Delta Air Lines Inc. on Wednesday won European regulatory approval to buy Northwest Airlines Corp. and form the world's largest carrier.

Delta also set aside 3.5 percent of the new company's stock for management compensation. An additional 1.6 percent of equity will be earmarked for future executive stock awards, Atlanta-based Delta said Wednesday in a U.S. regulatory filing. As many as 700 management employees will share the initial stock grants.

The moves put Delta two steps closer to its goal of closing on the Northwest merger in 2008. The airlines have 25 teams working on integration issues in the transaction, which is still being reviewed by the U.S. Justice Department.

"We continue to work closely with the U.S. Department of Justice and remain confident that we will be able to finalize the merger by the end of the year," Delta Chief Executive Officer Richard Anderson said in a statement.

Delta, the third-largest U.S. airline, and No. 6 Northwest together would surpass AMR Corp.'s American Airlines as the world's biggest carrier by traffic. The merged airline would keep the Delta name and be run by Anderson, 53. It would have almost 800 planes; 75,000 employees; and $35 billion in annual revenue.

Delta has hubs in Atlanta, Cincinnati, New York and Salt Lake City. It is a member of the SkyTeam alliance and flies to 119 international destinations, including 32 cities in the European Union territory.

Northwest has hubs in Detroit, Memphis, Minneapolis and Tokyo. It is also a member of SkyTeam alliance and flies to 50 international destinations, including 15 cities in the European Union territory.

The European Commission concluded Wednesday that the airlines don't have much overlap on their trans-Atlantic passenger routes, and combining their cargo operations would have "only a limited impact" on U.S.-European freight service. The commission is the antitrust regulator for the 27-nation European Union.

The commission said in its statement that it took into account the fact that Delta and Northwest already cooperate extensively on trans-Atlantic routes with the European SkyTeam member airlines, namely Air France, KLM, CSA Czech Airlines and Alitalia.

"The commission has concluded that the present transaction would not raise competition concerns," the commission's statement said.

European antitrust authorities are also working with U.S. officials to examine how airlines cooperating through SkyTeam and other alliances — OneWorld and Star Alliance — affect the industry. They will report back in mid-2009.

Both Delta and Northwest are increasingly dependent on overseas flying, as they prepare to cut U.S. capacity by 10 percent in the fourth quarter. A 25 percent jump in jet-fuel prices this year has spurred higher ticket prices and eroded domestic demand.

Delta rose 3 cents Wednesday to close at $8.73, while Northwest added 2 cents to finish at $10.45.

The airlines' all-stock merger is now valued at $2.87 billion, based on Wednesday's closing prices — 17 percent less than when the deal was announced on April 14. Each Northwest share will be exchanged for 1.25 Delta shares. Shareholders will vote on the proposed merger on Sept. 25.

Contributing: Associated Press