NWA: Merger deal to close by year's end

Northwest Airlines CEO Doug Steenland said Wednesday that Northwest and Delta have a "timing agreement" with federal regulators, which gives him confidence that a Delta-Northwest merger will be closed in the fourth quarter.

In a conference call, Steenland told Wall Street analysts that the two airlines have satisfied the U.S. Justice Department's second request for information about the proposed merger.

"We've hit all the milestones so far," Steenland said, and he predicted that the airlines will get the Justice Department answer that they are seeking before the end of the Bush administration.

Northwest executives took questions from analysts after the airline reported a second-quarter net loss of $377 million. However, the carrier said it produced net income of $170 million when a noncash impairment accounting charge is excluded.

The carrier's loss was 30 cents per share, which was a better performance than analysts had expected, given high fuel costs. The consensus of analysts had been a loss of 54 cents a share.

In trading Wednesday, Northwest stock rose $1.38, or 15.2 percent, to close at $10.46 on a day in which crude oil prices fell.

But the pending merger took center stage.

"There's always a challenge with airline mergers. We've seen that happen many times. But it seems like the big problems you have out of the way already," Calyon analyst Ray Neidl said to Steenland.

Neidl referred to the fact that Delta and Northwest already have a tentative labor agreement with their pilots, who are currently voting on the four-year deal.

In addition, the two airlines are members of the same alliance, so they have systems in place for joint marketing of flights.

Steenland noted that several factors have given this merger a "head start" and he emphasized that the 26 integration teams are making good progress that would allow the merged carrier to achieve $2 billion in annual savings and revenue growth. He added that it's been an advantage to have "people in management on both sides who have known each other over time."

Flight reductions

Earlier this month, Northwest said that it plans to cut its workforce of 29,674 by 2,500 people as it prepares to reduce its overall capacity by 8.5 to 9.5 percent in the fourth quarter.

Wednesday was the first time that Northwest quantified how much it will shrink domestic flying with large jets. While it takes old DC9s out of the schedule, the carrier continues to add 76-seat regional jets. Regional flying is expected to jump 50 to 55 percent in the second half of this year.

"It's impossible to say whether the plan right now is going to perfectly fit the environment," Hochmuth said. "They are going to have to be nimble."

Northwest and many competitors are dramatically cutting domestic flying in the final months of the year, and Steenland said Northwest is "bullish" on the kind of revenue it will collect with fewer seats on the market.

Across its mainline and regional systems, Northwest's passenger unit revenue rose 6.1 percent in the second quarter.

Despite a second-quarter fuel bill that rose 41 percent, Northwest managed to limit its net loss. The Eagan-based carrier had strong growth, with operating revenue rising 12.4 percent to $3.6 billion.

A year earlier, when Northwest exited bankruptcy at the end of May, it had quarterly net income of $2.1 billion. That figure included $1.9 billion in reorganization items.

This year's quarterly operating expenses increased 37.3 percent to $3.9 billion.

The airline's fuel bill -- its single largest expense -- jumped from $855 million a year ago to $1.2 billion this year.

Even with pressure from fuel costs, Steenland said that Northwest ended the quarter with $3.3 billion in unrestricted cash and $424 million in restricted cash. It subsequently arranged additional financing to boost its current cash position to $3.9 billion.