the combination would probably result in cost savings in airport operations, information technology and fleet optimization that would benefit consumers. The government said consumers could benefit from the airlines' combined networks.
Analysts say the two offered geographic compatibility. Delta has operations heavily concentrated in the southeastern United States and in trans-Atlantic markets. Northwest has operations based mainly in the Midwest and has significant Asian operations.
Delta, based in Atlanta, is the third-largest airline in the United States. It carried 73 million passengers last year. Northwest, based in Minneapolis, is the fifth-largest U.S. airline. Last year, Northwest carried 53 million passengers. Delta and Northwest will have more than $31 billion in combined revenues, operate a fleet of nearly 800 aircraft and employ 75,000 people worldwide.