With the rising costs of fuels, many airline companies seem to be grounded, some literally. However, one merger has brought on not only a way to battle the ever so large economic struggle of the airline industry, but will have created the world’s largest airline.
Delta Airlines (NYSE: DAL) and
Northwest Airlines (NYSE: NWA) have officially joined together in a union that will parent 75,000 employees with revenues of $35 billion.
The $17.7 billion Delta Air Lines Inc. merger with Northwest Airlines Corp. is done. However, as it may seem that this much anticipated deal would be good for both companies, Delta shares have undergone quite the drop in share prices today with over a 13% decline. Northwest shares also fell, but just under 9%. The companies, that jointly announced their merger last night at 8 PM EST, will keep Delta’s headquarters out of Atlanta and foresee no hub closures. Collectively, the two airlines will oversee a fleet of 800 airplanes with flights to more than 390 destinations in 67 countries.
The deal will grant that each Northwest share will be exchanged for $1.25 Delta shares, a 16.8% premium based on today's closing price. With this merger, it is predicted a one-time cash costs of no more than $1 billion to integrate the two airlines. However, the deal is expected to generate more than $1 billion in annual revenue and cost cuts from more effective aircraft utilization, a more comprehensive and diversified route system, reduced overhead and improved operations. Delta CEO Richard Anderson, who had also served as a former CEO of the Eagan-based Northwest Airlines, will remain CEO of the new Delta. Delta Chairman of the Board Daniel Carp will become chairman of the new board, Northwest Chairman Roy Bostock will become vice chairman and Delta's Ed Bastian will be president and CFO.
This new merger between Northwest and Delta Airlines will Delta will maintain executive offices in Atlanta (as the company’s headquarters), Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo.
The airlines said small U.S. communities will now have better access to more destinations across the globe and will benefit from the combined carriers' complementary route networks. However, there are many concerns, especially in a time of tight budgets and strict government regulations. Northwest and the state of Minnesota are to maintain current hubs and headquarters, and if Northwest fails to abide by this, the company would owe the state $240 million and lose a package worth $200 million. After the merger was announced Monday evening, Minnesota’s Gov. Tim Pawlenty issued a statement claiming that "We will be closely scrutinizing the impact of the merger and will strongly stand up for Minnesota's interests during the review process."
With such a merger as this, there are some issues to be dealt with concerning the unions of the two airlines who were unable to come to an agreement on combining seniority lists. Seniority determines pay and flight assignments, and Delta's pilots (generally younger than Northwest's) had worried that they would receive the short-end of the stick. Officials had wanted the pilots to agree prior to a deal, but faced with ever-rising operating costs ultimately decided to move ahead with the merger without an agreement.
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