Delta and Northwest combine to create America's premier global airline
Published: 15 Apr 2008
Delta Air Lines Inc. and Northwest Airlines Corporation have signed an agreement in which the two carriers will combine in an all-stock transaction with a combined enterprise value of $17.7 billion, creating America's premier global airline.
"The merger creates a stronger, more resilient airline positioned to thrive in the increasingly competitive global marketplace," stated the two airlines in a joint statement.
"The combination of Delta and Northwest is a merger based on addition, not subtraction, and it will open a world of opportunities for customers and employees. This merger brings together the compatible strengths, networks and workforces of two complementary airlines to create a global US flag carrier and stronger worldwide competitor. The combined company will become more profitable by expanding its global access and better utilising its combined fleet. And because the combination brings together two geographically distinct route networks with very little overlap, this merger will be pro-competitive, and discount carriers and other network airlines will remain strong and growing competitors."
The new airline, which will be called Delta, will be based in Atlanta and will be headed by Delta Chief Executive Officer Richard Anderson.
Delta Chairman of the Board Daniel Carp will become chairman of the new Board of Directors and Northwest Chairman Roy Bostock will become vice chairman. Ed Bastian will be president and chief financial officer. The Board of Directors will be made up of 13 members, seven of whom will come from Delta's board, including Anderson, and five of whom will come from Northwest's board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association (ALPA).
Delta will have executive offices in Atlanta, Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo. The company's world headquarters will be in Atlanta. Delta is committed to retaining significant jobs, operations and facilities in Minnesota.
Combined, the company and its regional partners will provide access to more than 390 destinations in 67 countries. Delta and Northwest, together, will have more than $35 billion in aggregate annual revenues, operate a mainline fleet of nearly 800 aircraft and employ approximately 75,000 people worldwide.
The transaction is expected to generate more than $1 billion in annual revenue and cost synergies from more effective aircraft utilisation, a more comprehensive and diversified route system and cost synergies from reduced overhead and improved operational efficiency. The company expects to incur one-time cash costs to not exceed $1 billion to integrate the two airlines. The combined company will have a stronger, more durable financial base and one of the strongest balance sheets in the industry, with expected liquidity of nearly $7 billion at closing.
Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. This exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on April 14 closing prices.
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Kilgore said on 15 Apr 08:
As an American who often flies on Delta and somewhat less so on Northwest, I hope for the best in this merger. But, as we all know, there have been no successful airline mergers in the US in the past 30 years since deregulation.
A major problem with the US airline business is that the companies, including Delta, have very poor long-range vision. Like others, Delta CEO Richard Anderson has difficulty looking beyond the next quarterly report.
This merger has a bundle of problems that cannot be swept away by press releases full of platitudes. The biggest unanswered issue is that the fleets of Delta and Northwest are quite different, which will lead to increased costs for maintenance and training.
The very old Boeing 757-200 is the only plane that Delta and Northwest have in common. Beyond this 757, all of which will soon be retired, Delta has a fleet of wide bodies such as the 767 and 777. And yet, Northwest's fleet consists of the 747, the big Airbus A330, the smaller A319 and A320, and even the relatively tiny Douglas DC-9.
This mix smells like trouble.