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Delta CEO says merger benefit likely to reach $2 billion a year
The airline's operating profit -- despite a $1 billion net loss -- was embraced on Wall Street as good news.
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Delta Air Lines' acquisition of Northwest Airlines is expected to generate $2 billion in annual benefits by 2012, Delta CEO Richard Anderson said Wednesday.
When the merger was unveiled in mid-April, executives estimated that the merger would create more than $1 billion in cost savings and revenue improvements. But they said Wednesday that 26 Delta-Northwest integration teams have now done a detailed analysis and quantified more merger benefits.
Anderson gave the higher projection on a day on which Delta reported a $1 billion second-quarter loss, including $1.1 billion for a non-cash goodwill impairment and $96 million for employee severance.
Excluding special items, Delta beat analysts' expectations by reporting a second-quarter profit of $137 million. Delta's earnings per share were 35 cents, much higher than the consensus estimate by analysts of 10 cents per share. The stock rose 27 percent Wednesday to $5.91.
"We believe Delta holds one of the strongest hands in the industry," Anderson said, in a conference call in which he noted that Delta showed a profit even though the carrier's fuel costs rose by $566 million in the quarter.
The carrier has moved quickly to slash more than 4,100 jobs, and its domestic capacity is expected to shrink by 11 to 13 percent in the third quarter of this year.
Anderson noted that Delta had estimated that its fuel costs would rise by $4 billion this year, but he said that the carrier has mitigated about $3 billion of that burden through strict cost discipline, fuel hedging and revenue growth.
In the second quarter, Delta hedged 49 percent of its fuel supply, and saved $313 million from fuel-hedge contracts. Nearly half of its fuel is hedged for the current quarter with a jet fuel cap of $2.94 per gallon.
The airline ended the quarter with $3.3 billion in unrestricted cash and access to $1 billion in a revolving credit facility.
Delta and Northwest hope to secure federal approval of their merger later this year. Delta executives expect merger integration costs to be about $600 million over three years.
Liz Fedor • 612-673-7709
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