April 7, 2008 / 12:31 PM / in 10 years

Delta and Northwest to revive merger talks

NEW YORK (Reuters) - Delta Air Lines Inc (DAL.N) has agreed to revive merger talks with Northwest Airlines NWA.N despite the pilots of the two companies not having reached agreement on the transfer of seniority in a merger, a person briefed on the situation said on Monday.

Atlanta-based Delta’s board members, who convened a meeting on Friday, agreed to press ahead with negotiations with Northwest, which urged Delta late last month to consider reviving the talks.

The merger talks, which would create the world’s largest airline, fizzled out in March when the pilots on both sides failed to agree on how seniority would work for the roughly 12,000 pilots in a combined carrier.

Both airlines had agreed to the terms of the deal before the pilots hit a snag in their negotiations, the person briefed on the matter said.

But all those terms, written up when the price of oil was under $90 a barrel, would have to be reworked now, as oil prices have risen to more than $100 a barrel since then, this person said.

Delta declined comment and Northwest Airlines was not immediately available for comment.

Pilots at Northwest had earlier in the year said they would support a merger with another carrier if the workers received a stake in the combined airline.

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 there is also some anxiety, as any deal could result in job losses and upset seniority rankings -- a key concern of airline employees, union members have said.

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

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

    LOOKING FOR STABILITY

    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.

    Big increases in jet fuel prices and a steadily weakening U.S. economy have stalled the airline industry’s modest recovery from the 2001-2006 downturn.

    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.

    Skybus Airlines Inc, a low-cost U.S. carrier, on Saturday became the third U.S. airline to shut down its operations in the space of a week, following similar moves by ATA Airlines Inc and Hawaii-based Aloha Airlines.

    United Airlines, whose parent is UAL Corp UAUA.O, and Continental Airlines (CAL.N) had started merger talks of their own earlier this year, but those talks have been stalled as the two airlines wait to see what happens with Delta and Northwest, another source with knowledge of the matter told Reuters.

    Additional reporting by Mark McSherry; Editing by Tim Dobbyn

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