Northwest gives Delta merger nod: source

CHICAGO (Reuters) - Northwest Airlines Corp NWA.N has proposed to Delta Air Lines Inc (DAL.N) that they go ahead with a merger, despite the lack of support from pilots, two sources with knowledge of the matter said on Friday.

Intense speculation that the carriers would try to create the world's biggest airline fizzled out earlier this month when their respective units of the Air Line Pilots Association (ALPA) failed to negotiate a formula for working together.

Delta's ALPA group had no comment while Northwest union officials could not immediately be reached. Both unions had previously said their support was crucial and they would not support a merger that did not work in their favor in several areas.

Delta pilots were instrumental in fending off a hostile merger attempt by US Airways Group Inc (LCC.N) last year.

Neither Delta nor Northwest commented on the latest development, which the Wall Street Journal first reported on its Web site.

But the revived merger prospects boosted both airlines' share prices, which have fallen recently as expectations for a deal evaporated and global oil prices soared well above $100 a barrel. No. 5 Northwest rose 3.5 percent to close at $8.76, while No. 3 Delta was up 3.1 percent to $8.61. Both companies trade on the New York Stock Exchange.

Seeking to avoid the labor headaches still afflicting US Airways after its merger with America West Airlines in 2005, Delta and Northwest had sought to get their pilots on board before proposing a merger to shareholders and U.S. antitrust officials.

The unions received information from the companies about how the deal would work and agreed in principle to higher wages, an equity stake in the merged company and other benefits. The pilots, however, could not agree on merging their seniority lists after several weeks of talks.

Seniority determines when pilots work, what planes and routes they fly and their path for moving up in the ranks.

Delta has said it wants the support of labor and would not merge unless the deal protected worker seniority. But Northwest is now proposing to move ahead with a plan that would not be as generous to pilots, one of the sources said.

"Basically, unless Delta management has a change a heart, I don't think they're going to do anything without the support of their pilots," said Calyon Securities analyst Ray Neidl. "It shows that people don't want it to die and they'll keep trying things, but I don't think it puts us any closer."

Many airline experts, including the leaders of top U.S. carriers, say mergers should help stabilize the hard-hit industry, which finally emerged from a five-year slump in 2006 after racking up $35 billion in losses. But soaring fuel prices and a softening U.S. economy are threatening to stunt the fledgling recovery.

Delta has said it would not be pushed into a merger and last week unveiled plans to cut 2,000 jobs and scale back flights to counter skyrocketing fuel prices. Although merger prospects had faded, Delta executives said at the time that consolidation could still occur in the future.

Industry experts say a merger must be proposed this spring to ensure antitrust review by the Bush administration, which many believe would look more favorably on a deal than a potential Democratic administration beginning next January.

Both Delta and Northwest emerged last spring from bankruptcy.

(Additional reporting by John Crawley in Washington. Editing by Andre Grenon)