Delta cleared to buy Northwest, may spur other deals

By Diane Bartz and John Crawley

WASHINGTON (Reuters) - Delta Air Lines (DAL.N) was cleared on Wednesday to buy Northwest Airlines Inc NWA.N in a $2.6 billion deal that will create the world's biggest airline and could spur further consolidation in the industry.

The U.S. Justice Department ended a six-month antitrust investigation by concluding the merger would likely be good for consumers and was unlikely to curb industry competition.

"The proposed merger between Delta and Northwest is likely to produce substantial and credible efficiencies," the department said in a statement.

Delta and Northwest have said they expect the deal to yield up to $2 billion annually in cost savings and increased revenue.

The new, larger Delta will be an international powerhouse with unparalleled scheduling and pricing strength, which may send other airlines into each other's arms.

"The remarkable progress being made by Delta/Northwest may well trigger another round of consolidation," said Joe Schwieterman, transportation expert at DePaul University.

UAL Corp's (UAUA.O) United Airlines and Continental Airlines (CAL.N) said in June they would link their networks worldwide. That deal achieves many of the same results as a merger.

AMR Corp's (AMR.N) American Airlines, British Airways Plc (BAY.L) and Spain's Iberia (IBLA.MC) said in August they had agreed to a transatlantic partnership designed to make the carriers more competitive in the global market.

Doug Parker, chief executive of US Airways Group (LCC.N) and a long-time proponent of consolidation, said last week that he still believes consolidation is right for the airline industry. US Airways failed last year in its bid for Delta.

Officials at Delta and Northwest said they will close the deal soon but have not set a date. The companies, anticipating approval, began planning over the summer to integrate their operations.

The new airline will retain the Delta brand and be headquartered in Atlanta, where Delta is based. Delta chief executive Richard Anderson will head the new company.

Delta's strength is in the South while Northwest operations are based in the northern cities of Minneapolis and Detroit.

Shareholders of both companies in September approved the plan for Delta to acquire its smaller rival in an all-stock deal in which Northwest shareholders are to get 1.25 Delta shares for each Northwest share they own.

Delta shares closed down 2.1 percent at $7.99 on Wednesday on the New York Stock Exchange, while Northwest finished 0.6 percent higher at $9.90.

Government approval of the deal comes as airline finances begin to improve with fuel prices falling sharply off record highs. But carriers are now cutting back service to save money as travel demand softens due to economic weakness.