(Adds details on potential savings)
NEW YORK Jan 10 Delta Air Lines Inc (DAL.N)
plans on Friday to ask its board for permission to begin formal
merger talks with both Northwest Airlines Corp NWA.N and
United Airlines parent UAL Corp UAUA.O, the Wall Street
Journal reported on Thursday.
Citing people familiar with the matter, the Wall Street
Journal said on its Web site that Delta would aim to ultimately
choose between the two carriers.
Delta, which emerged from bankruptcy last spring after
rebuffing a hostile takeover offer by US Airways Group Inc
LCC.N, set up a special board committee months ago to help it
review its strategic options, including mergers.
Betsy Talton, spokeswoman for Delta, said the No. 3 U.S.
carrier was not providing updates on the special committee's
work while it is in progress.
In November, Delta moved quickly to deny media reports that
it was in merger talks with UAL.
Jean Medina, a spokeswoman for UAL, which has been a vocal
proponent of airline mergers, said, "Our position on the need
for consolidation generally in the industry is well known, and
we don't comment on rumors or speculation."
Northwest was not immediately available from comment.
Airline shares, already soaring on renewed merger
speculation ahead of the report, continued to rally.
In late afternoon trading, Delta shares rose 20 percent to
$16.18, Northwest surged 37 percent to $16.49, and UAL climbed
23 percent to $32.00.
A deal between Delta and either airline would likely create
the world's largest carrier, overtaking AMR Corp's AMR.N
American Airlines. An acquisition of either airline by Delta
would be worth at least $3.5 billion, based on current market
values. For a comparison of the airlines, see FACTBOX
According to a study conducted a few months ago for hedge
fund Pardus Capital Management, which was lobbying for a deal,
a Delta-United merger would generate synergies of $585 million
and combine Delta's transatlantic presence and strength in the
New York market with United's Asia routes and its position on
the U.S. West Coast.
The study estimated that a combination with Northwest would
net the combined carrier $1.5 billion in savings by combining
smaller hubs, but it would not expand the network to the same
extent as a Delta-United deal.
The modest recovery in the U.S. airline industry has begun
to flag amid soaring fuel prices and a sagging U.S. economy.
Most major U.S. airlines are expected to post losses for the
fourth quarter of 2007 after profits earlier in the year.
Mergers are seen as a way to stabilize the volatile and
fragmented industry by allowing carriers to cut costs, reduce
capacity, and raise fares.
Some industry insiders suggest any proposed deal between
major carriers would stand a better chance of clearing U.S.
antitrust review under the Bush administration, which has
approved two big airline mergers, rather than a Justice
Department potentially controlled by Democrats beginning in
For a deal to succeed, Delta also would have to win over
employees, especially its unionized pilots, who helped block US
Airways' effort. For analysis, see [ID:nN10169813].
"Consolidation may indeed be at our door," Lee Moak,
chairman of the Delta pilots' union, said in a letter to
members on Wednesday.
"Any attempt at consolidation will fail without the active
involvement and support of the pilots from the earliest
formative stages of the effort," said Moak.
In September, Delta agreed to protect the seniority rights
of its employees in the event of a merger.
(Reporting by Chris Reiter; Additional reporting by Kyle
Peterson in Chicago and John Crawley in Washington; Editing by