Will the US Airways-Delta merger push NWA into the arms of another airline?
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US Airways' $8 billion cash-and-stock bid for Delta comes despite Delta's repeated statements that the airline isn't interested in a merger. But US Airways sees opportunities to save hundreds of millions by merging with Delta. The key, says US Airways, is that Delta can dramatically slash costs, especially aircraft lease costs, while the airline is in bankruptcy. Like Delta, Northwest is in bankruptcy and is aiming to cut its annual costs by $2.5 billion.
If US Airways succeeds in buying Delta, the combined airline would operate under the Delta name and serve more than 350 destinations across five continents.
Airline industry consultant Darryl Jenkins expects a US Airways-Delta union would prompt a flurry of airline mergers. Jenkins figures other carriers would want to get bigger, too. "You'd probably see United make a move right away," he says. "And I think we'd see American --very reluctantly because I know they don't want to do a merger -- they would reach out and they would grab Northwest Airlines."
Northwest is a major player in the Pacific market, but American is not, and that's a big reason why American would want it. Northwest serves 15 destinations in Asia, including Tokyo, Beijing, Manila, Bangkok and Singapore. Pacific routes provided 22 percent of Northwest's passenger revenue last year.
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Meanwhile, Jenkins says United Airlines is an unlikely suitor for Northwest because United is Northwest's biggest American competitor in the Pacific. Regulators would likely nix a merger of the two carriers, figuring the airlines would have too much market power in the Pacific.
Eagan-based Northwest had no comment on the US Airways offer for Delta. And Northwest had no comment on speculation about Northwest merging with another carrier.
Industry analysts have long maintained the nation's airlines have too much capacity. That's led to predictions of a wave of mergers that would leave only a few big carriers. Jenkins says if US Airways' CEO Doug Parker succeeds in buying Delta, it would trigger the much-predicted industry consolidation.
"Since 1978, when airlines were deregulated, it was thought they would eventually consolidate into three large carriers," according to Jenkins.
On the other hand, airline industry analyst John Pincavage thinks US Airways' action could lead to efforts to keep big carriers independent by taking them private.
"It may or may not spur any consolidation in the industry," according to Pincavage. "But it may spur a whole bunch of large private-equity firms getting interested in making an offer for Northwest or Delta."
Oothers are skeptical the US Airways move on Delta will trigger much of anything.
Analyst Michael Boyd doubts other carriers would seek mergers, and he contends a union of US Airways and Delta would weaken both carriers, at least in the short-term.
"Putting those two airlines together ends up with a weaker system entirely and that's beneficial for Northwest," says Boyd. "Delta and US Airways will be rolling around in the merger mud, trying to work out airplane fleets, work out labor issues, operational issues. Meanwhile, Northwest can go ahead and grow."
For years Northwest officials viewed mergers as an overly difficult way to expand their network. But recently airline execs have said they expect the industry to consolidate
Bill Hochmuth, an analyst with Thrivent Financial for Lutherans, suspects all airlines are mulling mergers. And he's confident suitors have been eyeing Northwest.
"I would be surprised if they have not already looked and have been looking for months. Now will they do something? That becomes the question. A merger does not have to happen. But I think all of the airlines are looking at what the potential could be," Hochmuth says.
Why didn't US Airways bid for Northwest, which is also in bankruptcy and slashing its costs? During a Wednesday conference call with analysts, CEO Doug Parker hinted he'd looked at Northwest, along with other carriers. But Parker said Delta is the best partner for US Airways, providing the greatest cost-savings and the best fit.
