The agreement comes after several months of discussions between Delta and Northwest and at one time between Delta and Chicago-based UAL Corp.'s United Airlines. Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap.

A combined Delta-Northwest would have combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp.'s American Airlines for the top spot in the U.S. It would be the biggest carrier the world in terms of traffic, before any capacity cuts and divestitures that might be required by antitrust regulators.

Both Delta and Northwest emerged from bankruptcy last spring as leaner carriers, after shedding billions in costs. Years of mounting losses had forced them to file for bankruptcy protection in 2005. While both are losing money again, they are in better shape than the four much-smaller airlines that have filed for bankruptcy or gone out of business in recent weeks.

Many analysts predicted an eventual Delta-Northwest tie-up after Anderson, a former Northwest CEO, was named last August to the same post at Delta.

Anderson immediately sought to quiet those suggestions, saying the day his appointment was announced that "he was not coming in as CEO to facilitate a merger with Northwest."

Eight months later, that's what Anderson is doing, and many analysts believe he didn't have a choice amid plummeting airline market values and soaring fuel prices.

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Associated Press Writer Brian Bakst in St. Paul, Minn., contributed to this report.