Delta president: We're strong enough to go it alone
Any merger deal must fill gaps, avoid debt load, help workers, Bastian says
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 02/01/08
Delta Air Lines' executives said the airline has a strong standalone plan and will not go ahead with a merger unless it meets their goals to strengthen the carrier and create job security for both companies' employees.
Delta President Ed Bastian said in an interview Friday that the Atlanta airline has been working for months to prepare for a potential wave of mergers among the industry's biggest players.
He and other Delta executives painted a picture of an airline that can afford to be picky about potential merger partners.
They said the carrier is good financial shape after shedding billions in debt and operating expenses in a 19-month-long bankruptcy restructuring.
"A strong standalone plan is part of the hand that we're carrying," said Michael Campbell, Delta's executive vice president of human resources and labor relations.
The executives' comments come as people familiar with the matter have said they expect Delta to soon announce a merger agreement with Northwest Airlines — or to reach a decision not to do a deal. However, some of these people have said the talks also ran into a snag last week over decisions about how top executives will share power, and potentially other issues as well.
Delta has not publicly commented on the merger rumors, and executives on Friday avoided commenting on specific merger scenarios or negotiation-related issues.
However, Bastian, the No. 2 executive at Delta, said any merger must meet three major goals. He said Delta won't agree to a deal unless the proposed merger: creates a global network that "fills holes" in Delta's operations; avoids burdening the combined airlines with excessive debt; and treats employees fairly and assures them of job and seniority protections.
"If we do any transaction, we have to do the right thing for the people," said Bastian, referring to employees.
"I don't know if we can accomplish those goals ... because there's somebody on the other side [who has to be in agreement]," he added.
Industry experts believe the current time window to forge a deal is short because the months-long review by the federal Department of Justice's antitrust regulators may not be complete before a new administration enters the White House, possibly bringing more delay and uncertainty.
Continuing merger talks and speculation could also distract employees.
Delta's and Northwest's share prices both jumped noticeably Friday afternoon, as did other airlines' shares after oil prices, the main determinant of jet fuel prices, dropped. Delta's and Northwest's shares have risen roughly 60-70 percent since merger speculation surrounded the two carriers in the past three weeks.
On heavy trading volume Friday, Delta's shares rose 10 percent to $18.53; Northwest's shares were up almost 7 percent to $19.98. Delta, the nation's third-largest airline, has been said to be in intense negotiations with Northwest, the fifth-largest, to sign a deal that would create the biggest airline in the nation and perhaps the world. Such a deal would stitch together an airline combining Delta's large trans-Atlantic network with Northwest's extensive routes to Asia.
Delta also explored a merger deal with United Airlines, the nation's second-largest airline, but people familiar with the matter have said those talks no longer appear to be active, partly because the larger deal may be less likely to get the blessing of federal antitrust regulators.
Skeptics say a merger of the size and complexity that Delta is said to be considering will face huge obstacles. Antitrust regulators could rule that a deal harms competitors or consumers. They could block a deal or require the airlines to shed routes, airport gates and other assets. A big merger also could face opposition from politicians, employees and communities who fear that a merger could raise fares, cost jobs and lead to the closing of one or more hub airports and a company headquarters.
Atlanta-based Delta has hubs in Atlanta, Cincinnati and Salt Lake City, while Minneapolis-based Northwest has hubs in Minneapolis, Detroit and Memphis.
The merging airlines also would face complex challenges merging computer systems and aircraft fleets. Blending work forces with differing levels of unionization and separate seniority lists could bring another big obstacle.
However, airline officials indicate that Delta could sidestep much of the opposition by avoiding the closing of hub airports or significant downsizing after a merger. And while the merging companies would likely cut redundant administrative jobs, they may attempt to defuse community opposition by retaining certain job levels or departments at a former headquarters.
Officials said a merger would still be expected to generate major benefits even without big cuts to capacity or employee headcount. They say a big merger will create a global network, continuing Delta's recent push to expand into more lucrative overseas markets where there is little competition from discount carriers.
International routes could generate half the combined carriers' revenues post-merger, according to people familiar with the company's thinking, compared to about 35 percent now and only 20 percent about three years ago. The merged carriers also would have more negotiating power with corporate clients and greater schedule and fleet flexibility, these people said.
http://www.ajc.com/business/content/business/delta/stories/2008/02/01/delta_0202.html
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