Delta completes deal to acquire Northwest Airlines

[October 30, 2008]  MINNEAPOLIS (AP) -- Delta Air Lines completed its $2.8 billion acquisition of Northwest Airlines on Wednesday, turning two of America's most storied airlines into the world's biggest carrier.

Delta and Northwest closed the deal just hours after the Justice Department said it had no antitrust objections.

The company will keep Delta's name, Atlanta headquarters, and chief executive Richard Anderson, who used to run Northwest. Delta executives said travelers will see no differences right away. New uniforms will be phased in next year, and Northwest's fleet with its signature red tail will be repainted over the next two years, the companies said.

"I will tell you from a customer perspective and a frequent-flier perspective it is business as usual," Anderson said.

The combined airline would carry more traffic than either Air France-KLM (currently the world's largest) or American Airlines, the biggest U.S. carrier. But antitrust regulators rejected worries that the new Delta would hurt consumers, or competition.

Federal regulators wrote in a statement that "the proposed merger between Delta and Northwest is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition."

It noted that other carriers also offer flights on most of the routes where Delta and Northwest compete with each other. The Justice Department also said consumers should benefit from savings on expenses for airport operations, technology, and suppliers. The companies have said they can cut $2 billion a year in expenses once they combine.

The decision caps a six-month Justice Department investigation, which was closed without objection to the deal from the department.

Also Wednesday, an attorney for 28 air travelers who had sued to block the deal said the case had settled. The attorney, Joseph Alioto, declined to release terms of the settlement, which he said was worked out on Friday and finalized over the last few days.

Kevin Mitchell, chairman of the Business Travel Coalition, said the merger will mean higher fares and fewer connections between mid-size cities and business centers. He said he was concerned about an enlarged Delta and other possible airline combinations and joint ventures.

"A first priority of the new administration should be to reconsider the rationale behind antitrust-immunized alliances and the market power they can exercise to the detriment of consumers," said Mitchell, who testified before Congress in April against airline mergers.

When Delta Air Lines Inc. and Northwest Airlines Corp. announced their deal in April, it was widely thought that they were looking for government approval before a new President took office. Shareholders approved the merger on Sept. 25.

It was also expected to be the first of a wave of airline mergers. That never happened, despite talks between most of the big carriers. Two of the most vociferously pro-merger airlines, UAL Corp.'s United and US Airways Group Inc., backed away from a potential deal in May. Before that, Continental Airlines Inc. had considered, but rejected, pursuing a deal with United.

Still, American Airlines and British Airways are sure to point to Wednesday's approval for Delta as they seek antitrust immunity for their own proposed alliance, which would let them work together on pricing and scheduling for flights across the Atlantic. Virgin Atlantic Airways has opposed the request, saying it would hurt competition. BA and American also want to add Iberia to the deal.

Tim Smith, a spokesman for American, said the Delta-Northwest combination "changes the landscape of the industry, as well as the challenges we face in the months and years ahead."

American believes its deal with BA would "provide the same type of consumer benefits by by allowing us to compete more effectively with other alliances that already have such immunity," Smith said.

American's pilots are lobbying Congress to block the deal with BA.

"Capacity-sharing arrangements such as what American Airlines is seeking to enter into are actually a form of industry consolidation, potentially resulting in yet more hard-working Americans' jobs being eliminated," said Lloyd Hill, president of the pilots' union at American.

Continental Airlines Inc. is seeking approval to join a trans-Atlantic partnership of several airlines including United and Lufthansa, which already have antitrust immunity to work together on trans-Atlantic prices and schedules. Continental officials declined to comment.

Calyon Securities analyst Ray Neidl said that while airline mergers "never initially work out as planned," this combination appears to be clear for completion as many details have already been dealt with.

"Many of the snags such as pilot integration, labor and (technology) have already been addressed, so by airline standards, this should run fairly smoothly," he said by e-mail. "But a lot depends on (executives) managing the process."

"The biggest challenge is getting the two cultures -- management and labor -- of each airline to work together from the beginning," he added.

Delta President Ed Bastian is taking over as Northwest Chief Executive immediately, the airlines said. Outgoing Northwest CEO Doug Steenland will be on Delta's board. In a statement, he said the new combined carrier will "better weather the current economic challenges and provide greater stability and job security for our employees."

Northwest's labor issues are well-known, while Delta's only large union is its pilots. Pilots at both airlines have agreed on a joint contract, but the stickiest issue, their seniority, is being arbitrated. The two sides have agreed to abide by the arbitrator's ruling. Negotiations are continuing between the two groups as well, Delta pilot union chairman Lee Moak wrote in a letter to pilots on Wednesday.

Delta is hoping to avoid a situation like what happened at US Airways Group Inc., which still has not solved the feud between America West and the aviators at US Airways, which it acquired in 2005.

The deal was opposed by the International Association of Machinists and Aerospace Workers, which represents Northwest baggage handlers, gate workers, and ticket agents, and hopes to convince Delta workers in those positions to sign on, too.

"Delta is creating the world's largest airline. The Machinists Union will help Northwest and Delta employees make it the world's largest unionized airline," IAM General Vice President Robert Roach said in a prepared statement.

The deal was a stock swap, with Northwest shareholders getting 1.25 shares of Delta for every Northwest share they owned. Antitrust approval was announced about an hour before the markets closed. Delta shares closed down 17 cents at $7.99, and Northwest shares rose 13 cents to close at $9.90.

[Associated Press; By JOSHUA FREED]

AP Airlines Writers Harry R. Weber in New York and David Koenig in Dallas, Associated Press Writer Lara Jakes Jordan in Washington, and AP Transportation Writer Samantha Bomkamp in New York contributed to this report.

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