It's a done deal: Delta owns Northwest

  • Article by: LIZ FEDOR , Star Tribune
  • Updated: October 30, 2008 - 8:15 AM

Company officials signed merger papers within hours of a Justice Department OK.

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The setting sun provides a dramatic backdrop to a Northwest Airlines jet as it soars into the clouds during takeoff from Minneapolis-St. Paul International Airport.

Photo: Jim Gehrz, Star Tribune file

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Finally, it's official: Northwest Airlines is Delta's.

More than eight decades after it was founded, Minnesota's airline giant became part of Delta Air Lines on Wednesday. Hours after federal regulators cleared the merger for takeoff, the companies consummated the deal creating the world's largest airline.

The combined airline is expected to generate about $35 billion in annual revenue and employ about 75,000 people.

Northwest fliers will notice changes beginning in early 2009, when Delta's food offerings will be served on Northwest flights by attendants wearing Delta uniforms designed by Richard Tyler. And more changes are in store next year on some Northwest airplanes, including new interiors with leather seats and brighter lighting.

But in the short term, both companies will continue to operate separate websites and flight schedules as Delta prepares for blending fleets and workforces. The combined carrier will be headquartered in Atlanta.

The Delta brand will start spreading across the Northwest business in 2009. Delta will start to paint Northwest's planes in Delta's colors and logo, replacing Northwest's distinctive red tails. Northwest's WorldPerks member miles will stay intact.

Executives are making plans to blend their frequent flier programs into one loyalty program. But the new Delta said Wednesday that it will immediately offer "upgrade reciprocity" for elite members of the Northwest and Delta frequent flier programs.

"If you are a business traveler in the Twin Cities, not a lot will change Day One," Delta CEO Richard Anderson said in an interview. However, Anderson, a former Northwest chief executive who will lead the combined airline, emphasized that the merger will connect Minnesota travelers to a "broader and stronger network" -- the combined carrier will have service to more than 375 destinations in 66 countries.

Delta President Ed Bastian, who will succeed Northwest CEO Doug Steenland and plans to arrive in the Twin Cities today to meet with Northwest employees, said passengers won't notice immediate changes and the two carriers will operate with "business as usual."

Before the two airlines can be merged fully, the Federal Aviation Administration must grant Delta a single operating certificate, and that likely will take until late 2009 or early 2010. Today, Delta and Northwest pilots will start working under a joint labor contract.

Northwest employs about 11,500 people in Minnesota. In a Wednesday conference call with reporters, Anderson said he anticipates that the new Delta will be one of the five largest private employers in the Twin Cities area.

Northwest's Eagan headquarters will remain in operation while Northwest is a free-standing subsidiary of Delta.

Delta previously disclosed that the system operations control center in the Twin Cities, which houses flight dispatchers and other highly skilled employees, will close within the next two years and workers will be relocated to Atlanta.

But Anderson said that Delta will stand by its pledges, including to retain reservation centers at Chisholm., Minn., and Minneapolis; the flight training center in Eagan, and a major hub at the Twin Cities.

Money owed the MAC

Minnesota Attorney General Lori Swanson raised concerns Wednesday about the merger's effect on Minnesota as well as the $230 million in bond debt that Northwest owes the Metropolitan Airports Commission (MAC). When bonds were sold on Northwest's behalf in 1992, employment and air-service covenants were attached to the financing.

Anderson said that Delta will meet the obligation to pay the bond debt and is talking with MAC officials about modifying some terms of the agreement. He said that Delta wants to be a "good corporate citizen" in the Twin Cities and supports a "vibrant hub."

The agreement requires Northwest to maintain its corporate headquarters in Minnesota. Under the current timetable, the debt would be repaid by 2022. When the Eagan headquarters closes, the MAC could demand that the bond debt be paid in one sum. MAC spokesman Patrick Hogan said Wednesday that the two sides are discussing the conditions of a modified agreement.

Under the $2.6 billion to $2.7 billion all-stock transaction, Northwest stockholders will receive 1.25 Delta shares for each share they own.

The Delta-Northwest merger was proposed in mid-April. The U.S. Department of Justice decided to allow the merger to proceed less than a week before the presidential election.

Federal regulators concluded that the merger is "likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition."

A consumer lawsuit, designed to block the merger, was scheduled to be argued in a California court in November. But Anderson said Wednesday that a confidential settlement had been reached and the case was dismissed.

Steenland called Wednesday "a great day for the new Delta" and its employees. Ultimately, the merger "will allow the combined carrier to better weather the current economic challenges and provide greater stability and job security for our employees," Steenland said.

Although Delta and Northwest pilots will start working under a joint contract, the members of the Air Line Pilots Association still need to resolve the integration of their seniority lists. An arbitration panel is addressing that issue, which is critical because a seniority number determines how much a pilot earns. If the two union groups cannot negotiate an agreement, arbitrators are expected to issue a decision by Dec. 20. That deadline recently was extended by a month.

Before the carriers' workforces are integrated, there will be union representation elections for flight attendants and ground workers. Northwest's workforce is heavily unionized, while Delta's is largely non-union.

The International Association of Machinists and Aerospace Workers, which represents 12,500 Northwest ground workers, has been an ardent opponent of the merger.

On Wednesday, the IAM's Robert Roach, general vice president, said federal approval of the merger came as "no surprise" after "eight years of disastrous economic decisions by the Bush administration."

The merger connects Northwest's network in Asia with Delta's strength in Europe and growing presence in Africa and Latin America.

The carrier will maintain Northwest's domestic hubs in the Twin Cities, Detroit and Memphis as well as Delta's hubs in Atlanta, Cincinnati, New York and Salt Lake City.

"The merger makes even more sense as we face an economic recession because we can capture $2 billion of benefits annually that neither airline could accomplish alone," Anderson and Bastian said in a memo Wednesday to employees.

While Northwest executives frequently battled with their unionized workforce, the Delta leaders emphasized a collegial tone in their first joint communication to Delta and Northwest workers.

"At Delta, we care about you, as a colleague and as an individual," they wrote. "Our foundation is open, honest and regular communication. We treat each other with dignity and respect."

Liz Fedor • 612-673-7709

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