Company Watch - Northwest Airlines

AirGuide Business, May 5, 2008

May 5, 2008

Experts point to different ways to value Delta-Northwest deal. There are several ways to estimate the value of the proposed merger of Delta Air Lines and Northwest Airlines, experts say. Some calculate the deal's market capitalization at $6.2 billion, based on current share prices. Others judge the value of the combination at $17.7 billion based on the deal's enterprise value, which is based on the theory that the acquiring company assumes debt and keeps cash accounts. Investment bankers use yet another method to place value on such transactions. May 2, 2008

Experts point to different ways to value Delta-Northwest deal. There are several ways to estimate the value of the proposed merger of Delta Air Lines and Northwest Airlines, experts say. The deal's market capitalization is $6.2 billion, based on current share prices. The value of the combined company is $17.7 billion based on the deal's enterprise value, which is based on the theory that the acquiring company assumes debt and keeps cash accounts. May 2, 2008

Delta Air Lines and Northwest Airlines mechanics say that a properly maintained airplane can fly safely for decades. But safety is one thing; cost is another. Older planes guzzle fuel and are expensive to inspect, maintain and update. By eventually retiring the oldest workhorses, such as the DC-9s, the merged airlines can eliminate their worst fuel guzzlers. Earlier this year, Northwest said it would ground about a third of its 103 DC-9s, which average more than 30 years of service. By parking some of those planes, Northwest has lowered its average fleet age to less than 19 years, but it still has the oldest fleet among the six largest U.S. carriers, according to Airsafe.com, a Web site that collects aviation data. Delta spokesman Kent Landers said it's too early in the merger process to say just how many planes would be retired, but at least some DC-9s would continue flying because they have roughly 100 seats, a good size for some routes. The problem of aging aircraft is common throughout the industry. U.S. airlines were due to start making big investments in modern aircraft as the new century dawned, only to run up against a recession and the 9/11 terrorist attacks involving four airliners. The subsequent industry downturn put carriers into a financial tailspin, ultimately driving Delta, Northwest and others into bankruptcy. May 1, 2008

Delta Air Lines and Northwest Airlines once merged will need to streamline its fleet and make it more homogenous in order to achieve the economies of scale and performance needed to reach management's goal of $1 billion in cost savings. But passengers eager to see something other than an aged Northwest DC-9 or a legacy Delta MD-88 pull up to the gate for their next flight might have to wait for some time. The two principal manufacturers used by Delta and Northwest - Boeing and Airbus - are booked with orders for several years. There's a four- to five-year backlog for the Boeing 777, a wide-body that is fairly new to the Delta fleet, Hamilton said. Airbus is back-ordered until 2012. Northwest is scheduled to be the first U.S. carrier to get the widely anticipated Boeing 787 Dreamliner, but Boeing repeatedly has pushed back the delivery time, now into 2009. May 1, 2008

Delta Air Lines and Northwest Airlines, between them, fly more than a dozen models of airplanes, with only the Boeing 757 and the regional jet Bombardier CRJ-200 in common. The aircraft potpourri - Airbuses, Boeings, old McDonnell-Douglases and new Embraers - runs counter to the streamlined fleet many experts contend is necessary to keep maintenance issues to a minimum and the greatest number of planes in the air instead of the hangar. ''The fleets don't fit together well,'' said Ernie Arvai, an aviation consultant with the Arvai Group. ''It's incompatibility multiplied.'' Each make of aircraft requires its own aircrew training, spare parts, maintenance training and manuals. Delta CEO Richard Anderson last week argued that the diversity of aircraft is a strength, not a weakness. ''The fleet integration actually works out quite well because we don't have common fleet types. . . . We don't have to sit down and merge a lot of maintenance programs,'' Anderson told Wall Street analysts. May 1, 2008

Delta pilots start voting on contract Delta Air Lines will start voting today on a contract that would give management more flexibility to complete a merger with Northwest Airlines. The pilots would get pay raises and an equity stake under the contract. Meanwhile, some industry observers say unions could be ousted if the two airlines merge. May 1, 2008

One benefit of the proposed merger of Delta Air Lines and Northwest Airlines may be the opportunity to cut costs by combining their 1,000 or so planes into one fleet and retiring the oldest aircraft. The airlines' executives contend that this mammoth fleet will be able to deliver on the promise of a single U.S. carrier capable of connecting the world. But all those 1,097 aircraft could be a mammoth headache to manage, as well. May 1, 2008