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Delta, Northwest Merger Faces Heavy Chop

Regulators, passengers, unions skeptical

By Mark Huffman and Truman Lewis
ConsumerAffairs.com

April 15, 2008

The two carriers say the new airline, which will be called Delta, will provide employees with greater job security, an equity stake in the combined airline, and a more stable platform for future growth in the face of significant economic pressures from rising fuel costs and intense competition.

But it's hard to find anyone else cheering the idea:

• Passengers and consumer advocates say the most likely result will be fewer flights and higher fares, though others say any such effect will be minimal;
• Frequent fliers are fearful of losing their hard-earned miles;
• Government regulators and politicians say they are "interested" in exploring the anti-trust aspects of the deal;
• The airlines' unions are balking; and
• Though buoyed by the announcement, Wall Street is skeptical the match-up will lead to profitability.

Passengers

While Delta and Northwest passengers complain bitterly about lost luggage, flight delays and other travel woes, it's difficult to say whether the merger will have any noticeable effect on most consumers' travel plans.

"I have never had a worse experience," said Cheryl of Midlothian, Va., about a recent Delta flight. "My husband and I stood in line for over 3 hours, our plane was boarding and still no one took care of booking us on the flight (there were only two agents, and both were asleep on the job)."

"If not for some very angry passengers, raising a ruckus, and us cutting through security, we would still be in PUJ. It is my understanding that there were families that had to grease some hands to get taken care of," Cheryl said.

An expert in airline frequent flier programs said there aren't major differences between the WorldPerks program at Northwest and the SkyMiles program at Delta.

David Stempler, executive director of the Air Travelers Association, a Maryland-based consumer group, said the merger would be beneficial.

"We're positive about this," Stempler told the Minneapolis Star-Tribune. "It's important for these big airlines to stay in business, and this is the only way forward that we see."

Regulators, Congress

The Justice Department said it would be "interested" in reviewing the proposed transaction, while Rep. James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, whose district includes one of Northwest's hubs, predicted the merger would be bad for consumers.

“In every merger that we have seen, there’s been a reduction in competition,” Oberstar said. “Fares will go up. Choices will go down. Consumers will bear the brunt of it,” Oberstar said on the April 14 "CBS Evening News."

Another view came from aviation consultant Darryl Jenkins, interviewed on CNBC’s April 14 “Squawk on the Street,” who said the two airlines' routes barely overlap.

“There’s very, very little overlap in this and if you look at the top thousand markets, we only have 12 that are overlapping. So, in terms of this merger causing fares to go up, that will not happen.”

Unions

Dave Stevens, chairman of the Northwest branch of the Air Line Pilots Association, said in a prepared statement, "The risk to Northwest Airlines and to the Northwest pilot group from letting this merger proceed, as it is now structured, is simply too great."

Northwest didn't consult with the union that represents its baggage handlers, ramp workers and ticket agents, Tiberi said.

Delta's pilots have supported the merger, although the two unions were unable to agree on integrating seniority lists before the combination was announced. A joint contract they had reached was never consummated.

And a union that represents mechanics at regional airline Comair say it will work to block the merger.

"We oppose it because of the impact it will have on workers, passengers and the communities the airline serves," said Joe Tiberi, spokesman for the machinists' union that represents Comair mechanics as well as about 14,300 ground workers at Northwest.

Wall Street

In general, Wall Street analysts favor the merger as a way to increase efficiencies and bolster the companies' financial stability as they cope with record fuel prices and international competition.

"We are at one of those defining moments where a tectonic change is occurring," said Robert Mann, president of R.W. Mann & Co., an aviation analyst. "We have to look at what this portends for an industry that is about to change radically."

The deal is almost certain to spark additional mergers, with United-Continental widely viewed as most likely to tie the knot.

Both bankrupt

Both carriers emerged from bankruptcy just a year ago, but have apparently found even those reorganizations and downsizings have not provided adequate protection from the current economic turbulence. Delta is the U.S.' third largest carrier while Northwest is fifth.

"We said we would only enter into a consolidation transaction if it was right for all of our constituencies," said Delta CEO Richard Anderson. "Delta and Northwest are a perfect fit."

Combined, the company and its regional partners will provide access to more than 390 destinations in 67 countries. Delta and Northwest, together, will have more than $35 billion in aggregate annual revenues, operate a mainline fleet of nearly 800 aircraft and employ approximately 75,000 people worldwide.

Both airlines are casting the merger as a benefit to passengers, and have tried to counter consumer concerns that two airlines merging into one might result in fewer flights. Delta goes so far as to say the transaction "is about addition, not subtraction."

"Small communities throughout the United States will enjoy enhanced access to more destinations worldwide," Delta said in a press release. "Customers also will benefit from the combined carriers' complementary route networks, which together will offer people greater choice, competitive fares and a superior travel experience to more cities than any other airline."

So far in April, the news for air travelers has not been good. Several carriers have so far announced they are going out of business. Last week, when American Airlines pulled all of its MD-80 aircraft out of service to inspect wiring bundles in the wheel well, the airline was forced to cancel 3,000 flights, resulting in chaos at the nation's airports.

Delta says its merger with Northwest will provide stability, and therefore more reliability for air travelers. It says the merged airline will maintain all hubs at Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-JFK, Salt Lake City, Amsterdam and Tokyo-Narita – each of which will benefit from improved global connectivity.

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