Potential Delta/United merger?

[OhioGuy]

So if this occurred, would the world headquarters be in Atlanta or Chicago? Which city would lose its hometown airline?

----------------------------------------------------
Delta says it's open to merger
Hedge fund with big stakes in both airlines urges Delta to buy United; Delta says it has committee looking at possible deals.

By Chris Isidore, CNNMoney.com senior writer
November 14 2007: 5:25 PM EST

NEW YORK (CNNMoney.com) -- Delta Air Lines said Wednesday it is open to a combination with another airline and was looking at deals even before one of its major shareholders wrote to push it to make a bid for United Airlines.

The suggested deal, which is being proposed as an answer to soaring jet fuel costs, would create the world's largest air carrier. A Delta-UAL combination would also likely spark a round of industry consolidation and sharply reduce the choices for passengers, which experts said could lead to higher fares on at least some routes.

The openness of Delta (Charts, Fortune 500) to a deal is a stark contrast to its stance a year ago, when the Atlanta-based carrier fought off a hostile takeover from smaller rival US Airways Group (Charts, Fortune 500). At the time it argued consolidation would be bad for the airline, its customers and employees.

Pardus Capital Management, which sent the letter to Delta Tuesday, estimates that a deal between Delta and United parent UAL Corp. (Charts) would save $585 million a year in costs and give the combined carrier the breadth of domestic and overseas routes to attract more lucrative business travelers.

It said its analysis showed that even greater savings were available in a Delta-Northwest Airlines (Charts, Fortune 500) combination, but that combination would not have as strong a route system.

And the letter said the fund was worried that high fuel prices could drive airlines to another round of bankruptcy filings or at least eat up recent profit gains.

But industry consultant Michael Boyd said any combination in the industry would take more than a year to start producing savings. He said any airline combination is an expensive and difficult process, and that most financial gains from such deals only come from reductions in competition and higher fares.

Boyd said that while Delta and United are likely looking at possible deals, he doubts an acquisition will actually occur.

"Every airline CEO has got to be considering scenarios because United is in play. And they'd like to bring capacity down to charge more for what's left," Boyd said. "But will it work in the airline industry? Only on paper."

Pardus' most recent federal filings had listed it as having 3 million shares of Delta (Charts, Fortune 500), but its letter said it now owns 7 million shares, suggesting it has been buying Delta at the recently depressed share price. It also has 5.6 million shares of UAL (Charts, Fortune 500). Its holdings represent about 3 percent of Delta's shares and nearly 5 percent of UAL.

Officials from Pardus were not immediately available for comment.

Rising oil prices hit holiday fliers
Delta issued statements denying a report that it has already held merger talks with United or any other airlines, but adding that its board has formed a special committee, headed by its non-executive chairman, to analyze strategic options. It also has retained financial and legal advisors to assist in this review.

"We appreciate receiving Pardus' views on the best course for Delta's future," said the statement from Delta CEO Richard Anderson. "We have been consistent in our public statements that Delta believes that the right consolidation transaction could generate significant value for our shareholders and employees and that strategic options should be evaluated. With oil at over $90 a barrel, this analysis takes on a heightened importance as we factor those prices into our long-term planning process."

"We have said for the last four years that we believe consolidation is necessary for the industry, and others independently are reaching the same conclusion. We make decisions in the best interest of United, and we don't comment on the opinion of one shareholder, or the actions or hypothetical transactions proposed by others," a company statement read.

Importantly, the Delta pilots union issued a statement saying it would not oppose a combination. Opposition from pilots has been a barrier to proposed airline deals in the past.

"Many analysts have suggested that airline industry consolidation is inevitable. The Delta pilots are not opposed to a rational and sensible consolidation scenario," said a statement from Lee Moak, a Delta captain and the head of the Air Line Pilots Association unit at the airline. "The 'right' merger opportunity could draw our support and result in a successful merger. However, we are not interested in a transaction just for transaction's sake."

Moak said that the pilots could only support a deal if it is included in merger discussions from the beginning of the process.

"Any consolidating event which involves the Delta pilots will not happen without our active participation and consent," he vowed.

United, the No. 2 carrier, behind only AMR Corp. (Charts, Fortune 500) unit American Airlines, saw its share close up 1.5 percent Wednesday, while Delta, the nation's No. 3 carrier which emerged from bankruptcy earlier this year, saw shares climb 4.5 percent.

AMR saw shares close slightly lower as did the major low-fare carriers, such as Southwest Airlines (Charts, Fortune 500) and JetBlue Airways (Charts). But other major carriers that could find themselves in play if consolidation takes place gained Wednesday, with Northwest shares up 5 percent and Continental Airlines (Charts, Fortune 500) up 1.5 percent.

Pardus' letter proposes the deal as a merger, with Delta offering 2.395 of its own shares for every UAL share, which represents zero premium for UAL shareholders based on the 30 day average of the two companies' share prices. But it suggests that Delta management would be the ones to lead the combined company.

Jet fuel prices have soared about 24 percent since Labor Day and are now 55 percent higher since January, when Delta fought off a hostile takeover attempt by US Airways Group (Charts, Fortune 500), arguing that such a combination would run afoul of antitrust regulators and not be a benefit to the airline, its employees or its passengers.

A spike in jet fuel prices in September 2005 sparked bankruptcies at both Delta and Northwest Airlines (Charts, Fortune 500). Most of the U.S. airline industry has filed for bankruptcies since the Sept. 11 terrorist attack,

Since Delta fought off the US Air bid, it has gotten a new CEO, Anderson, a veteran of Northwest and Continental, who has spoken far more positively about the benefits of industry consolidation. UAL executives have long been on the record in favor of mergers in the industry.

"United has been talking about merging with anybody and everybody but you and me," said Boyd.

http://money.cnn.com/2007/11/14/news/companies/delta_united/index.htm?cnn=yes

[DenverInfill]

The combined airline would be called United and the HQ would be in Chicago, according to several other articles I've read about this today.

[kickazzz2000]

Gotta love investment banks and hedge funds...

[Major AWACS]

Well the "combined" airline would be run by Delta's management, but this has about a 5% chance of happening.

The biggest thing up front would be CVG going tits up.
Cincy would be gone. Atlanta and Chicago would still be huge hubs for this airline.

Ciao,
AWACS

[vertex]

Gotta love investment banks and hedge funds...

Gotta love the hypocrisy and short-sightedness of Delta management...

[10023]

Whomever said that various articles have stated that the combined entity, were they to merge, would be headquartered in Chicago is correct. It is also likely that Richard Anderson, Delta's CEO, would assume that role at the combined entity.

This is, as Pardus (the hedge fund) is saying, a transaction that would make a lot of strategic and financial sense. The U.S. airline industry has too much redundancy right now, and the dynamics of the industry are not sustainable. The airline industry in aggregate, over its entire history, has been a money-losing enterprise - meaning that if one were to add up all the profits and losses that every airline that has ever operated in this country has made or lost, the result would be a negative number. There is no reason to believe that this will be any different going forward - it will continue to oscillate between periods of profitability (the last couple of years) and periods of massive losses and threats of (and instances of) bankruptcy. The fact that neither of these airlines is currently threatened with bankruptcy makes it possible for this combination to take place at the present juncture.

Both Anderson and Glen Tilton, UAL's head, have made numerous comments regarding the need for consolidation in the U.S. airline industry, and despite the smokescreen being put down currently in response to today's market speculation (companies are more or less required by the SEC to make statements affirming or denying these sorts of rumors in order to make sure that certain parties aren't benefiting from asymmetric information), there is no reason to believe that they have not in the past discussed this transaction. And given the quotes in the article from the head of Delta's pilots union about their desire to be included in early discussions if they're going to support a deal, it certainly doesn't help these companies' respective Boards and management teams to have the pilots union think the party has started without them, either.

There would be integration concerns, for sure - the pilots union, UAL's unionized maintenance workforce vs. Delta's non-unionized maintenance workforce, differences in the equipment that both airlines fly and what would be an overabundance of hubs. But the synergies would be enormous and the strengths of the two are complementary (Delta has lots of coveted Transatlantic routes, United is strong in the Pacific Rim).

Government regulators will of course determine whether a deal can happen, despite the business logic, on competition grounds. But of course, if the price of oil stays high and something happens to disrupt growth in air travel over the next several years, a bunch of airlines going bust a la PanAm doesn't really help consumers, now does it? And even if this and another major transaction were to happen, the U.S. would have more than enough legacy carriers to ensure healthy competition, let alone the discount airlines that compete very aggressively on domestic routes. I don't think you could point to a market that would be significantly hurt by this, as Delta already dominates Atlanta (and United doesn't really fly there) and O'Hare has the larger American Airlines. Antitrust regulators will nix a deal that reduces an industry from two major competitors to one, or from three to two, but this would only reduce the major national legacy airlines from six to five (American, United, Delta, US Airways, Continental, Northwest) unless I'm missing any. And any problems in specific markets would just be solved by demands that they give up some gates, but as I said, I can't think of any airports where these are the #1 and #2 airlines. If AMR and UAL were to propose a merger, for instance, they'd have to give up probably half of their gates at O'Hare (although that one would probably be blocked anyway).

A consolidation in the U.S. airline industry will happen in the near to medium term, and this is probably the most logical combination out there, so watch this space.

[atl2phx]

Gotta love the hypocrisy and short-sightedness of Delta management...

and you're basing that comment on what? :koko:

[the urban politician]

As I said elsewhere, it seems like suddenly everybody is denying that any merger talks are on

[atl2phx]

Gotta love investment banks and hedge funds...

true.

moreso, you gotta love the media and pr machine that took a press release from pardus and apparently ran with it sans any attempt at due diligence.

[10023]

As I said elsewhere, it seems like suddenly everybody is denying that any merger talks are on
Yes. They have to say that. They could say that today and announce a deal Monday, happens all the time. Won't repeat my whole post and not saying it's going to happen imminently, but reducing the number of legacy carriers from 6 to 5 or even 4 through one or two combinations makes an immense amount of sense. And the CEOs of these two companies have both espoused that belief repeatedly. And industry analysts think this is one of the most logical combinations. You catch my drift I'm sure.

[totheskies]

It will suck to have to experience the downsizing that always happens with corporate coups, but hopefully it will also be a chance for smaller companies (Jet Blue for example) to fill in the service gaps.

[10023]

Well, some downsizing is necessary in this case. It's not a healthy industry long-term.

[Steely Dan]

if this goes through, the combined entity would be a monster, what with all of delta's atlantic routes and united's pacific routes, holy crap!

as for hubs, who would be the losers?

delta - atlanta, JFK, cincinnati, & salt lake city

united - ohare, dulles, denver, san francisco and LAX.



my guess is that cincinnati and salt lake city would be most hurt.

[vertex]

and you're basing that comment on what?

Err, reality????


If you really need brushing up, you can start with this thread (http://forum.skyscraperpage.com/showthread.php?t=120092).

And in case anyone else has forgotten, you heard it here first (http://forum.skyscraperpage.com/showpost.php?p=2602471&postcount=121).

[atl2phx]

Err, reality????


If you really need brushing up, you can start with this thread (http://forum.skyscraperpage.com/showthread.php?t=120092).

And in case anyone else has forgotten, you heard it here first (http://forum.skyscraperpage.com/showpost.php?p=2602471&postcount=121).

reality, huh?

let's call it like it is.....sour grapes from the phoenix/us air contingent.

[Rail Claimore]

if this goes through, the combined entity would be a monster, what with all of delta's atlantic routes and united's pacific routes, holy crap!

as for hubs, who would be the losers?

delta - atlanta, JFK, cincinnati, & salt lake city

united - ohare, dulles, denver, san francisco and LAX.



my guess is that cincinnati and salt lake city would be most hurt.

United said earlier this year they were considering cosolidation and wanted into the Northeast (particularly NYC) and the South. I expect SLC to be the big loser if this goes through.

I suspect CVG would be downgraded more to a secondary-hub/focus-city sort of deal, and function similarly to STL for AA. CVG is an airport with a lot of infrastructure available to use, and is one of only five airports in the US that can handle trimultaneous operations. It's advantageous to have a back-up hub in the Midwest when things go bad at O'Hare.

[vertex]

reality, huh?

You're entitled to your spin and bias. I'll stick with the hard facts.

[atl2phx]

You're entitled to your spin and bias. I'll stick with the hard facts.

you've presented nothing other than a link to an old thread about the failed acquisition of delta by us air. is that the quality and depth of your hard facts?

Gotta love the hypocrisy and short-sightedness of Delta management...

seriously, i thought you might be rich with substantive data to support your original comments. what have ya got? gotta story brewing there? working on, working on that for quite some time? huh?

[Go7SD]

Economically, it would make sense for both companies to do the merger in order to survive the struggling state of the airlines industry today just to stay afloat and become more competitive. Maybe the two Texas based airlines American and Continental could merge leaving the HQ in Ft Worth or Houston. Let's all merge together just for the hell of it. :tup:

[nomarandlee]

http://www.chicagotribune.com/business/chi-071115united-bethune,0,4606041.story

A look at the hedge fund pushing United, Delta into merger talks
By Julie Johnsson | Tribune staff reporter
2:55 PM CST, November 15, 2007

If they were to merge, United Airlines and Delta Air Lines would create an international colossus that would spur job growth rather than job cuts, says former Continental CEO Gordon Bethune.

That's the scenario envisioned by the New York hedge fund that's pressuring the nation's No. 2 and No. 3 carriers to join forces before oil spikes and a softening economy drive airlines into another downturn.

For the past month, Bethune has been helping Pardus Capital Management LP, a major shareholder of both carriers, devise a strategy to prod United and Delta into serious merger talks.

..............The merger scenario sketched out by Pardus wouldn't involve major job cuts, or closing any hubs, sources say. Pardus also envisions giving employees five percent of the equity in the combined company, a stake it estimates would be worth $1.2 billion by 2012.............................

[atlantaguy]

Gotta love the hypocrisy and short-sightedness of Delta management...

Ah, still bitter that little Dougie Parker didn't get his prize?

The pinnacle of hypocrisy and short-sightedness is alive and well and living in downtown Tempe. How many years has it been since the *cough* "merger" *cough* and you guys STILL haven't merged East & West?

And to top it off, now you guys are having a little hissy-fit with the Philadelphia Airport. Give us the gates we want and keep Delta out of Concourse A, or were pulling the China flight.

Yeah, right.

[airindia787]

Wouldn't the combined Delta/United be basically the new Pan Am? I know that Pan Am sold their Pacific Routes to United and their Atlantic routes to Delta just before they went bankrupt.

[JMGarcia]

^Internationally that's true. Domestically Pan Am never had much of a presence and a UA/DL combo would be huge. Pan Am also had a bigger presence in SA than either UA or DL.

[Go7SD]

Yeah, I remember seeing a lot of Pan Am jets lined up at the gates of Tokyo's Narita airport back in the early eighties. Maybe if Pan Am and Eastern merged back in the day they would still be around today. ;)

[vertex]

atlantaguy and atl2phx, if either of you can come up with one reason why Delta should continue to exist as a stand-alone airline, I'd love to hear it.

Otherwise, this thread isn't about US Airways or about me. It's about how to put some lipstick on this pig named Delta.

[atl2phx]

atlantaguy and atl2phx, if either of you can come up with one reason why Delta should continue to exist as a stand-alone airline, I'd love to hear it.

Otherwise, this thread isn't about US Airways or about me. It's about how to put some lipstick on this pig named Delta.

punt on first down - good job! :tup:

seriously, to your point, given today's economic conditions and the overall state of the aviation industry, i don't think there's justification for any airline out there to continue as a stand-alone carrier. that doesn't mean, however, that us airways is the perfect partner.

[Major AWACS]

Southwest and Continental can both exist as stand alone airlines, just to name two. CO will consolidate if the industry does but it is an airline that has not done bankruptcy this cycle i.e. post Sept 11. In fact CO has made money and is constantly voted the best US legacy. southwest as a LCC has always made money.

Ciao,
AWACS

[Go7SD]

Southwest and Continental can both exist as stand alone airlines, just to name two. CO will consolidate if the industry does but it is an airline that has not done bankruptcy this cycle i.e. post Sept 11. In fact CO has made money and is constantly voted the best US legacy. southwest as a LCC has always made money.

Ciao,
AWACS

I take it that Continental is doing better than it's next door neighbor to the north AA.

[Major AWACS]

Yes, though AA has never done bankruptcy. Gordon Bethune Turned CO around and it has done outstanding for a decade.
AA is having big time labour issues (pilots are the big one right now).
AA is also behind on ordering new jets. they need more capacity to grow their big markets like Latin America (where they are #1)

SO, All three Texas airlines are doing well, but again AA is behind on labour and growth right now. All three could survive on their own, but consolidation could force AA or CO to merge, though not with each other. Would never happen IMO, and the gov't would not allow.

Ciao,
AWACS

[ScizzoTX]

Didn't AA post the highest profits of any US carrier last quarter?

[atl2phx]

Southwest and Continental can both exist as stand alone airlines, just to name two. CO will consolidate if the industry does but it is an airline that has not done bankruptcy this cycle i.e. post Sept 11. In fact CO has made money and is constantly voted the best US legacy. southwest as a LCC has always made money.

Ciao,
AWACS

agreed. i'm not saying there aren't airlines that can't standalone, i'm just saying given today's market, the benefits of consolidation generally outweigh the benefits (if any) of going it alone.

[bnk]

I don't think this one will go down. Delta means much more to Atlanta than United to Chicago. The employees and politicians down there would poison any HQ relocation.





http://www.ajc.com/business/content/business/delta/stories/2007/11/15/deltachicago_1116.html

By MATT KEMPNER
The Atlanta Journal-Constitution
Published on: 11/16/07

Chicago — Talk of a potential merger between Delta Air Lines and United Airlines smacks like a midair collision of cities with jumbo jet egos.

Delta quickly batted down conjecture that merger discussions already were under way after a hedge fund publicly pushed for the airlines' marriage.

But talk of eventual consolidation among major airlines remains hot, juiced recently by high oil prices.

If mergers come to pass, some American city or cities will be losing a major airline headquarters.

Don't expect Chicago to easily let go of United, which traces its roots there to the 1920s.

"We'd fight like hell," said Paul O'Connor, executive director of World Business Chicago, a nonprofit organization focused on wooing and retaining companies in the area. "It's personal. It's a matter of pride. They are us."

If Chicago and Atlanta end up as rivals in an airline tug-of-war, they might find they have a lot in common. Both are known for effusive boosterism.

...

[vid]

They should merge them all into one airline, and let the government run it. How efficient it would be!!

[Major AWACS]

They should merge them all into one airline, and let the government run it. How efficient it would be!!

Americaflot...

[alleystreetindustry]

well, if "delta were to tackle united", no doubt the hubs would remain even for chicago/atlanta (although the headquarters would most likely be in atlanta). i don't see how united (being the smaller one in passengers served, air footprint, etc.), would have its way with delta. however, this is a very complex issue.

[bnk]

well, if "delta were to tackle united", no doubt the hubs would remain even for chicago/atlanta (although the headquarters would most likely be in atlanta). i don't see how united (being the smaller one in passengers served, air footprint, etc.), would have its way with delta. however, this is a very complex issue.

As most of the early press from the AP states that the airline called United would be HQ'ed in Chicago. It would be rather naive to think that Chicago would not be in the running for it. Ask Seattle, Denver, and Dallas about the Boeing site selection process. It would be foolish to assume that Atlanta is a given if this thing goes though. That said, in my previous post, I believe this thing will not go through due to the impact it would have on Atlanta and would be one hell of a mess down there if Delta was consumed.

Illinois and Chicago also have political clout.


Villaraigosa lavished praise on Daley. “I said to everyone from the very beginning, Never, ever count Richie Daley out. This is a man who has no peer in American cities. He is without question a great mayor. And we are very fortunate to have us leading the American bid.’’

http://media1.suntimes.com/nixoncds/image/daley2.jpg_20070414_15_15_32_1359-282-400.imageContent

[Sulley]

Delta and CO would be the best fit.

[Major AWACS]

Delta and CO would be the best fit.

I disagree as did Paredus. CO's cost structure would actually cost in a merger with DL. Delta shed costs in bankruptcy CO did not.
Co has a fully funded pension, CO has a different labour cost structure, and CO has a younger all Boeing fleet.

Not to mention Atlanta would lose out in DL CO merger and GA politicians would not allow that because the CO management team would be kept as would the Houston HQs (as noted by Paredus and anyone that follows airtravel). NYC metro would get more europe with IAH keeping the South American traffic.

I would like to see a CO and AS (Alaska merger) but right now AS is having labour issues. CO could use a Western hub and the AS fleet works well with the CO fleet and MX.

But right now NW has the "golden share" in CO so NW has a say in several merger options with CO.

DL and US was a horrid merger scenario thus it failed.

Ciao,
AWACS

[Go7SD]

They should merge them all into one airline, and let the government run it. How efficient it would be!!

I can see the airport probably being run like a license branch waiting for a long ass time before your number is called out. 50/50 chance to make your flight if your lucky or wait for the next one available. Lady with a whiney voice: NEXT!! calling #204...this is your last call Next in line please.:whip: I think I'll go rent me a car

[SpongeG]

I can see the airport probably being run like a license branch waiting for a long ass time before your number is called out. 50/50 chance to make your flight if your lucky or wait for the next one available. Lady with a whiney voice: NEXT!! calling #204...this is your last call Next in line please.:whip: I think I'll go rent me a car

i think hes joking thats what happenned in Canada with Air Canada it was two airlines before - Canadian and Air Canada

[Buckeye Native 001]

I don't know how badly this would affect Cincinnati, given the corporate presence there. Southwest has tried to get into CVG a few times in the past, so maybe the airport wouldn't go "tits up" as someone put it if another airline like WN were able to come in and force some competition for once instead of having almost everything run by Delta and ComAir?

[alleystreetindustry]

As most of the early press from the AP states that the airline called United would be HQ'ed in Chicago. It would be rather naive to think that Chicago would not be in the running for it. Ask Seattle, Denver, and Dallas about the Boeing site selection process. It would be foolish to assume that Atlanta is a given if this thing goes though. That said, in my previous post, I believe this thing will not go through due to the impact it would have on Atlanta and would be one hell of a mess down there if Delta was consumed.

Illinois and Chicago also have political clout.

im not saying chicago is not in the run. i know united means alot to the city, but if the city were to loose united, chicago has way more to fall back on than atlanta does. i don't know exactly how much the airline means to chicago, but i know atlanta would crumble without delta. its a 50/50 really. and just because the press says it will be called united and it will be centered in chicago doesn't mean it will happen.

[OhioGuy]

From what I've been hearing, if something like this did actually happen, the Chicago operations center of United would probably be transfered to Delta's main operations center in Atlanta. The actual corporate headquarters with all of the big wigs would still remain in downtown Chicago. It's United's "average" employees, such as their flight dispatchers, atc coordinators, etc... that would feel the biggest impact as they'd probably be getting booted down to Atlanta to work at Delta's main operations center there (at least the ones that aren't let go). This isn't anything official that employees have heard... in fact they haven't been informed of anything from what I've gathered. It's mainly speculation on their part. Delta has a great operations facility while United's operations facility in Elk Grove Village is very old & in need of major upgrades. Instead of spending the money to build a new operations center, it would probably be much more cost effective for the new combined airline to utilize the high quality Delta facility in Atlanta as opposed to building a new one here in Chicago.

[DUBAI2015]

So if they merge, who will be the leader? (Like the livery and the name)

[atl2phx]

im not saying chicago is not in the run. i know united means alot to the city, but if the city were to loose united, chicago has way more to fall back on than atlanta does. i don't know exactly how much the airline means to chicago, but i know atlanta would crumble without delta. its a 50/50 really. and just because the press says it will be called united and it will be centered in chicago doesn't mean it will happen.

false.

atlanta will not crumble without delta HQ.

first, this union will likely not happen. if, by what is considered a remote chance, a delta/united deal goes through and the HQ ends up in chicago, it's highly unlikely that operations at hartsfield will suffer - it's more likely that atlanta operations would only grow.

[roadwarrior]

So if they merge, who will be the leader? (Like the livery and the name)

The rumor stated that the merged airline would retain the United brand name. This makes sense since despite Delta's very recent resurgence, the United brand name is still much more recognizable on a global scale. One can only infer that this would also entail retaining the United livery. As a United frequent flier, I also hope that the merged airline keeps some of the cool United perks (Economy Plus, Channel 9 on the radio, free headsets, etc)

[roadwarrior]

im not saying chicago is not in the run. i know united means alot to the city, but if the city were to loose united, chicago has way more to fall back on than atlanta does. i don't know exactly how much the airline means to chicago, but i know atlanta would crumble without delta. its a 50/50 really. and just because the press says it will be called united and it will be centered in chicago doesn't mean it will happen.

How would Atlanta crumble without Delta? Maybe if Delta ceased operations altogether, laid off all employees and no longer offered extensive airline service out of Hartsfield. However, this is not in the realm of possibilities. Regardless of the headquarter location and brand name, Hartsfield would remain an enormous hub for the combined carrier. The whole reason why United is targeting Delta is because it is looking to add a southern hub (in addition to NYC). At the most, Delta would change its name to United and a few admin employees would be laid off (execs would be offered jobs in Chicago). This is hardly going to hurt a robust economy in a metro area exceeding 5 million. The only thing that it takes away is bragging rights. However, with the way the airline industry is going, I don't think having a hometown carrier is really much to brag about. Now, if Coca-Cola picked up shop and left Atlanta, that would be a bigger deal.

[atlantaguy]

Exactly. The largest local impact would actually be charitable contributions, IMO. Delta is huge here with support for the arts, gay pride, etc. If the HQ's were moved to Chitown, that may be the largest impact.

[tarapoto]

The combined airline would be called United and the HQ would be in Chicago, according to several other articles I've read about this today.

Sweet, that would give me all sorts of new discounted routes to choose from with my zed fares!

[roadwarrior]

Exactly. The largest local impact would actually be charitable contributions, IMO. Delta is huge here with support for the arts, gay pride, etc. If the HQ's were moved to Chitown, that may be the largest impact.

BTW, Delta also sponsored the gay pride event here in SF and is a sponsor for the SF Giants. This is despite the fact that SFO isn't much more than a spoke city for them (with the exception of Hawaii flights). I highly doubt changing Atlanta from their HQ would have much impact on charitable contributions, especially with a large presence remaining as a major hub.

[atlantaguy]

Didn't know that about SF Pride - thats pretty cool. They are also big sponsers for the Braves here too, I forgot to mention that.

I honestly don't see this one happening, though.

[akiatl261]

It seems to me that if this did happen(and i highly doubt it), that Delta would be the lead carrier. True it might take the United name but, it would be Delta run which would mean it would be based here. Why would they move the corp hq from Atlanta to chicago, last time I checked they have a fantastic state of the art Operations center and HQ in atlanta. Not to mention that UAL rents its space in chicago(dwntwn) which is an added expense compared with Delta owning there facilities in Atlanta.

I think the real question should be not Delta and United but Delta and Alaska, Delta Continetal or Delta Northwest. Honestly I think those are more comeplling. Alaska gives Delta a hub in Sea on the west coast, Continental or Northwest gives Delta added resorces to really ramp up hub ops in Los Angeles and to strengthen its positions to Africa and Europe. This could be accomplished with the closing of 1 or 2 hubs. In continentals case cleveland and consolidating ops in NYC to either JFK or EWR. Northwests case close the Memphis hub, and either close cvg or scale down DTW and MSP. Either way redeploy the staff and equipment and fleets from those hubs to building up the LAX hub for domestic and international expansion. I know easier said than done hehe :)

[sprtsluvr8]

Exactly. The largest local impact would actually be charitable contributions, IMO. Delta is huge here with support for the arts, gay pride, etc. If the HQ's were moved to Chitown, that may be the largest impact.


I think all airlines have figured out that queens have larger than average travel budgets. :)

Delta's community contributions fell silent for a while in Atlanta...I think Delta was slated for major sponsorship at the recently opened Georgia Aquarium, but it didn't happen...AirTran, Georgia-Pacific, Home Depot, Southern Company, AT&T, and SunTrust all have their name on a section of the fish tank...but I think Delta is back and healthy enough to be the excellent corporate citizen it has been for years in Atlanta.

[WonderlandPark]

I think the real question should be not Delta and United but Delta and Alaska, Delta Continetal or Delta Northwest. Honestly I think those are more comeplling. Alaska gives Delta a hub in Sea on the west coast

I hope that DL doesn't ruin Alaska. Please, no.

[akiatl261]

Ruin? How so? Give Alaska the International reach it cannot achieve on its own? Make Sea a true true intercontinental hub? I would rather have Delta purchase Alaska and actually leave the ops intact and build upon an already great carrier and ops than to have American buy them and decimate them and their ops just to get rid of competition. Inevitably Alaska will be purchased sooner or later. The question is by who and how. The problem is Alaska is to small to aquire one of the legacies but to big to be left alone.

[nomarandlee]

http://www.chicagotribune.com/business/chi-tue_delta-united-merger_0115jan15,0,1958292.story

Delta has opened merger talks with United, Northwest
By Julie Johnsson | Tribune staff reporter
2:22 PM CST, January 15, 2008

Delta Air Lines is moving ahead with merger talks with United Airlines and Northwest Airlines, say people close to the carriers, raising the odds that the U.S. airline industry could finally be headed for consolidation.

The merger discussions, undertaken with the blessings of Delta's board, were first reported by the Wall Street Journal.

Combining two airlines and their global route networks and disparate labor groups is incredibly complex, time-consuming and difficult to pull off, industry observers say.

A person with knowledge of Delta's initiative cautions that any deal could take considerably longer than the two-week time frame cited in media reports today.

Northwest is thought to be the best fit for Delta, since the two carriers are of similar size and share similar cultures and a global marketing alliance.

But a Delta tie-up with United would create a domestic and global powerhouse. Talks between the two carriers are "serious," a source says. A United spokeswoman declined comment.

Any major merger between two U.S. carriers would likely trigger other deals, analysts say. They expect Continental Airlines to make a play for Chicago-based United if Delta decided to merge with Northwest.

Antitrust regulators who've blocked large-scale airline mergers in the past may not be inclined to do so with sky-high oil prices threatening to create heavy losses for carriers and with under-capitalized U.S. airlines losing ground to deep-pocketed overseas rivals.

"The regulators would dearly love to keep the airline business working," said William Brandt, a leading restructuring expert. "It's a question of survival."

jjohnsson@tribune.com ajor U.S. and foreign carriers.
..

[10023]

As I said elsewhere, it seems like suddenly everybody is denying that any merger talks are on

Yes. They have to say that. They could say that today and announce a deal Monday, happens all the time. Won't repeat my whole post and not saying it's going to happen imminently, but reducing the number of legacy carriers from 6 to 5 or even 4 through one or two combinations makes an immense amount of sense. And the CEOs of these two companies have both espoused that belief repeatedly. And industry analysts think this is one of the most logical combinations. You catch my drift I'm sure.

Told ya so.

[tdawg]

Wasn't Atlanta-based Eastern about as big as Delta when it folded? And look what happened, Atlanta was anything but crushed.

[oftrue]

Eastern airlines was miami-based, with a big hub in Atlanta

[ChunkyMonkey]

I think it is more likely Delta will merge with NWA than United. NWA is in Skyteam which simplifies things. NWA is strong in the Midwest and Pacific Rim while Delta is strong in the East and over the Atlantic. If this merger goes through, I think both Memphis and Cincinnati will be downsized as they will be redundant. Delta will most likely retain its headquarters in Atlanta.

[Rail Claimore]

I predict Delta and NWA to happen, and to ease anti-trust fears, soon after, United will announce their intention to once-again acquire US Airways.

[Major AWACS]

No way United can get US Airways, unless they find funding (probably from overseas which would most likely be nixed by the feds).

If NWA were swallowed by Delta then Northwest would no longer have the "golden share" allowing them to nix any Continental merger.
Continental could then swallow United.

Ciao,
AWACS

[Rail Claimore]

No way United can get US Airways, unless they find funding (probably from overseas which would most likely be nixed by the feds).

If NWA were swallowed by Delta then Northwest would no longer have the "golden share" allowing them to nix any Continental merger.
Continental could then swallow United.

Ciao,
AWACS

Seems more plausible. I was throwing out possible merger scenarios because I don't think the DoJ would approve any one merger without another merger application in the mix at the same time.

[alleystreetindustry]

bottom line: you get rid of delta (and what it means), atlanta's pride would plummet. worst case scenario: maybe 1,000-2,000 would be fired/relocated, city investment would be lost, and traffic at hartsfield would take a dive.

[10023]

bottom line: you get rid of delta (and what it means), atlanta's pride would plummet. worst case scenario: maybe 1,000-2,000 would be fired/relocated, city investment would be lost, and traffic at hartsfield would take a dive.

Hartsfield isn't going anywhere. There's no place for that traffic to go.

[Octavian]

If they're worried about airlines being undercapitalized, they should allow US airlines to merge with foreign airlines and allow foreigners to invest in US airlines. Get mergers like United-Lufthansa or Delta-Air France.

[Major AWACS]

If they're worried about airlines being undercapitalized, they should allow US airlines to merge with foreign airlines and allow foreigners to invest in US airlines. Get mergers like United-Lufthansa or Delta-Air France.

Never going to happen...at least anytime soon.

Hartsfield isn't going anywhere. There's no place for that traffic to go.

The O/D traffic would still be serviced by a smaller ATL. THe connecting traffic could be redis'd around the US and Europe but the ATL hub isn't going anywhere in a merger, the HQs could and some int'l traffic could shift to JFK or Dulles but the hub isn't going anywhere. CVG and MEM are the ones that will go the way of St Louis and Pittsburgh re: airline consolidation.

Ciao,
AWACS

[the urban politician]

So in other words, Mayor Daley and the rest of Chicago might as well say bye bye to millions of dollars in TIF funds because if the scenario plays out (Delta snabs Northwest, Continental gets United), Chicago will be left without a major airline HQ.

Whatever. Airlines will be extinct in 30 years anyway. We won't have a way to fuel them.

[Hot Rod]

I would think the hq would stay in downtown Chicago and the name would stay United, since United is WAY more recognized and Chicago is a much stronger and more central market than Houston.

I think Elk Grove Village will be negatively impacted though!! :)

As for hubs, hm - got me on that one. I guess there probably wouldn't be much changes, aside from the dissapearance of CLE and possibly Denver taking a HUGE hit (its funny that Denver used to have hubs for both United and Continental, but after their merger it probably wont be a hub for neither). Hmm, hubs at LA, SFO, IAH, ORD, IAD, EWR; that's a lot of hubs even still.

As for Delta/Northwest, Atlanta would keep the HQ, the name would stay Delta I guess but Atlanta would probably lose international flights to IAD and JFK. I agree that MEM and CVG are history and I guess MSP or DTW would get significantly downsized.

Could be a boon for Seattle or Portland tho, with a hit to SLC as they'd probably want to shift international out of one of those larger cities; (or it could be HUGE boon for SLC as NW drops its Seattle/Portland-Tokyo presence????, it depends). Delta used to have international out of Seattle and especially Portland, so I'd assume they'd probably go back to that, sync with the Seattle-Tokyo NWA dailies and drop SLC significantly.

To me, it is sad to see so many names in aviation disappearing. With possibly Northwest (remember when it was called Northwest Orient ..) and Continental joining the ranks of Trans World Airlines, Eastern Airlines, Pan American Airways (i guess its sort of back???), Braniff, America West, and Midway Airlines; it's just too bad that jet fuel has caused the demise (or lack of new technology to counter the rise in Jet Fuel costs).

I disagree with the comment that airlines will be gone in 30 years - there will ALWAYS be a need to transport large numbers of people over large distances in a cost effective and energy efficient manner. I do hope, however, that we can get new technology on-board that does not rely on foreign market controls for sustainability.

[Trae]

I'll have to go back and find where I found it, but I know its true. It was in the agreement with NW. I actually think Capt A'wacs here said it. I think it goes something like this: If CO merges with an airline, NWA still has a major share, but if NWA merges with another airline, it completely loses its share.

http://dealbook.blogs.nytimes.com/2008/01/16/northwest-continental-and-the-golden-share/

I hope the DL/NW happens in CO picks a partner (most likely UA and maybe Alaska). The HQ would definitely stay in Houston, too (just like Atlanta would remain the HQ with a NW merger).

The name would stay Continental most likely, and it would make Continental the largest airline I believe (I think Delta may be larger if it were to merge with NW).

[mcfinley]

Why would Continental take over United? United Airline's market cap is almost twice that of Continental, and they have more cash on the books--enough to buy out Continental outright, theoretically. Also, there's something to be said for keeping headquarters in a city with the country's second largest airport and neighborly relations with Boeing.

I think/hope Delta merges with NWA. They're about equal in value, so i would think that even if Delta/Atlanta receives headquarter status, St Paul would maintain at least a sizable portion of back-end operations.

Once Delta picks their next trophy wife, so to speak, I think it would force at least 1 or maybe 2 more mergers by year-end. On the surface, I like the idea United/Continental merging, but I don't know enough about whether their cultures/fleets are similar enough to succeed as a single entity.

[Trae]

I think Continental should try to merge with Alaska Airlines, which would put be good for some West Coast hubs for Continental, but nothing much international. That is why I see a Continental/United merger happening (possible). United is a mess though, and I think a merger is the only way they will get out of the mess. It will most likely cost them their Chicago HQ though for Houston.

[mcfinley]

BTW, here are the market caps for the major airlines. Not that stock value is absolute in determining which company is "buyer," since cash and other forms of equity widely swing a deal either way.

Delta: 3.85B
NWA: 4.07B
United: 4.03B
Continental: 2.38B
US Air: 1.15B
Alaska Air: 942M
AirTran: 666M
Jet Blue: 861M
American: 3.39B
Southwest: 8.87B

[Major AWACS]

Continental name would most likely stay, it is a better respected brand and more known in Europe. Manangementt team would be from CO and the HQs would most likely stay in Houston.

There are many reasons 4 airlines are HQ in Texas (AA, Southwest, CO and Express Jet) but one is taxes and the state benefits to them.

Market cap is not the only player in the deal. United has more debt restructering left post bankruptcy, and CO has better credit and most likely could get more financing from Bethune's buddies.

Minneapolis, Atlanta, Chicago and Houston are not losing any hubs.
Memphis, Cincy, and most likely Cleveland if CO mergers, will.

As for CO and AS mergering, it looks nice for the routes on paper, but the labour integration would be horrid. Alaskas costs are too high and they have some labour issues at the moment, which CO does not. Continental also has a fully funded pension, which will get even better standing now that the pilot retirement age goes up to 65 from 60. AS would give CO a true western hub again, but don't hold your breath. There is actually more rumour of AA aquiring AS than CO.

Ciao,
AWACS

[Nowhereman1280]

I seriously doubt that any (non-oil) company would choose Houston over Chicago when they don't even have to move their headquarters because they already have one they can switch to set up. There are so many more advantages to being in the middle of the country near the worlds busiest air-hub (Chicago air traffic in general is higher because you combine Midway and O'hare).

Not to mention Chicago is one of the world's most stable economies and probably the most diversified, providing a good shelter from economic fluctuations. On top of that the talent pool in Chicago, considering our massive number of universities, is way larger than that of Houston and finding new talent will be essential as the baby boomers retire.

Also, you know Mayor Daley is going to aggressively pursue keeping the headquarters here and, no offense to Houston, Mayor Daley is vastly more powerful than Mayor White.

Question to you Texas folk, does Houston use TIFs and other incentives like Chicago does?

[Major AWACS]

I seriously doubt that any (non-oil) company would choose Houston over Chicago when they don't even have to move their headquarters because they already have one they can switch to set up. There are so many more advantages to being in the middle of the country near the worlds busiest air-hub (Chicago air traffic in general is higher because you combine Midway and O'hare).

Not to mention Chicago is one of the world's most stable economies and probably the most diversified, providing a good shelter from economic fluctuations. On top of that the talent pool in Chicago, considering our massive number of universities, is way larger than that of Houston and finding new talent will be essential as the baby boomers retire.

Also, you know Mayor Daley is going to aggressively pursue keeping the headquarters here and, no offense to Houston, Mayor Daley is vastly more powerful than Mayor White.

Question to you Texas folk, does Houston use TIFs and other incentives like Chicago does?


It is not a pissing contest just business facts, and Houston is just as "central" as Chicago (whatever point you meant by 'central') but that has no bearing on the facts of aviation. CO has all its management infrastructure and back-ups in Houston and the back-ups just north of Houston. And COs system is seen as better than United's by industry insiders.

Continental's largest hub is in the New York metro but they are still HQd in Houston. Larry Kellener and Bill White are old pals and shareholders would not want to pay what it would cost to transition management HQs, unless extra funds are thrown in-good luck getting Daley to get that much money for some few HQs jobs. Very few folks actually work in the City limits of Chicago for United, there is still a huge ops facility in Elk Grove.

The other nonsense about talent pools and such has no relation to this issue. Houston 300,000 students in less than a 150 mile radius, including Rice and UT. No relation to aviation jobs at all or the HQs argument.
And yes Texas uses many incentives, though few would be needed in this case. Texas is already a biz friendly aviation and airline state.

The most you could see happen is a few upper management types move from Houston to Chicago. All the operations and planning and FF care will stay with the infrastructure in Houston. AND I seriously doubt you would even see that happen. Not sure if the taxpayers in Chicago would want to waste so much for so little in return.

On the flip side,
If for some reason UAL found the credit to take CO then Chicago could keep the HQs, though the Houston infrastructure would stay for other ops, it is just better than UAs, however the CO management team is what is so attractive not UAs, so we will have to follow the money and see what DL does first. CO can't do anything until Northwest loses the golden share they own in CO.

Ciao,
AWACS

[glowrock]

I would think the hq would stay in downtown Chicago and the name would stay United, since United is WAY more recognized and Chicago is a much stronger and more central market than Houston.

I think Elk Grove Village will be negatively impacted though!! :)

As for hubs, hm - got me on that one. I guess there probably wouldn't be much changes, aside from the dissapearance of CLE and possibly Denver taking a HUGE hit (its funny that Denver used to have hubs for both United and Continental, but after their merger it probably wont be a hub for neither). Hmm, hubs at LA, SFO, IAH, ORD, IAD, EWR; that's a lot of hubs even still.

As for Delta/Northwest, Atlanta would keep the HQ, the name would stay Delta I guess but Atlanta would probably lose international flights to IAD and JFK. I agree that MEM and CVG are history and I guess MSP or DTW would get significantly downsized.

Could be a boon for Seattle or Portland tho, with a hit to SLC as they'd probably want to shift international out of one of those larger cities; (or it could be HUGE boon for SLC as NW drops its Seattle/Portland-Tokyo presence????, it depends). Delta used to have international out of Seattle and especially Portland, so I'd assume they'd probably go back to that, sync with the Seattle-Tokyo NWA dailies and drop SLC significantly.

To me, it is sad to see so many names in aviation disappearing. With possibly Northwest (remember when it was called Northwest Orient ..) and Continental joining the ranks of Trans World Airlines, Eastern Airlines, Pan American Airways (i guess its sort of back???), Braniff, America West, and Midway Airlines; it's just too bad that jet fuel has caused the demise (or lack of new technology to counter the rise in Jet Fuel costs).

I disagree with the comment that airlines will be gone in 30 years - there will ALWAYS be a need to transport large numbers of people over large distances in a cost effective and energy efficient manner. I do hope, however, that we can get new technology on-board that does not rely on foreign market controls for sustainability.

Given the inherent advantages of having such a large airport, one that's modern, easily expandable, I don't see Denver losing its United hub... United is jam-packed at O'Hare already, and given that it's second-largest hub is DIA, I just don't see it disappearing.

It's going to be the secondary hub airports that are hurt by consolidation.

Aaron (Glowrock)

[Major AWACS]

Given the inherent advantages of having such a large airport, one that's modern, easily expandable, I don't see Denver losing its United hub... United is jam-packed at O'Hare already, and given that it's second-largest hub is DIA, I just don't see it disappearing.

It's going to be the secondary hub airports that are hurt by consolidation.

Aaron (Glowrock)

Exactly. As I noted before, the cities most likely to lose hubs are Memphis and Cincy, if NWA and DL merge. If UAL and DL merge Cincy still goes away.
To much overlap and not enough O&D traffic to support a hub. Barely enough to even be a focus city.

United and DL would most likely cause Salt Lake City to lose their hub also. SFO and DEN are better spaced the SLC for a the combined company, but if Frontier and Southwest pump up Denver that could change in the future.

Ciao,
AWACS

[the urban politician]

The most you could see happen is a few upper management types move from Houston to Chicago. All the operations and planning and FF care will stay with the infrastructure in Houston.

^ And that's all we need. Chicago wants the HQ. Chicago is more and more becoming the city of upper managers; let Houston have the rest ;)

[Major AWACS]

^ And that's all we need. Chicago wants the HQ. Chicago is more and more becoming the city of upper managers; let Houston have the rest ;)

As I noted that would only be if United was the aquiring carrier-NOT likely to happen. If CO is the buyer then it stays in Houston, this is how aviation works.

Ciao,
AWACS

[10023]

If NWA were swallowed by Delta then Northwest would no longer have the "golden share" allowing them to nix any Continental merger.
Continental could then swallow United.


As I noted that would only be if United was the aquiring carrier-NOT likely to happen. If CO is the buyer then it stays in Houston, this is how aviation works.

Ciao,
AWACS

Pretty sure you're wrong here.

United is almost twice the size of Continental in the context of an M&A deal. But United could certainly swallow Continental. In any case it would have to be a stock deal and UAL's market cap is $4.0 billion vs. $2.4 billion for Continental. Neither company has the debt capacity required for a cash deal.

Delta is slightly larger than United so would technically be the "acquiror", but again any transaction would at least have to consist of a mix of cash and stock because they don't have the cash/borrowing capacity required to buy United outright. Delta could take on another $2bn of debt in a merger tops; United is worth over $10bn including net debt and in anything but an MOE (merger of equals), you'd have to pay a few billion dollar control premium on top of that.

Basically, if Delta and United merge you'd likely have a situation where Delta shareholders own ~52% and United shareholders own ~48%. In a United/Continental merger, United shareholders would own ~62% and Continental shareholders would own ~38%. Northwest is about the same as United in terms of equity market cap; enterprise value is lower but they've still got too much net debt to make a cash acquisition by anyone practical, so you could basically substitute Northwest for United in either of the above scenarios. In the United/Continental case, the relative share of ownership may shift a little, but not much, in Continental's favor if United were to pay a small control premium, but I think any of these would be done as an MOE.

Bear Stearns published a research report on Continental Airlines last Friday looking at the numbers for a merger with Northwest or United (deal value, potential share price upside for Continental, synergy potential, integration concerns, etc). A deal with Northwest is unlikely and in a deal with United, United would certainly be the acquiror.

[Major AWACS]

Pretty sure you're wrong here.

United is almost twice the size of Continental in the context of an M&A deal. But United could certainly swallow Continental. In any case it would have to be a stock deal and UAL's market cap is $4.0 billion vs. $2.4 billion for Continental. Neither company has the debt capacity required for a cash deal.

Delta is slightly larger than United so would technically be the "acquiror", but again any transaction would at least have to consist of a mix of cash and stock because they don't have the cash/borrowing capacity required to buy United outright. Delta could take on another $2bn of debt in a merger tops; United is worth over $10bn including net debt and in anything but an MOE (merger of equals), you'd have to pay a few billion dollar control premium on top of that.

Basically, if Delta and United merge you'd likely have a situation where Delta shareholders own ~52% and United shareholders own ~48%. In a United/Continental merger, United shareholders would own ~62% and Continental shareholders would own ~38%. Northwest is about the same as United in terms of equity market cap; enterprise value is lower but they've still got too much net debt to make a cash acquisition by anyone practical, so you could basically substitute Northwest for United in either of the above scenarios. In the United/Continental case, the relative share of ownership may shift a little, but not much, in Continental's favor if United were to pay a small control premium, but I think any of these would be done as an MOE.

However I didn't say it 'would' be an all cash deal. The fact is CO cannot merge without Northwest's consent, unless NWA merges with someone else. I can post the fillings on the golden share.

Market cap is not the only player in a merger scenario here. paredus and bethune have found magically ways of finding funding before, I could easily see them doing that again.


But my points her are on the HQs and management and are echoed by many in the industry. CO has the better management team and would most likely survive the mergers intact. UAL has a horrid management team. The argument by some, that HQs would all swarm to Chicago because it is a 'bigger' city is not really valid. If that were the case New York would have more HQs due to all their hubs, but they don't Fort Worth, Houston, and Atlanta have some.

As you know mergers and/or takeovers are complex issues. Hell we haven't even begun to talk about labour relations...

Ciao,
AWACS

[10023]

However I didn't say it 'would' be an all cash deal. The fact is CO cannot merge without Northwest's consent, unless NWA merges with someone else. I can post the fillings on the golden share.

Market cap is not the only player in a merger scenario here. paredus and bethune have found magically ways of finding funding before, I could easily see them doing that again.

But my points her are on the HQs and management and are echoed by many in the industry. CO has the better management team and would most likely survive the mergers intact. UAL has a horrid management team. The argument by some, that HQs would all swarm to Chicago because it is a 'bigger' city is not really valid. If that were the case New York would have more HQs due to all their hubs, but they don't Fort Worth, Houston, and Atlanta have some.

As you know mergers and/or takeovers are complex issues. Hell we haven't even begun to talk about labour relations...

It can't be an all cash deal. And the reality is that in a stock deal, given the exchange ratio that would result from an MOE or any reasonable premium, UAL would be the acquiring company. Whether or not they choose to replace Glen Tilton, the UAL board would have majority control and UAL just signed on for HQ space in Chicago's Loop, with naming rights. Obviously the new entity can locate wherever they choose, but it would not be at the sole discretion of CAL management.

For full disclosure - I do not work in the airline industry, but I am an associate with a mergers & acquisitions advisory firm so I am not speaking out of ignorance with regard to the points I've made. I would defer on things like which management team is more suited to run the combined entity, labor issues, maintenance and equipment issues, current code-sharing alliances, etc to somebody who works in the industry (although I have been reading the updates from research analysts who do have expertise in these areas).

[Major AWACS]

It can't be an all cash deal. And the reality is that in a stock deal, given the exchange ratio that would result from an MOE or any reasonable premium, UAL would be the acquiring company. Whether or not they choose to replace Glen Tilton, the UAL board would have majority control and UAL just signed on for HQ space in Chicago's Loop, with naming rights. Obviously the new entity can locate wherever they choose, but it would not be at the sole discretion of CAL management.

For full disclosure - I do not work in the airline industry, but I am an associate with a mergers & acquisitions advisory firm so I am not speaking out of ignorance with regard to the points I've made. I would defer on things like which management team is more suited to run the combined entity, labor issues, maintenance and equipment issues, current code-sharing alliances, etc to somebody who works in the industry (although I have been reading the updates from research analysts who do have expertise in these areas).

I never said it would be an all cash deal.

I mentioned earlier that the only exception to NWA's golden share in CO is for certain all cash deals, or airlines with less than a Billion net income each year.

Having a lease on a HQs space means little. US Air gave that up in a heartbeat for PHX. I am not saying it wouldn't happen, as I noted above, but industry insiders seem to think otherwise. Not to mention what the feds will do. Rumours here in DC are they don't want to mergers in one year. I meet with Rep Milner's office yesterday (for my regular work) and some of his staff chatted with me about the airline lobbying going on to allow multiple mergers and how the feds are not so hot to trot on it due to the overlapping hub closures. I have heard other rumours from others on the hill about this-but I am not an airline lobbyist, I am a WC lobbyist so the fed side of airline work is not my speciality.

Ciao,
AWACS

[10023]

I think it's generally assumed that Continental won't be involved in any deals absent sector consolidation (i.e. Northwest doing a deal of their own, thus forfeiting their golden share). And I know you never said it would be an all-cash deal, I was just clarifying that it's not an open question - it would certainly be a stock deal.

The general read I've heard is that if there is an airline industry consolidation, it has to happen quickly before the Democrats almost certainly gain control of the White House and more congressional seats in 2009. They're also all waiting to see who'll go first, because one deal happening greases the wheels a bit for a second in terms of government approval and labor.

[Major AWACS]

I think it's generally assumed that Continental won't be involved in any deals absent sector consolidation (i.e. Northwest doing a deal of their own, thus forfeiting their golden share). And I know you never said it would be an all-cash deal, I was just clarifying that it's not an open question.

The general read I've heard is that if there is an airline industry consolidation, it has to happen quickly before the Democrats almost certainly gain control of the White House and more congressional seats in 2009.

I have heard the same from most sources. Financial times did story on it end of December and said the same thing as well.

Sorry if I misunderstood the direction of your cash option comments.

Politicians don't like to lose hubs and in these deals that would happen.
If west Texas intermediate stays near 100$ a barrel something will need to be done eventually to cut costs a bit.

Continental is lucky they have a solvent funded pension, and pilots retiring at 65 instead of 60 will save them more money (other airlines as well).

one thing that will not happen in CO and DL. That is predicted to cost over 100$M a year extra.

Ciao,
AWACS

[10023]

Politicians don't like to lose hubs and in these deals that would happen.
If west Texas intermediate stays near 100$ a barrel something will need to be done eventually to cut costs a bit.

I'd edited my prior post but see you've already responded, so will move the conversation here:

I'm not in any way arguing that they'd locate in Chicago because it's a bigger city, etc. That's a rather unsophisticated argument posited by city boosters on this board in any merger situation. I'm just disputing your 1) inaccurate statement that Continental would be the acquiror and 2) your confidence that Houston would be chosen because Continental has the better management team. In any event, United's shareholders and Board would have greater control. Perhaps it's a compromise where they put Continental's management in charge, but locate the HQ in Chicago? It's not certain either way, but you seemed to imply it was. Further, the UAL board is very involved in the Chicago business community (members of the Economic Club of Chicago and World Business Chicago, contributed to Millennium Park, instrumental in bringing Boeing to Chicago, etc). I think they would be ill-disposed to moving the headquarters from Chicago and I don't think any airline mergers are going to happen without the support of both Boards of Directors and management teams, particularly not this one. Not only would Continental, as the smaller company, dilute their shareholders significantly if they were to go hostile and pay a significant premium for United, but given the issues around Federal regulation and labor, a hostile takeover is all but impossible.

From one I've heard United/Continental works in some operational parameters because their fleets share 4 aircraft in common and employees are in the same union, but that's outside of my scope of expertise. Between the two of us I think we've got the ability to do some pretty rational analysis around this. :)

[Major AWACS]

I'm just disputing your 1) inaccurate statement that Continental would be the acquiror and 2) your confidence that Houston would be chosen because Continental has the better management team.

I disagree with 1. I have read one or two plausable scenarios where CO is the aquiror not UAL, that is not my expertise but it was the expertise of the folks making the statements so I can only take them for their word. All that being said, I don't think CO has to merge with anyone. I hope CO remains stand alone in its current form. It suits my needs better and per todays earning call the needs of its top 50 biz contracts as well.

I never said Houston would be kept simply because the CO management team is better, I noted the arguments for Chicago were the same for Houston, strong business ties etc etc, and the rest was nonsense city boosterism.
CO actually has more invested in OPs centres in Texas than UAL in Elk Grove (not the actual HQs is linked to ops).

I don't see a hostile takeover from CO either.
UAL tried to take US Air in 2000, the feds killed that. There was thought that they would have killed US air's attempt to take DL last year.

CO and UA could fit, but there are still huge issues with labour integration related to seniority (pilots, FAs) and rankings. There are plenty more.

CO could actually use NW's Pacific routes as CO is already huge to Latin America via Houston and Europe via EWR (and a lessor extent IAH).
So CO and NW work best from a route perspective but NWs old DC9s and Airbuses don't mix well for COs simple subfleet plan.

Ciao,
AWACS

[oftrue]

Who cares where the headquarters will be, it doesn't mean anything if the service sucks. I must tell you after traveling international twice last year, you are glad to see anything american in a foreign country. The last thing on your mind is where the headquarters is located, you just want to get back home to the U.S. hopefully on business class seat. I think Delta-Northwest is the strongest, because of alliances with Air France. Alliances means everything today.

[Major AWACS]

Who cares where the headquarters will be, it doesn't mean anything if the service sucks. I must tell you after traveling international twice last year, you are glad to see anything american in a foreign country. The last thing on your mind is where the headquarters is located, you just want to get back home to the U.S. hopefully on business class seat. I think Delta-Northwest is the strongest, because of alliances with Air France. Alliances means everything today.

I have travelled international twice this month already and must say I disagree but that is just my experiance as a FFlyer.

The Foreign airlines normally rank higher than US ones. US service sucks, with Cotinental the constantly highest ranked Int'l biz service airline.

Continental is also in SkyTeam with Air France/KLM with DL and NW (and Alitalia, Aeroflight Czechair, Korean, Copa and others) www.skyteam.com

Ciao,
AWACS

[10023]

I disagree with 1. I have read one or two plausable scenarios where CO is the aquiror not UAL, that is not my expertise but it was the expertise of the folks making the statements so I can only take them for their word.
I don't know what sources you're citing, but that's probably a matter of semantics as to which is the surviving legal entity. The economics are what they are.

Example:

Company A and Company B each have 100,000 shareholders with 1 share apiece. Company A's stock price is $25 and Company B's stock price is $15. Therefore, Company A is worth $2,500,000 and Company B is worth $1,500,000.

If Company A acquires Company B in a no premium deal, Company B shareholders receive 0.6 shares of Company A for each share of Company B that they currently own ($15/$25). As a result, the combined entity ("Company C") would have 160,000 shares outstanding; Company A shareholders would own 100,000 shares (62.5%) and Company B shareholders would own 60,000 shares (37.5%). As Company A is the acquiror, the legal entity would remain the same and the stock of the combined entity would trade under Company A's name and ticker symbol.

If Company B acquires Company A in a no premium deal, Company A shareholders receive 1.67 shares of Company B for each share of Company A that they currently own ($25/$15). As a result, Company C would have 267,000 shares outstanding; Company A shareholders would own 167,000 shares (62.5%) and Company B shareholders would own 100,000 shares (37.5%). But as Company B is the "acquiror", it would survive as the legal entity and the stock of the combined entity would trade under Company B's name and ticker symbol.

The decision to do it one way or the other depends on a variety of factors (tax considerations are particularly important), but the economic reality is what it is in terms of which company's shareholders (and the Board of Directors that represents them) has effective control post merger.

[Unity77]

I hope the DL/NW happens in CO picks a partner (most likely UA and maybe Alaska). The HQ would definitely stay in Houston, too (just like Atlanta would remain the HQ with a NW merger).


Are you sure about this? If Delta and NWA merge, I can see the Delta name remaining, but the headquarters remaining in Atlanta is not a sure thing. After all, Delta's CEO has backed off his initial statement that Delta's headquarters will remain in Atlanta.

http://www.duluthnewstribune.com/ap/index.cfm?page=view&id=D8U78ON84

Also Wednesday, Sen. Johnny Isakson, R-Ga., said Delta CEO Richard Anderson confirmed in a phone conversation Friday that "as far as he was concerned" Delta would merge only if it keeps its name and maintains its current presence in Atlanta, where it is headquartered.

"He said that unequivocally," said Isakson, who called Anderson after reading reports of merger talks. But it has not been clear whether Anderson would be willing to move Delta's headquarters as part of a combination with another carrier.

A headquarters move for Northwest could prove expensive.

If MPLS-STPL loses its headquarters due to a merger, the newly formed airline will lose $215 million a year until 2020 in rebates and discounts at MPLS-STPL International if it doesn't live up to written commitments to keep a hub and headquarters in the Twin Cities.

[STrek777]

Well hey guys! So this is where you have gone off to. BTB in case you need more to read up on here is the link where I have been giving my .02. Have a great day!!! :)

http://forum.skyscraperpage.com/showthread.php?t=102191

[10023]

If MPLS-STPL loses its headquarters due to a merger, the newly formed airline will lose $215 million a year until 2020 in rebates and discounts at MPLS-STPL International if it doesn't live up to written commitments to keep a hub and headquarters in the Twin Cities.
Now that's a pretty powerful argument.

Remember that "maintains its current presence in Atlanta" probably refers more to the operations than the headquarters. And for obvious reasons, I think politicians care more about keeping thousands of maintenance workers, mechanics, pilots and flight attendants based in their city than a hundred or so head office staff.

[Atlriser]

How about a new debate? Throw out the idea: Since NWA controls over CO merging, that Delta/NWA/CO all reach an agreement where by Delta acquires NW. As part of the agreement CO gets some assests thus creating a larger western presence and giving it a chance to stay independent without merging. Thus NWA gets something from CO for it giving up the control of destiny over CO and CO purchases some western presence. Don't forget Comair and Delta using it as a bargaining chip either. While it's a minor asset in a combined Delta/NWA, it has an extensive western presence in smaller non hub markets that could be used to build a hub for CO in the west. All three airlines would gain in some sort of arrangement and leave the remaining Delta and CO stronger in all markets and thus possibly limiting any more consolidation within the next 2 years making Congress, Democrats and the regulators happy for now.

[Major AWACS]

How about a new debate? Throw out the idea: Since NWA controls over CO merging, that Delta/NWA/CO all reach an agreement where by Delta acquires NW. As part of the agreement CO gets some assests thus creating a larger western presence and giving it a chance to stay independent without merging. Thus NWA gets something from CO for it giving up the control of destiny over CO and CO purchases some western presence. Don't forget Comair and Delta using it as a bargaining chip either. While it's a minor asset in a combined Delta/NWA, it has an extensive western presence in smaller non hub markets that could be used to build a hub for CO in the west. All three airlines would gain in some sort of arrangement and leave the remaining Delta and CO stronger in all markets and thus possibly limiting any more consolidation within the next 2 years making Congress, Democrats and the regulators happy for now.


Interesting thought. Not sure how the lawyers and accountants would do it but from a route planning and operations perspective it is doable.

Ciao,
AWACS

[oftrue]

I have travelled international twice this month already and must say I disagree but that is just my experiance as a FFlyer.

The Foreign airlines normally rank higher than US ones. US service sucks, with Cotinental the constantly highest ranked Int'l biz service airline.

Continental is also in SkyTeam with Air France/KLM with DL and NW (and Alitalia, Aeroflight Czechair, Korean, Copa and others) www.skyteam.com

Ciao,
AWACS
I think it suck with coach service, but if you are able to fly business class the experience is much better. I have heard that foreign carriers do leave american carriers in the dust, especially sinagapore airlines.

[nomarandlee]

http://www.suntimes.com/business/746043,united011708.article

United union seeks transparency in merger talks

January 17, 2008
BY FRANCINE KNOWLES
United Airline’s labor unions are signalling they have no intention of taking a back seat amid reported merger talks under way between United Airlines and Delta Air Lines Inc.

United’s machinists sent a letter Wednesday to United Chairman Glenn Tilton saying it expects to be made aware of any significant progress toward a merger and kept informed.

“The International Association of Machinists, through our merger committee, is currently evaluating the various scenarios that could result from your merger discussions,” said Robert Roach Jr., general vice president of the union, which disclosed the letter today.

As the certified collective bargaining agent for the largest number of United employees, Roach said, “we expect to be made aware of any significant progress towards a merger within the limits of the law.”

Roach requested that management executives open a dialogue with IAM officials “so that we may have a transparent process.” The union “is prepared to protect the interests and continued IAM representation of all our members,” Roach said. “If a proposed merger agreement adversely impacts IAM members and the flying public, the machinists union will partner with Congress, other labor organizations and any other entity to protect our members.

“...We are committed to ensuring that no IAM member is adversely affected as a result of any merger or consolidation, even if that means that the merger ultimately fails.”

The IAM represents about 15,000 baggage handlers, reservation agents, and customer service workers at United.

Steve Wallach, the chairman of the Master Executive Council in United’s chapter of the Air Line Pilots Association, contends any merger or consolidation involving United Airlines won’t be consummated without the involvement of United’s pilots.

The union represents about 7,200 pilots at United.

“United pilots will not rubber stamp any merger unless and until our interests are addressed,” Wallach said earlier this week.

United did not immediately return a call for comment.

The Wall Street Journal reported Tuesday that Delta hopes to reach a deal with either United or Northwest over the next two weeks.

U.S. Rep. James Oberstar (D-Minn.) met with Minneapolis-based Northwest Airlines Corp. executives and was told Delta Air Lines Inc. is in the “early stages” of talks on a merger with Northwest and United’s parent UAL Corp., according to a Bloomberg News report Wednesday...

[mcfinley]

How about a new debate? Throw out the idea: Since NWA controls over CO merging, that Delta/NWA/CO all reach an agreement where by Delta acquires NW. As part of the agreement CO gets some assests thus creating a larger western presence and giving it a chance to stay independent without merging. Thus NWA gets something from CO for it giving up the control of destiny over CO and CO purchases some western presence. Don't forget Comair and Delta using it as a bargaining chip either. While it's a minor asset in a combined Delta/NWA, it has an extensive western presence in smaller non hub markets that could be used to build a hub for CO in the west. All three airlines would gain in some sort of arrangement and leave the remaining Delta and CO stronger in all markets and thus possibly limiting any more consolidation within the next 2 years making Congress, Democrats and the regulators happy for now.

I like it in it's efficiency in resources, and the maintenance of distinct corporate cultures. Really, everybody wins except for board members who stand to lose a substantial payout, executives who stand to lose their golden parachutes, and the lawyers and consultants that stand to lose excessive merger fees.

In other words, there's a snowfall's chance in hell.

[STrek777]

..United union seeks transparency in merger talks

http://www.suntimes.com/business/746043,united011708.article

While I take what the union has to say with larger grains of salt it’s still grains of salt. Delta Air Lines acquired Chicago and Southern Airlines (C&S) in 1953, Northeast Airlines in 1972, and Western Airlines in 1987. In 1991, Delta acquired the transatlantic routes of a bankrupt Pan Am and that same year also pick up quite a bit of what Eastern Airlines left behind to become a major provider of service domestically and across the Atlantic.

After all that, Delta still operates with only one union. Just because UA or NW has unions that preach loudly doesn’t mean that everyone is listening to the sermon. So they have union issues… show me a company that is just as eaten alive by them and you will find the same unrest. The employees want to be heard so the scream at their union leaders who in turn scream at the company executives and the executives turn around and start screaming at the union leaders. The employees get offended, and the unions get offended, and the executives get offended. But the executives are going to keep doing exactly what they want to do despite all the screaming.

Delta has over 45,000 non union employees who are enjoying not paying union dues and still being asked to do the same amount of work for roughly the same pay as those airlines that have unions and the employees pay union dues. Show me one thing just one example of what the unions got accomplished on behalf of the employees they represent that justified the dues they pay. Not every decision made by the executives is correct or justified but I can’t think of one thing that they unions were able to protect the employees from.

US – frontline employees took a 22% pay cut, reservation offices were closed, airport assets were re-aligned, and hundreds of jobs were cut.

UA – massive pay cuts, reduced benefits, flight privileges reduced, went from over 80,000 employees down to just about 50,000, executives gave themselves massive bonuses post bankruptcy.

NW – reduced pay by some 20%, modified flight privileges, large employee cuts, hired temporary mechanics rather than deal with the ones on strike.

AA – these people got the worst of them all. AA broke their word and slashed TWA employee seniority to bits. Reduced pay, reduced benefits, reduced flight privileges, gave executives a pay raise, and tried forcing the pilots to fly round trip DFW – PEK. AA takes the cake for screwing over employees.

ALL OF THEM HEAVILY UNIONIZED!!!

I’m sorry but I strongly feel once the acquiring company starts reminding the employees all that the union failed them on and how their former bosses screwed them over, they will vote the union out. If I’m buying you… you don’t get to force your bad apples into my basket. So let the unions saber rattle all they want… they just know that with Delta Air Lines as the acquirer their future is not so “written in stone” guaranteed.