Mergers Could Follow Delta-US Airways

Whether or not US Airways manages to buy Delta Air Lines, more airline mergers could be on the way.


Whether or not US Airways manages to buy Delta Air Lines, more airline mergers could be on the way, analysts said.

On Wednesday, US Airways Group Inc. said it was offering $8 billion in a hostile bid to take over rival Delta Air Lines Inc. and create the nation's largest carrier. The move, despite Delta's repeated statements it isn't interested in a merger, could start a stampede of competing bids in a long-predicted industry consolidation.

US Airways Chief Executive Doug Parker said Wednesday one of the attractive things about Delta is that it's in bankruptcy protection, making it easier to structure the operation the way the new owners want. That's true of Northwest Airlines Corp., too, which filed for bankruptcy protection on the same day as Delta in September 2005.

"I'd say just about any of the majors are in play," said Alan Bender, professor of economics for Embry-Riddle Aeronautical University in Daytona Beach, Fla.

That includes Northwest, and perhaps Continental Airlines Inc.

Some potential mergers can be ruled out because of overlap. UAL Corp.'s United Airlines, for instance, has publicly said it would be open to mergers, but a tie-up with Northwest is doubtful because their Asian routes overlap. And Continental's merger prospects could be dimmed by Northwest's "golden share" agreement from 2000 that gives it the right to block certain business combinations.

Which maybe leaves them with each other, although combining their fleets could be expensive - Continental's is very new, Northwest's is among the oldest in the business. Their unionized workforces could be tricky to merge, too.

And Northwest might be less attractive as a takeover target because of its reputation for labor fights and poor customer service.

"Delta is just a stronger, better airline, and the name Delta is just a far better brand than Northwest to people," Bender said. "It's a more valuable brand."

Airlines that don't find a way to grow risk being left behind, Bender said.

"An airline is a network, and the bigger the network, the more places they can take you, the more product they have on the shelf," he said. So what an airline has on the shelf is destinations and number of flights."

Bill Hochmuth, an analyst who tracks airlines at Thrivent Financial for Lutherans, said Northwest could potentially be an acquirer, although probably as more of a merger of equals.

Hochmuth said airlines that have strong hubs, like Northwest, wouldn't necessarily have to grow for its own sake.

He also said Congress is more receptive to mergers now than in the early 2000s, when a proposed US Airways-United merger was called off after the Justice Department threatened to sue in 2001 to block a merger that would have created the nation's largest airline.

Now Congress may be more focused on keeping the overall industry healthy, which requires consolidation, Hochmuth said.

Delta said its goal remains to be a stand-alone company when it emerges from bankruptcy protection and that it had the backing of its creditors committee when it declined earlier discussions with US Airways. It has yet to file its own plan of reorganization, but has the exclusive right to do so until Feb. 15.

If the deal is completed, the combined airline would operate under the Delta name and serve more than 350 destinations across five continents. The combined company would divest certain assets, including one of the two hourly shuttle services that Delta and US Airways operate between Boston, New York and Washington. US Airways has not decided where the combined company would be based.

The US Airways offer comes as it and America West are still integrating their operations after their combination last year. To date, only 57 percent of America West planes have been painted over with US Airways' logos, a spokesman said.

The deal also comes with a host of labor-related complications, according to aviation consultant Mann. "There will be a huge seniority integration problem that will result. It's already problematic after the US Airways-America West merger. This will only increase it fourfold," he said.

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