MINNEAPOLIS – Delta Airlines and Northwest are joining forces creating the world’s biggest carrier. The boards of both companies gave the deal the go-ahead Monday afternoon. The airline will fly under the Delta name./p>
Delta Airlines said the combined airline will have an enterprise value of $17.7 billion and will be based in Atlanta. The CEO of Delta will head the combined company.
Northwest is the largest carrier that serves both Detroit Metropolitan Airport as well as Gerald R. Ford International Airport in Grand Rapids. Delta also serves both airports.
The announcement comes a year after the two carriers emerged from chapter 11 bankruptcy protection.
If the Delta-Northwest merger receives regulatory approval, the combined carrier would be the largest in the world by traffic. The merger is expected to set off a wave of consolidation, with UAL Corp.’s United Airlines and Continental Airlines Inc. seen as the next possible pairing. United has been an avid proponent of mergers. Continental has said it would like to remain independent but would act quickly as the competitive landscape changs.
The industry’s deteriorating condition, helped drive the deal, which will face a lengthy federal antitrust review.
The high fuel prices and lack of credit hurting major sectors of the U.S. economy have been particularly tough on airlines. Several big carriers, including Delta and Northwest, have recently said they plan to shrink their domestic capacity and retire airplanes. Delta also announced plans last month to cut 2,000 jobs, or about 4 percent of its work force.
Four smaller carriers have filed for bankruptcy-court protection in the past few weeks, with three abruptly shutting down operations.
The cost of fuel, airlines’ top expense, has surged as the price of a barrel of crude oil climbed from $90 a barrel in mid-January to more than $110 on Friday. Making matters worse, the cost of refining a barrel of crude into aviation fuel has risen significantly in recent months.
The credit crunch has made raising money more difficult and made financing jetliners more arduous and expensive. The softening economy, meanwhile, is expected to damp consumer demand, hurting the industry’s ability to raise fares.
Analysts polled by Thomson First Call expect Delta to post a first-quarter loss of 37 cents per share and Northwest to post a loss of 29 cents per share. The two airlines became profitable after they emerged from Chapter 11 bankruptcy-court protection last year, lifted by cost cuts and high demand.
a>>
