The chiefs of Delta Air Lines and Northwest Airlines told employees that their carriers may need a partner to stay competitive, and a U...
The chiefs of Delta Air Lines and Northwest Airlines told employees that their carriers may need a partner to stay competitive, and a U.S. congressman confirmed that the airlines are holding merger talks.
“Delta would be open to consolidation if it is in the best interests of our shareholders and our employees,” Chief Executive Officer Richard Anderson said in a recorded message Tuesday that echoed previous remarks. Northwest CEO Doug Steenland said his company must “consider the options available to us.”
Delta, the third-largest U.S. carrier, is in the “early stages” of talks with Northwest and United Airlines, U.S. Rep. James Oberstar, D-Minn., said Wednesday on a conference call, citing a meeting with Northwest executives. Oberstar is from Northwest’s home state.
The CEO messages give further momentum to the prospect of mergers as a 61 percent rise in jet-fuel prices in the past year threatens carriers’ profits. Oberstar, who hasn’t met with Delta or United, said he opposes consolidation and favors “an appropriate balance of competition in the aviation market.”
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American Airlines on Wednesday blamed rising fuel costs for a quarterly loss of $69 million, ending six straight profitable quarters. The eight largest U.S. carriers will post a combined deficit of $450 million for the fourth quarter, according to an estimate by Michael Linenberg, a Merrill Lynch & Co. analyst in New York.
Delta has “taken a number of steps” that will make the airline “a stronger and more viable enterprise,” Anderson said in his message, without giving details.
The Minneapolis Star-Tribune reported Oberstar’s meeting with Northwest and the CEO messages earlier Wednesday. Northwest spokeswoman Tammy Lee, Delta spokeswoman Betsy Talton and United spokeswoman Jean Medina declined to comment on the legislator’s remarks.
Delta created a board committee in November to consider possible mergers, six months after emerging from Chapter 11 bankruptcy protection.
Anderson met with U.S. Sen. Johnny Isakson, R-Ga., last month and said that Delta would keep its name and Atlanta hub after any merger, the senator said Wednesday.
Anderson “said his commitment, whatever they do, if there’s a merger or an acquisition, is that Delta’s the surviving name and Atlanta’s the surviving hub,” Isakson said.
After news stories broke about possible merger discussions over the past week, Anderson reassured Isakson that “absolutely nothing’s changed, it isn’t gonna change,” Isakson said. Delta’s Talton wouldn’t comment on Isakson’s remarks.
Steenland, whose airline filed for bankruptcy on the same day as Delta in September 2005, promised workers in a memo that management would “not move forward with any transaction that did not benefit our employees, our shareholders and the communities we serve.”
Northwest, No. 5 in the U.S., cut operating costs during its 20 months under court protection, and had the highest third-quarter pretax profit margin among major U.S. airlines. Steenland said that Northwest has achieved a “competitive position.”
“To maintain this position of leadership and strength, we need to proactively consider all options available to us and not just wait for our future to be dictated to us,” Steenland said in the memo.
Delta rose 2 cents to $16 in trading Wednesday, erasing a drop of as much as 7.2 percent earlier, and Northwest advanced 4 cents to $17.42. United, the second-largest U.S. carrier, gained 7 cents to $34.64.
Oberstar said he’s wary of what the next alliance may trigger. A combination between Delta and United or Northwest would herald other tie-ups as rivals “protect themselves” from what would become the world’s largest carrier, Oberstar said.
The lawmaker’s comment “parallels our belief that there will be a number of mergers, and that all six of the legacy airlines will eventually consolidate into three mega-carriers,” Bob McAdoo, an analyst with Avondale Partners, wrote in a note Wednesday.
U.S. Rep. John Mica, R-Fla., the leading Republican on the House Transportation and Infrastructure Committee, said the panel should hold hearings on mergers.
“I’d have serious concerns about consolidating down to just a couple major carriers that monopolize airways,” Mica said. “I’d be hard to convince that some of the biggest mergers would be in the best interest of either the consumer or the country.”