Delta-Northwest deal seen in weeks

NEW YORK Mon Feb 11, 2008 5:30pm EST

A Delta Airlines and Northwest Airlines sign hang at the arrival terminal at Detroit Metropolitan Airport in Romulus, Michigan September 14, 2005. A merger between Delta Air Lines Inc and Northwest Airlines Corp could be announced in the next few weeks as Northwest pilots review details of a proposed deal, people briefed on the situation said on Monday. REUTERS/Rebecca Cook

A Delta Airlines and Northwest Airlines sign hang at the arrival terminal at Detroit Metropolitan Airport in Romulus, Michigan September 14, 2005. A merger between Delta Air Lines Inc and Northwest Airlines Corp could be announced in the next few weeks as Northwest pilots review details of a proposed deal, people briefed on the situation said on Monday.

Credit: Reuters/Rebecca Cook

NEW YORK (Reuters) - A merger between Delta Air Lines Inc (DAL.N) and Northwest Airlines Corp NWA.N could be announced in the next few weeks as Northwest pilots review details of a proposed deal, people briefed on the situation said on Monday.

Northwest's Air Line Pilots Association has been provided with details of what a combined carrier would look like, a person briefed said.

Another person said a deal between the two airlines -- which would create the largest passenger airline in the world -- could be announced within the next few weeks. Although the exact structure of the deal remains unclear, many analysts believe Delta would end up buying Northwest.

Merrill Lynch & Co Inc MER.N is advising Delta in the talks, a source briefed on the talks said.

Spokespersons for Northwest, Merrill and the pilot unions declined comment. Delta did not immediately return calls for comment.

Many airline experts say mergers are needed to help stabilize the volatile industry, which finally emerged from a five-year slump in 2006 after racking up $35 billion in losses.

United Airlines, whose parent company is UAL Corp UAUA.O, and Continental Airlines Inc CAL.N also are in the "very initial stages" of merger talks, a source familiar with the matter told Reuters last Thursday.

Continental declined comment. UAL could not be immediately reached for comment, but the carrier has previously declined to discuss its possible merger activities.

Analysts have said the mergers could lead to higher fares in some markets, at least in the short term, as combined carriers cut costs by reducing flights and used their increased market power to raise prices.

"There is such a great sense of urgency associated with cutting costs now because of huge fuel costs, the economy in a recession and tough competition from low-cost carriers," said Robert Mann, airline industry consultant with R.W. Mann & Co.

A Delta-Northwest deal would combine Delta's strong Atlanta hub and its trans-Atlantic route network, with Northwest's extensive Asia presence that includes a hub in Tokyo.

Still, the merger would be a costly process for Delta, which, as of December 31, had $3.3 billion in cash, cash equivalents and short-term investments, of which $2.8 billion was unrestricted.

Delta has said it has an additional $1 billion available under a revolving credit facility, resulting in a total of $3.8 billion in unrestricted liquidity.

"Delta will need at least $5 billion to $6 billion in capital to pay for the deal and run through the integration process," Mann said. "That would cover the market cap of Northwest and for all the logistics of a merger."

Delta has a market cap of $4.9 billion while Northwest's market cap stands at about $4.3 billion.

UNION POWER

The pilots of Northwest have said they would support a merger with another carrier if the workers received a stake in the combined airline.

But Delta's pilot union helped derail a hostile takeover bid by US Airways Group Inc LCC.N last year by rallying opposition from the company's bankruptcy creditors committee and employees.

Northwest's flight attendants, which like the carrier's pilots were forced to accept deep wage cuts while Northwest was in bankruptcy protection, have said they also would demand a stake in a combined airline, as well as job protection and higher wages for its members.

Unions see consolidation as an opportunity to claw back some of the hundreds of millions of dollars of wages and benefits lost during the industry's five-year slump, which ended in 2006.

But the carriers' employees also are nervous, as any deal could result in job losses and upset seniority rankings -- a key concern of airline employees, union members said.

Seniority is critical for pilots because it helps determine pay, work schedules and the size of aircraft they fly.

Northwest shares closed down 45 cents to $18 on the New York Stock Exchange. Shares of Delta fell 19 cents to $18.

(Additional reporting by John Crawley in Washington D.C.)

(Editing by Carol Bishopric)

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