Northwest and Delta get closer to destination

Northwest Airlines and Delta Air Lines are expected to formally announce a merger as early as Tuesday, a source with knowledge of the merger talks said Sunday.

The boards of both carriers had not given final approval to a deal as of Sunday, but there were no major remaining issues to resolve between the companies, the source said.

"The open question is whether to move forward with a merger announcement without a pilot accord on either side," the person said.

It is possible that there will be an agreement with Delta pilots by the time a merger is unveiled, but no deal with the Northwest pilots union is expected this week.

Delta management and the Delta branch of the Air Line Pilots Association (ALPA) continued their discussions over the weekend. Delta executives and pilot leaders had previously negotiated terms for a four-year contract.

In recent days, the Delta pilots were focused on changes in their current contract pertaining to flying scope, which are needed to allow the merger to proceed, a second person, with knowledge of the Delta pilot talks, said Sunday.

The Delta pilots union did not make any public comments Sunday on whether the union's executive council had approved new contract terms.

How Northwest pilots see it

The Northwest ALPA executive council held a special meeting Sunday and released a statement saying it would "evaluate whether consolidation involving Northwest makes more or less sense than to remain as a stand-alone airline."

Dave Stevens, a Northwest captain and pilots union chairman, said in the statement that any merger involving Northwest "in order to avoid our vigorous opposition, must clearly be in the best interest of Northwest pilots, its customers and employees."

In February, the Northwest and Delta pilot negotiators reached agreement with executives on a combined four-year contract, which included double-digit pay raises for both sets of pilots. But the two ALPA union chapters have remained at loggerheads ever since on how to resolve differences over integrating their seniority lists. That issue is critical because a seniority ranking affects how much money a pilot will earn over a career.

The Northwest pilots wanted to submit their dispute to arbitration, but it was rejected by the Delta pilot union leadership. If a merger is announced, under ALPA merger policy the two parties ultimately could face each other in arbitration.

Earlier this year, the Northwest pilots executive council said it could support a merger deal that met four conditions, including a "fair and equitable seniority list integration." The others were a contract with substantial improvements, equity in the merged airline and evidence that the merged company would have sufficient size and route network scope to ensure growth and sustainable profits.

Monty Montgomery, the Northwest pilots union vice chairman, suggested in the statement Sunday that pilots haven't abandoned the option that Northwest could still go it alone. Northwest has a "strong international and domestic route structure ... and the strongest cash position of any legacy carrier in the industry," he said.

Montgomery also referred to Northwest orders for fuel-efficient aircraft, which includes Boeing's new 787 Dreamliner for overseas flying.

It appears that the two airlines don't want to wait any longer to go forward with the merger because they want to leave enough time for the U.S. Justice Department to review the deal before President Bush leaves office.

Delta still to pay a premium

The merger deal will be structured as a stock swap in which Delta acquires Northwest, with the combined firm headquartered in Atlanta. Under the terms set in February, Northwest shareholders were expected to receive a major premium. Recently, Delta attempted to reduce that premium, the person familiar with the merger talks said Sunday. "Northwest is very firm," that person said. "The premium as it was negotiated has held."

Another aspect of the merger that recently was revisited was a potential investment by Air France-KLM. A few months ago, Air France-KLM was expected to contribute $750 million.

But a source said Sunday that "it was uncertain whether there would still be an Air France-KLM investment in the combined carrier."

Northwest has a longstanding joint venture with KLM Royal Dutch Airlines, and more recently Delta entered into a similar arrangement with Air France.

Last week, the four carriers and two other overseas airlines received approval from the U.S. Department of Transportation to coordinate their pricing and schedules for their transatlantic flying.

Delta CEO Richard Anderson said Friday that the granting of antitrust immunity is an "important building block" for the carrier's Atlantic business. In a message to employees, Anderson also noted that Delta was "the first out of the box" with capacity cuts to respond to "unbelievably high fuel prices."

Anderson is now positioned to lead efforts to secure the first big airline merger at a time of financial turmoil for the industry. He was chief executive of Northwest from 2001 to 2004 and would be the top executive at the merged carrier.

Sen. Norm Coleman, R-Minn., said in an interview last week that he recently met with Anderson in Atlanta regarding the Delta-Northwest deal. Coleman said that Anderson indicated a commitment to preserving the Twin Cities hub and the jobs of Northwest employees.

"My principal concerns are pretty straightforward -- the hub and jobs," Coleman said, adding that he will withhold judgment on the deal. "I am waiting to see what the configuration looks like."

Liz Fedor • 612-673-7709