Northwest Airlines CEO Doug Steenland
Glen Stubbe, Star Tribune
Delta Connection regional jets were parked at John F. Kennedy International Airport in New York earlier in the week. A merger with United or Northwest would make Delta the largest U.S. airline.
JB Reed, Bloomberg News
Steenland signals that NWA is open to merger
- Article by: LIZ FEDOR
- Star Tribune
- January 12, 2008 - 6:28 AM
Hours after the Delta Air Lines board began meeting Friday to consider merger talks with Northwest Airlines or United Airlines, Northwest CEO Doug Steenland signaled that he is ready to talk to potential partners.
"If we wait to react to what others do, we could be left with options that are undesirable or with no options at all," Steenland said in an internal memo to the airline's 32,000 employees.
Delta's board was expected to decide whether to pursue formal merger discussions with Northwest, United or both.
It's unclear what transpired at that meeting. Delta declined to make any public statements about it, and a spokesman was reluctant to even confirm that it took place.
"While we have a number of board meetings annually, we do not comment on the dates, locations or contents of those meetings," Delta spokesman Anthony Black said on Friday.
Northwest and United were also silent.
The air of secrecy surrounding the meeting only lent credibility to the idea among analysts that a merger overture is in the works.
Many aviation experts agree that Delta, which is now headed by former Northwest CEO Richard Anderson and has a large and growing transatlantic business, could significantly strengthen its position by merging with Eagan-based Northwest or Chicago-based United. Those two carriers have the largest presence in Asia among U.S. airlines.
A combination with either would make Delta the largest U.S. airline and presumably prompt others to consider combining as well. Anderson has pledged to keep the Delta name and Atlanta headquarters in any deal.
Steenland's Friday memo indicates that Northwest may be ready to do more than wait to see whether Delta picks it as a merger partner. It could explore deals with other carriers.
"We cannot control or predict what other airlines or airline shareholders may do," Steenland said. But he added, "Doing nothing could be our worst alternative."
It's tougher to go alone
After Northwest had preliminary merger discussions with Delta while both carriers were in bankruptcy, Northwest's board decided that the airline would leave Chapter 11 last spring as a standalone carrier.
In his Friday memo, however, Steenland said going it alone has become a tougher proposition for Northwest in recent months.
"With our restructuring, we are positioned better than most of our peers to operate profitably," he said. "However, the significant increase in the price of fuel, from what we had projected in our business plan, puts extra pressure on our ability to maintain this level of profitability."
Northwest's business plan was based on $75-per-barrel oil, significantly below the current price near $93.
In October during a quarterly earnings call, Steenland talked about the financial benefits of industry mergers, but he also cited the serious risks involved, which include combining workforces and securing regulatory approval.
In his Friday memo, Steenland did not directly state that Northwest will pursue a merger. However, he said, "The right transaction could be of benefit to our employees, our shareholders and the communities we serve."
U.S. Rep. Jim Oberstar, D-Minn., said in an interview Friday that he had been contacted by Northwest that day and planned to speak with Steenland late Friday or over the weekend.
Oberstar, who is chairman of the House Transportation and Infrastructure Committee and could hold hearings on major airline mergers, said he wanted to "understand what Northwest's intentions are and to reaffirm my concern about consolidation in the industry."
Pitting United vs. Northwest?
Airline consultant Dan Kasper, who served as an expert witness for Northwest in its bankruptcy case, said it could be intriguing if Delta chooses to follow a dual track and engage in merger talks with both United and Northwest. If that occurs, Kasper said, "I assume they'd be looking for the best deal and thought that's the best way they could extract it."
In November, Pardus Capital Management, a New York-based hedge fund, attempted to pressure Delta into quickly doing a deal with United. The hedge fund hired former Continental CEO Gordon Bethune to assist in its merger analysis.
"This is like a closed circle. It's like pals taking care of each other," Oberstar said. "These money managers are just leaping over a host of concerns that have to be evaluated and any one of which can block a proposal."
Phil Baggaley, a credit analyst with Standard & Poor's, said Friday that a merger could make it possible for airline employees to regain some of the wages and benefits they recently lost. Employees at Northwest, United and Delta took pay cuts to help their airlines survive during bankruptcy.
"Reopening contracts in order to merge airline operations could give organized labor the opportunity it seeks to dramatically increase pay and benefits, undoing much of the cost-cutting achieved in Chapter 11," Baggaley said in a report.
Although mergers pose huge challenges, Kasper said, "it's not surprising that Delta is playing" because Delta's bankruptcy creditors committee picked board members it knew would seriously consider a merger.
Liz Fedor • 612-673-7709
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