Richard Sennott, Star Tribune
Is NWA merger on horizon?
- Article by: Liz Fedor
- Star Tribune
- October 16, 2007 - 10:23 PM
Richard Anderson, the new CEO of Delta Air Lines and former head of Northwest Airlines, on Tuesday ignited a new round of speculation about airline mergers when he said a Delta deal could have "obvious benefits" for its employees and shareholders.
Anderson did not name a potential merger target for Atlanta-based Delta, but analysts long have argued that Eagan-based Northwest would make a good partner because the carriers' route networks complement each other.
Delta and Northwest held preliminary merger talks while both were in Chapter 11 bankruptcy, but both chose to emerge from bankruptcy this spring as standalone carriers.
Anderson, who was the top executive at Northwest until late 2004, took the unusual step of raising the issue of consolidation in opening comments that he made during his first quarterly earnings conference call with Wall Street analysts as Delta's CEO. During Delta's bankruptcy, management marshaled all its resources to beat back a hostile takeover from US Airways.
Anderson took the reins as CEO in August, and his statements on Tuesday signaled that sentiment toward a merger is shifting within Delta, particularly if Delta takes the lead.
"We are evaluating the best path forward for Delta," Anderson said.
Stressing that "evolution toward a more consolidated industry will continue," he said a merger "could make sense for Delta if it is done thoughtfully from a position of strength."
US Airways CEO Doug Parker and United Airlines CEO Glenn Tilton have for some time been publicly calling for consolidation in the industry, but merger speculation has died down since the US Airways bid for Delta collapsed in January.
In the market for a partner
Bob McAdoo, an airline analyst with Avondale Partners, said Delta now must be considered to be in the market for a partner. "Delta seemed to be saying that it is interested and actively reviewing the possibilities," McAdoo said. "We had previously been of the belief that Delta was unlikely to instigate a merger."
Northwest "is the one carrier we could see as the object of a bidding contest," McAdoo added in a research report. "Northwest's Pacific routes and its relatively smaller size among the six legacy carriers make it the most attractive target partner for almost any legacy bidder."
Kevin Crissey, a UBS Investment Research analyst, agreed that Delta might turn first to Northwest.
"We think Northwest is a more natural partner than United" for Delta, Crissey said.
Ben Hirst, Northwest's senior vice president of corporate affairs and administration, declined to comment on Anderson's remarks or the potential of a future Northwest merger.
In a late August interview, Northwest board chairman Roy Bostock said, "This airline can sustain itself and build itself as an independent airline for the foreseeable future."
However, Bostock added, "If an opportunity opens up where we think we can increase shareholder value and stakeholder value through a consolidation or merger, we'd look at it."
Dave Stevens, chairman of the Northwest pilots union, said, "We have no knowledge of impending mergers involving Northwest or any other airlines."
The pilots union holds a seat on Northwest's board and Steven said Tuesday that the pilots have maintained a merger committee since June 2006, so they will be prepared "if a merger situation develops."
Lee Moak, chairman of the Delta pilots union, met with Anderson hours before he was named Delta's new CEO on Aug. 21.
At that time, Moak wrote to fellow pilots: "Mr. Anderson assured me that he was not selected as CEO to facilitate a merger between Delta and Northwest or any other airline."
Five weeks later, Moak sent another letter to pilots that pointed out that Delta's board of directors "was selected by Delta's creditors during the bankruptcy process."
The Delta board is responsible to Delta's shareholders, Moak said in his Sept. 24 letter, and institutional investors could force Delta into a merger.
Comments still stand
A Delta pilots spokeswoman said Tuesday that Moak's Sept. 24 comments still stand.
Philip Baggaley, a Standard & Poor's credit analyst, said Anderson's comments implied "that Delta could be interested in a merger, but only as a buyer, rather than a target company."
He noted that the costs of acquiring and integrating another airline would carry "considerable risk for the buyer."
The complexities of blending union workforces, company cultures, fleets and debt loads have made airline mergers work better in theory than in practice.
When US Airways was making its takeover bid for Delta, it was being dogged by problems combining ticketing operations and labor forces from its merger with America West.
Pilots from the two carriers still are bitterly divided.
Northwest and Delta pilots are both represented by the Air Line Pilots Association.
Delta's pilots aggressively opposed a merger with US Airways, but Moak testified before a U.S. Senate committee that Delta pilots would support the "right consolidation effort" that had a "rational mix of routes, employees and resources."
Anderson struck a delicate balance Tuesday when he acknowledged the need to satisfy employees and shareholders when considering a merger.
"Our employees are our greatest asset," he said, adding that employee "support is crucial for our continued success."
But he also cited the need to "do our very best to create shareholder value."
Liz Fedor 612-673-7709
Liz Fedor firstname.lastname@example.org
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