Delta and Northwest executives said Tuesday that Salt Lake City is one of four U.S. cities with a high number of overlapping routes that could be affected by a merger between the two carriers.
"Only 2 percent of Delta's seats are in direct competition with Northwest, and only 3 percent of Northwest seats are in direct competition with Delta," said Northwest's chief executive officer Doug Steenland, during a teleconference Tuesday with investors.
Despite those numbers, the merger would result in 12 cities with domestic overlap of nonstop flights. All but four of the 12 airports Salt Lake City, Minneapolis-St. Paul, Detroit and Cincinnati have at least two nonstop competitors.
In Salt Lake City, both Delta and Northwest have nonstop flights to and from Detroit and Minneapolis-St. Paul.
So what will become of flights at the Salt Lake City International Airport?
The new airline would study passenger demand and economic conditions and determine whether flights need to be cut, a person familiar with the merger discussions said. The airline also could adjust with smaller planes, or cut flights but use bigger planes. The new airline would study where passengers are going. If people are in the Salt Lake City airport for a layover between Minneapolis and Los Angeles, for example, the new airline might just add a nonstop flight between the two cities and eliminate the stop in Salt Lake City.
During Monday's announcement, executives at both airlines promised that all of the Delta and Northwest hubs would remain intact and no front-line employees would be laid off if the merger is approved by regulators. The Department of Justice, which can block the deal if it determines competition will be hurt, has up to 60 days to review the plan and object.
The merged airline would be named Delta Air Lines and would be headquartered in Atlanta. Current Delta CEO Richard Anderson would be the new airline's CEO. Ed Bastian, Delta's president and chief financial officer, would have the same position in the new airline. The airline would be the world's largest, Anderson said.
The future of the airline would be in expanding international business. Sixty percent of its traffic would be domestic and 40 percent would be international. "Over time we'd expect to move this mix to 50-50," Bastian said.
By increasing traffic throughout the world, "we build a natural hedge against seasonal demand shifts and regional economic weakness, positioning us for long-term success and increasing financial stability," he said.
The executives said they expect the merger to be ready by the end of the year. The Bush administration is seen as friendly to mergers.
Among government attorneys to review the deal will be Utah Attorney General Mark Shurtleff, although he says the merger doesn't sound off as many warning bells as the failed hostile takeover of Delta by U.S. Airways in 2006.
"The biggest concern was they had hubs close to ours," Shurtleff said of the U.S. Airways proposal.
However, many analysts say fares will go up if the Delta-Northwest merger is approved.
The merger between Delta and Northwests would be sealed with an exchange of stock. Northwest shareholders would get 1.25 Delta shares for every Northwest share, a 16.8-percent premium over Monday's closing stock prices. Delta and Northwest said Monday the deal was worth almost $18 billion.
Based on those prices, the agreement valued Northwest at more than $3.6 billion. However, investors already appeared nervous, punishing the stocks of both airlines Tuesday and reducing the deal's value of Northwest to $3.2 billion. Northwest Airlines Corp. shares fell 94 cents, or 8.4 percent, to $10.28, while Delta Air Lines Inc. lost $1.32, or 12.6 percent, to $9.16.
Oil prices hit yet another record Tuesday, nearing $114 a barrel, and investors were disappointed that the deal may not yield as much in cost savings or higher revenue as Wall Street expected.
The carriers said they have no current plans to cut more U.S. flights beyond what they have disclosed separately something analysts see as limiting the cost savings or higher fares the airlines could reap from the deal.
In addition to a cool reaction from Wall Street, several in Congress are questioning the deal. A U.S. House task force was first to schedule a hearing on the combination, for April 24, in which Anderson and Steenland will testify.
The merger "will be probably the worst development in aviation" since airlines were deregulated in 1978, said House Transportation and Infrastructure Committee Chairman James Oberstar. He vowed that it will undergo "rigorous scrutiny."
Oberstar, a Democrat from Northwest's headquarters of Minnesota, said the aviation subcommittee may hold multiple hearings on the merger, which he said would spur more consolidation and lead to only three "mega global carriers."
As for union support, the airlines attempted to get pilots to agree on a joint contract and seniority beforehand. That failed over seniority disputes.
Delta made a deal with its pilots over the weekend, leaving the Northwest pilots to work something out later. On Monday, Northwest pilots declared their opposition to the combination "as it stands," perhaps leaving room for a deal later.
The Delta pilot agreement, which still needs rank-and-file ratification, extends the current contract through 2012 and gives Delta pilots 3.5 percent of the new company.Pilots at Northwest said the new airline won't be able to shift planes onto new routes without changing their contract and until they do, the combined airline can't be profitable.
Contributing: Associated Press, Bloomberg News.
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