Delta Air Lines Inc. and Northwest Airlines Corp. closed their merger transaction just hours after the U.S. Justice Department said it wouldn't block the plan, in a step that creates the world's largest airline company by traffic.The deal essentially was a Delta acquisition of Northwest in a $2.6 billion all-stock transaction, based on Northwest's share price Wednesday on what was its last trading day on the New York Stock Exchange. Its shares rose 13 cents, or 1.3%, to $9.90 in 4 p.m. composite trading. Now Northwest is a wholly owned unit of Delta.
The next step will be for the carriers to put months of integration planning into practice as they meld fleets, computer systems, work forces, airport gates and frequent-flier plans, while seeking the cost savings and revenue synergies on which the deal is based.
In a briefing with reporters late Wednesday, Richard Anderson, Delta's chief executive, said the $2 billion in projected cost savings and additional revenue created by the merger would help the combined company withstand volatility in fuel prices and the continuing financial crisis better than if the two companies stood alone. The combined companies will have "a lot of opportunity, a lot of resources, and a lot of tools to weather the financial difficulties," he said. "When facing those kinds of challenges, having $2 billion in synergy opportunities becomes extremely important."
Because the two airlines have little route overlap, it wasn't expected that antitrust regulators would seek concessions or place conditions. The Justice Department said it found after a six-month investigation that the combination is likely to produce efficiencies that will benefit consumers and not lessen competition.
Another obstacle was cleared last week when Delta and Northwest reached a settlement with plaintiffs in an antitrust lawsuit that was to go to trial Nov. 5 in U.S. District Court in San Francisco. The suit, filed last June, sought to block the merger on grounds that it would lessen competition and cause ticket prices to rise. The 28 named plaintiffs are passengers who purchased tickets on the carriers in the past. The settlement, terms of which haven't been disclosed, was announced Wednesday by plaintiffs' attorneys.
Much work lies ahead to ensure the transition is smooth, given the rocky track record of labor strife, system meltdowns and poor customer service in other airline combinations over the years. The task is all the more challenging given that a majority of Northwest's workers are unionized and most of Delta's aren't, and because the airlines have different aircraft types and multiple models. The integration is expected to be fully completed in about two years.
More than two dozen integration teams have spent months preparing. The top executive team has been selected. Northwest flight attendants will don Delta uniforms come spring. The companies already are working to align customer-loyalty programs, and expect shortly to give upgrade priority to each other's elite fliers on both carriers' flights. The companies said the Federal Aviation Administration last month approved their plans for achieving a single operating permit, a process that could take as many as 18 months.
One issue that isn't yet resolved is how the airlines' pilot groups will resolve their seniority integration. But Delta's 6,000 pilots and Northwest's 5,000 already have voted for a common labor contract and agreed to abide by an arbitrator's ruling if they can't agree by next month. Seniority determines pay, work schedules and vacation for pilots.
Delta and Northwest in April announced plans to merge, raising expectations that other U.S. carriers would rush to combine to stay competitive and better weather deteriorating industry conditions. But as fuel prices rose rapidly in the spring and summer, mergers began to look too risky and many other airlines that had discussed combinations ended their talks.
Together, Delta and Northwest will have more than $35 billion in revenue, a fleet of nearly 800 planes and 75,000 employees. Delta Chairman Daniel Carp assumes chairmanship of the new board, which was formed Wednesday. Mr. Anderson assumed that role at the combined entity. Doug Steenland, Northwest's CEO, joined the combined airline's board as a director.
The "new" Delta gains Delta's Atlanta hub, operations at New York's John F. Kennedy International Airport and extensive European route network, along with Northwest's strengths in the Upper Midwest, Pacific route network and trans-Atlantic relationship with KLM Royal Dutch Airlines, a unit of Air France-KLM SA. Air France already is Delta's European marketing partner and those two, along with Northwest and KLM, enjoy U.S. antitrust immunity to set fares and capacity on trans-Atlantic routes.
