U.S. News

Northwest and Delta Talk Merger

By Andrew Ross Sorkin and Jeff Bailey|The New York Times

In events that could reshape the airline industry, merger talks have picked up pace between Delta Air Lines and Northwest Airlines, a combination that could force other carriers to seek partners, people with knowledge of the talks said Wednesday.

In particular, these people said, a Delta-Northwest combination could spur Continental Airlines — albeit reluctantly — and United Airlines into negotiations of their own.

In their discussions, Delta and Northwest have reached the point of settling on leadership, and it appears that Delta’s chief executive, Richard H. Anderson, would retain that role in a combined carrier, these people said.

Any merger is expected to involve a stock swap at close to current market prices. Delta shares closed Wednesday at $17.95, up 92 cents; Northwest closed at $18.47, up 69 cents.

Participants would like to announce a deal as early as next week. But these people warned that the talks could still be derailed over any of several issues.

A softening economy and high fuel prices have convinced many in the industry that mergers — and the sweeping cost cuts that can accompany them — are needed to prevent carriers from facing a reoccurrence of the financial problems from which they are still recovering.

Most major domestic airlines reported losses in the fourth quarter. Northwest lost $8 million and Delta $70 million.

Analysts said the mergers could also lead to higher fares in some markets, at least in the short term, as combined carriers reduced flights and the number of seats, and used their increased market power to raise prices.

Any deals, however, could face opposition from leaders in Congress concerned about the loss of jobs and the reduction in competition that would probably result from a big round of mergers. Unions representing airline employees, too, could fight the combinations, unless managements agree to better job security or better pay in some instances.

Mr. Anderson is a former chief executive of Northwest and was named to the top job at Delta after it emerged from bankruptcy last year with directors who wanted to pursue industry consolidation.

He set the current talks in motion last month by asking his board for approval to enter into talks with both Northwest and United.

Douglas M. Steenland, chief executive of Northwest, who once worked for Mr. Anderson, could wind up with a lesser management role, though the details of any job and how long it might last were not clear late Wednesday.

M&A Deals MIA?

Mr. Steenland brought Northwest out of bankruptcy, also last year, after both carriers reduced wages and other costs and shrank their fleets.

Pardus Capital Management, an investment firm that as of November held stakes in United’s parent, the UAL Corporation, and in Delta, has urged those two carriers to merge. Pardus estimated the two airlines could cut combined costs by $585 million a year.

But the combination of Delta and Northwest could produce annual savings of $1.5 billion a year, Pardus estimated, and that is the transaction Delta has pursued most aggressively.

Delta operates a big hub in Cincinnati and Northwest a big hub in Detroit, so one of those could be scaled back, probably Cincinnati. Northwest operates a hub in Memphis, which could be scaled back because Delta operates a huge hub in Atlanta.

Continental’s chief executive, Larry Kellner, has said that he would prefer not to merge with another airline but that should there be a merger of two other big airlines, he would have to consider following suit to avoid being dwarfed.

United, with strong Pacific routes, a big Chicago hub and a large market share on the West Coast, would complement Continental, which has big hubs in Houston and Newark and gets more of its revenue from international flights than any other big domestic carrier.

United’s chief executive, Glenn F. Tilton, has been vocal about wanting to merge with another carrier, and people with knowledge of the discussions said that it appeared he would be willing to step aside as top officer in such a combination.

It appears unlikely, however, that Continental will pursue a deal until it is fairly certain that Delta and Northwest are going to merge.

A Delta spokeswoman declined to comment. A Northwest spokesman could not be reached. A United spokeswoman declined to comment.