Delta Airlines (NYSE: DAL) and Northwest Airlines Corporation
(NYSE: NWA) may be moving away from deal talks that seemed almost
certain just weeks ago. The two airlines received approval on January
11th to begin merger talks and rumors quickly surfaced that the
negotiation was moving quickly as they hammered out the fine points.
However, two stories today seem to contradict such rumors as the two
airlines appear to be moving away from any possibility of a merger.
Many shareholders still insist that the two airlines could combine as
early as in the next two weeks amid pressure from institutional
shareholders and investors looking for a change.
Comments by Delta officials to their hometown Atlanta
Journal-Constitution newspaper that the airline had a strong standalone
plan and was not afraid to take the lonely path caused the speculation
that the deal was ill-fated. President Ed Bastian even told the paper
that the company would not do a deal unless it filled holes in the
airlines network; otherwise, it would simply be a drain on resources
and not worth the effort. Meanwhile, TheStreet reported that Delta has
recently been looking elsewhere towards targets like Continental
Airlines Inc. (NYSE: CAL). However, nothing has been confirmed and
we’ll have to wait and see the truth behind the story.
A wave of bankruptcies and rising oil prices has led to much
speculation of consolidation in the airline industry. After all, it has
become increasingly difficult for airlines to eek out a profit with
costs soaring and competition rising. Many believe that the only viable
option is to merge with competition in order to expand routes and
increase economies of scale. Larger airlines can purchase more
materials in bulk and realize significant cost savings while also
working to eliminate many employees that have overlapping jobs.
However, failed mergers can be much worse than never having done
anything at all. Consequently, it is very important to practice due
diligence.
In the end, it will be interesting to see where these airlines end
up over the next few months. For now, it remains likely that Delta will
continue to pursue Northwest while other targets may include
Continental. Regardless, the airline industry remains full of stocks
that are definitely worth watching over the next few months!
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