Delta to Acquire Northwest , Largest Airline

 Delta Air Lines Inc., one year removed from bankruptcy, agreed to acquire Northwest Airlines Corp. in a $3.1 billion stock deal that would create the world's largest carrier and may unleash more industry consolidation.

The airline will keep Delta's name, Atlanta headquarters and chief executive officer, Richard Anderson, 52. The purchase will create a total of $1 billion in new revenue and savings and won't shut any hubs, the companies said today in a statement.

Delta, the third-biggest U.S. airline by traffic, is betting that combining with No. 5 Northwest will help blunt a 74 percent surge in jet fuel over 12 months. The move is likely to hasten merger talks among rivals including United Airlines to counter the new Delta's wider network.

``The assumptions are fairly optimistic,'' said George Hamlin, managing director of New York-based consulting firm ACA Associates. ``Given high fuel prices and going into a recession, it makes you wonder how things will improve.''

Each Northwest share will be exchanged for 1.25 Delta shares, a 16.8 percent premium based on today's closing price, the airlines said.

One-Time Costs

The deal will include one-time cash costs of $1 billion, the companies said. Northwest CEO Doug Steenland, 57, will sit on the new airline's board, and Ed Bastian, Delta's president and chief financial officer, will keep those roles.

Shareholders for Delta and Eagan, Minnesota-based Northwest would have to approve the transaction, which also would need clearance from federal antitrust regulators. While Delta pilots would get a 3.5 percent equity stake in the airline and a board seat under a new contract, Northwest's pilots said they would ``aggressively oppose'' the tie-up.

The combined carrier would vault past AMR Corp.'s American Airlines as the world's largest by traffic, and would have 800 aircraft and 75,000 employees.

With a bigger Delta reshaping the competitive landscape for U.S. airlines, other carriers may renew their interest in finding a partner.

Continental Airlines Inc., No. 4 in the U.S. by traffic, has held talks with UAL Corp.'s United, the world's second- largest carrier, and has met with American, a person with knowledge of the matter said Feb. 15.

Pressure on Profits

The slowing U.S. economy, which is starting to damp travel demand, also is weighing on the industry.

The eight largest U.S. carriers may report a combined first-quarter loss of $1.4 billion, Merrill Lynch & Co. analyst Michael Linenberg wrote today in a note to clients. Four small U.S. airlines filed for bankruptcy in the past month: Frontier Airlines Holdings Inc., Skybus Airlines Inc., Aloha Airgroup Inc. and ATA Airlines Inc.

``It's going to be difficult to find any profits with standalone plans,'' Kevin Crissey, an analyst at UBS Securities LLC in New York, said in an interview this month.

A combined Delta-Northwest will control about 25 percent of the U.S. air-travel market, estimated Ray Neidl, an analyst at Calyon Securities in New York. Delta and Northwest and their regional partners carried 176 million people last year.

Delta's biggest contributions to the new carrier include trans-Atlantic routes to Europe and a network in Latin America, while Northwest has Pacific routes including access to the restricted Narita Airport in Tokyo. Adding overseas flying was part of each airline's strategy to return to profit after bankruptcy.

Airlines' Hubs

Delta has U.S. hubs at Atlanta, New York's Kennedy airport, Cincinnati and Salt Lake City, while Northwest's are in Minneapolis, Detroit, and Memphis, Tennessee. Northwest also operates hubs in Amsterdam and Tokyo.

The announcement came after the close of regular stock market trading. Delta rose 47 cents, or 4.7 percent, to $10.48 at 4:15 p.m. in New York Stock Exchange composite trading, while Northwest added 26 cents, or 2.4 percent, to $11.22. The Bloomberg U.S. Airlines Index climbed 1.4 percent, with nine of 14 carriers gaining.

The deal caps five months of industry speculation about Delta's intentions after revealing on Nov. 14 that it created a board committee to study merger options.

For Delta's Anderson, the accord fulfills the prediction made 13 months ago by predecessor Gerald Grinstein that Delta would become ``an acquirer'' after spurning a hostile takeover bid from US Airways Group Inc. in bankruptcy. Delta and Northwest discussed a tie-up before leaving court protection in April and May of 2007, respectively.

Acquiring Northwest also puts Anderson back in charge of the airline where he was CEO from 2001 through 2004. His lieutenants at Northwest included Steenland.

Pilots' Stake

Talks on the transaction stalled in February after pilots couldn't agree on how to mesh union seniority lists at the airlines. Delta and its pilots broke the impasse in the past few days with a new labor agreement running through 2012 that includes the equity stake. Northwest pilots would be asked to join a unified contract before the deal closes.

``This agreement clearly disadvantages NWA pilots,'' Dave Stevens, chairman of the Northwest chapter of the Air Line Pilots Association, said in an e-mailed statement. Stevens said pilot leaders at Northwest ``will use all resources available to aggressively oppose this merger.''

Non-pilot employees of both companies in the U.S. will be given a 4 percent equity stake when the deal closes, the companies said, adding that they don't expect to make any involuntary layoffs.

In addition to the board seat going to the Delta pilots, the new airline will have seven directors from Delta and five from Northwest, the companies said.

Delta's financial advisers were Greenhill & Co. and Merrill Lynch & Co., and its legal advisers were Wachtell, Lipton, Rosen & Katz and Hunton & Williams.

Northwest's financial advisers were Morgan Stanley and JPMorgan Chase & Co., and the carrier's legal advisers were Simpson Thacher & Bartlett and O'Melveny & Myers.