WSJ: Northwest talking deal with Delta
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US Airways raised its bid for Delta to $10.3 billion; that's about 20-percent higher than the offer Delta refused a few months ago. Delta said the last bid fell at least a billion dollars short of the company's value.
While Delta tries to fend off US Airways, the Wall Street Journal says Delta is looking to Northwest for a possible partner. The newspaper says talks have been taking place for weeks between Delta and Northwest. Both declared bankruptcy on the same day in September 2005. Neither company would comment on the merger speculation.
John Ash, of the aviation consultancy InterVISTAS-ga2, says it would be logical for Northwest and Delta to pursue a merger, given industry trends towards consolidation. United and Continental have reportedly talked about a merger, and Midwest Airlines recently turned down an offer from AirTran.
"The motivation right now... is that everyone is concerned that if they don't get into the hunt, that someone else is going to capture their best target," Ash says. "So really everyone is, to a degree, fishing. There are a limited number of fish in the pond. So in many ways it's a defensive move."
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Ash and other analysts say that a Delta-Northwest merger would be a much more logical move than a Delta-US Airways deal. Ash says Delta and Northwest's routes are different enough so that a merger wouldn't pose anti-trust hurdles. The two airlines already have a partnership in which they sell tickets on each others flights. And Ash says a possible Northwest-Delta merger could be a boon to the flying public, which would have access to a wider network.
But Ash says combining Northwest and Delta would be complicated for a host of reasons, including the fact that the two companies' cultures are very different.
"In many ways the people at Northwest and the company are characterized as a hungry pit bull, that's more than happy to pick a fight with anybody and is a really aggressive competitor. And Delta, if Northwest is a pitbull, is really more like a collie. So you've got some real cultural differences there," he says.
Officials with Northwest's powerful pilots union could not be reached for comment. Flight attendants union spokesman Ricky Thornton says it's too early to assess a merger with Delta without specifics. But a general concern he notes is that Delta's flight attendants are not unionized.
"There are a lot of ramifications about merging with a carrier that is non-union, merging with a carrier that has a larger membership than our membership, as far as protections are concerned," he says. "One of our contract provisions is to receive date of hire as seniority in a combined multi carrier, and if an opposing carrier had something different, it could create a large problem for our membership."
But all those questions about merger complications are premature, according to aviation analyst Mike Boyd. He doubts a Northwest-Delta merger will happen, and suspects the two companies are seeking something more like a deeper alliance.
"Alliances are good, mergers are bad," he asserts. "Mergers always end up with less, alliances end up with more. Delta and Northwest currently do have an alliance where they code share and share passengers on some flights. They may be looking at enhancing that. But I think both of them know that a full blown merger is not a grand idea because of the problems involved. "
Boyd says mergers are expensive and typically not very beneficial to airline shareholders or customers. Boyd suspects the rumors about a Delta/Northwest deal aren't coming from the airlines' management.
"A lot of this merger talk is mostly gossip from the financial industry. Most airline CEOs are not pro-merger. They know what mergers are. It's usually people who want to make some money on the deal," he says.
So far, the Wall Street Journal's reports of talks between Northwest and Delta have indicated that any possible link-up might happen after both companies emerge from bankruptcy protection. Many analysts say a post-bankruptcy deal would be less complicated to work out, because creditors would play a lesser role and bankruptcy judges would not have to sign off on the deal.
