Delta, Northwest near a deal

0 Comments | Deseret News (Salt Lake City), Feb 7, 2008 | by Harry R. Weber Associated Press

ATLANTA -- Delta Air Lines and Northwest Airlines are inching closer to a combination that would create the nation's largest carrier, and if a deal is reached it could be announced next week, a person briefed on the discussions told The Associated Press on Wednesday.

Delta's board of directors is expected to meet over the next several days, the person said without elaborating on the topic of the meeting.

The person, who was not authorized to talk as the negotiations entered a sensitive stage and asked not to be named, said one point of contention has been what Northwest Chief Executive Doug Steenland's role would be at the combined company.

Delta has a growing presence across the Atlantic and a strong hub in Atlanta, home to the world's busiest airport. Northwest has strong routes across the Pacific and its main hub is in Minneapolis.

It wasn't clear if other issues like the combined company's name, its headquarters location and labor issues had been fully resolved, but management structure with few exceptions had been decided, the person said.

Atlanta-based Delta Air Lines Inc. has said repeatedly that if it were to combine with another carrier, it would want to be in control, which could mean its chief executive officer, Richard Anderson, and Delta's chairman, Daniel Carp, would stay in their posts.

Anderson, who was CEO of Northwest Airlines Corp., which is based in Eagan, Minn., when it began a drive to cut labor costs before he left in the fall of 2004, was replaced by Steenland. But Steenland actually carried out the cuts, leading to a mechanic's strike in 2005 and deep concessions forced on the other unions, which took effect last year while Northwest was in bankruptcy.

The person briefed on the discussions cautioned that terms in the current discussions could change, since Delta also has been talking to Chicago-based UAL Corp.'s United Airlines about a combination, and there have been reports that other carriers have been talking among themselves about possible deals.

A Delta spokeswoman said she could not comment beyond the airline's past statements that it is reviewing its strategic options, including a possible combination transaction. A spokeswoman for Northwest declined to comment. A United spokeswoman declined to comment.

Minnesota Gov. Tim Pawlenty has pointed out that Northwest has made financial commitments to keep its headquarters and a hub in Minnesota. Northwest would give up $215 million in financial incentives at the airport between now and 2020 if it moves its headquarters out of Minnesota.

Meanwhile, U.S. Rep. Jim Oberstar, D-Minn., has made clear his opposition to airline consolidation, saying last month, "We did not deregulate aviation in 1978 to create consolidation of the industry, but rather to expand competition."

One of the biggest factors driving renewed talk of consolidation has been the sharp increase in fuel prices, among the industry's biggest costs. Jet fuel costs have surged, along with the price of oil.

The clock is ticking to get any deals accomplished quickly, some observers say. That's because industry observers believe a combination has a better chance of surmounting the considerable political and regulatory hurdles under the current administration than under President Bush's successor.

United CEO Glenn Tilton told analysts at the company's annual investors day in Chicago on Tuesday that he wouldn't predict the timing of any consolidation, but "it's important that it happens for the industry to be successful."

United and Houston-based Continental Airlines Inc. are widely viewed as possible partners if consolidation goes ahead, and Tilton is believed to have made overtures about a combination long ago.

Their route networks are seen as complementary, with Chicago- based United strong in the Pacific and internationally but lacking the presence in the Atlantic and Central America that Continental commands. Continental has a hub in Newark, N.J., and multiple connections out of its home hub in Houston to Mexico and Latin America.