Source: http://www.nytimes.com/2008/04/14/business/14cnd-air.html?hp April 14, 2008 Delta to Join Northwest to Form World?s Largest Airline By JEFF BAILEY The boards of Delta Air Lines and Northwest Airlines announced a deal late Monday that will create the world?s biggest airline and probably trigger other airlines to pursue mergers of their own. Directors of the two airlines approved the deal in telephone conference calls. The all-stock transaction values the combined companies at $17.7 billion. If they approve the deal, shareholders of Northwest would receive 1.25 Delta shares for every Northwest share that they own, the companies said in a statement. Seven board members from Delta and five from Northwest would join the board of the new airline, to be known as Delta. The Air Line Pilots Association, which represents pilots at both airlines, would receive a board seat, said a person with direct knowledge of the arrangement, who demanded anonymity because they were not authorized to speak for the airlines. Delta?s chief executive Richard Anderson would run the new airline, with Roy J. Bostock, a Northwest board member who also sits on the board at Morgan Stanley, as vice chairman. Northwest?s chief executive, Douglas Steenland, would have a seat on the board but would not have a role in day-to-day operations. The headquarters of the combined airline will be in Atlanta, with executive offices in the Minneapolis/St. Paul area. The two companies have persevered to try and strike an accord ? despite their failure to win the complete backing from powerful pilot unions ? because rising fuel costs have destroyed the bright financial prospects of the carriers when they emerged from bankruptcy protection a year ago. Delta and Northwest are betting that cost cuts and the benefits of a bigger route network would outweigh the potential operating chaos and labor unrest that can result from airline mergers. Some investors are hoping one merger will lead to more. United Airlines and Continental Airlines is a favored follow-on combination. But that, too, is not certain. Though United?s chief executive, Glenn F. Tilton, is eager for a merger, Continental has resisted the idea. It has said that it would only consider doing so if a combination like Delta and Northwest occurred. Delta and Northwest did not return calls Monday. The Delta pilots union, which was believe to have reached an agreement with the airline, declined comment. An official with the Northwest pilots union could not be reached. At the end of 2007, Delta and Northwest employed a combined 89,000 workers. American Airlines, currently the largest carrier, had 85,500. But the 6,300 Delta pilots and the 4,500 Northwest pilots were the two groups that executives worked so assiduously to win support from in recent months. That effort was not successful. The two pilot groups could not agree on a merger of their seniority lists, which are important in determining pay, schedules and the type of plane they fly. Mr. Anderson faced the choice of either abandoning the deal or push ahead and risk hostilities from pilots that could cripple his efforts to quickly combine the two carriers and make them run more smoothly. The chairman of the Northwest chapter of the Air Line Pilots Association, Dave Stevens, said in a prepared statement Sunday that any deal not in the best interest of his members would meet ?vigorous opposition.? Beyond enlisting members of Congress and the Justice Department to oppose the deal, pilots have little opportunity to prevent a merger. But they can go a long way toward keeping a completed merger from being successful. At US Airways, the product of a 2005 merger with America West Airlines, pilots are still litigating over a combined seniority list and executives have been forced to continue operating the two carriers with separate squads of pilots. That makes the airline less efficient. Pilots can also engage in legal work slowdowns, known as flying to the contract, which can cause late and canceled flights to swell and costs to rise. United suffered that fate in the summer of 2000, when its operations melted down. It is clear that the airline industry is headed into a steep downturn. Analysts now expect losses for the year. And the industry is highly vulnerable to further increases in the price of jet fuel ? incurring $200 million in annual costs for every penny per gallon that fuel rises. Michael Linenberg, an analyst at Merrill Lynch, noted Monday in a report that jet fuel in some markets had surged in recent weeks to as high as $3.50 a gallon, reflecting both higher oil prices and a steeper premium charged by refiners. Mr. Linenberg had expected fuel costs of $3.00 a gallon this year to produce an industry loss of $2 billion. But if fuel prices moved industry-wide to $3.50 and stayed there, he said losses could soar to $12 billion this year. Before that happened, airlines would probably ground huge parts of their fleets, lay off workers and otherwise retrench. Either way, without a remarkable increase in fares, the handful of smaller airline bankruptcies in recent weeks could grow to include some bigger carriers. Delta and Northwest executives have been grounding some planes already. And Delta said recently that it would reduce employment by 2,000. But proponents of a merger believe the two companies together could deeply slash costs, lift fares and avoid a good deal of the pain they face as stand-alone operations. Pardus Capital, a hedge fund that owns about seven million Delta shares, estimated in November that a merger with Northwest would yield savings of $1.5 billion a year. That would come mainly by combining hubs ? Delta?s in Cincinnati with Northwest?s in Detroit, Northwest?s in Memphis with Delta?s in Atlanta. To outsiders, it seems curious that seniority could matter more to some pilots than the pay and benefit terms of their labor contract or than the financial viability of their employer. But veteran pilots have seen their employers go bankrupt, seen their pay and pensions reduced, and the one thing that gives them some degree of control over their lives is their seniority ranking. Greg Stack, 48, a Boeing 737 captain at Delta who lives in the New York area, used his seniority for five years beginning in 2000, when his son was born, to bid for a schedule that gave him weekends and all holidays off and his vacations in the summer. In return, he had to work as a first officer, which paid him about two-thirds what he would have made as a captain. ?I had a very nice lifestyle,? he said. Then, in 2005, as Delta neared bankruptcy, more than 1,000 pilots took early retirement to collect portions of their pension in cash. ?I moved up on those retirements,? Mr. Stack said. And he began flying as a captain, though he is still too junior ? ranked about 50th out of about 70 737-800 captains, he estimates ? to keep his former schedule. But the move allowed him to make up for a big pay cut Delta pilots took in the bankruptcy. Airlinepilotcentral.com, a pilot job service, lists Delta 737 captain?s pay at $154 a flight hour ? pilots can fly a maximum of 1,000 hours a year. ?I?m making less now than I did as a first officer,? he said. Kevin Cornwell, 53, a pilot at American since 1984, has the seniority to work as a captain on Boeing 777s, which pays about $208 a flight hour. But even though he is No. 862 on the American seniority list, out of more than 10,000 pilots, he is not senior enough to get a schedule that would give him weekends off and allow him to fly from Dallas, where he lives. So, he works as an MD-80 captain, which pays $159 a flight hour, according to Airlinepilotcentral.com. But he has an ideal schedule. Of 480 MD-80 captains in Dallas for American, he is No. 28, he said. So he gets weekends off and selects trips ? Dallas to San Francisco and back the same day, for instance ? that let him sleep every night at home. And he works about 11 days a month. ?It?s called quality of life ? I trade the money for that,? Mr. Cornwell said. ?If you?re the bottom guy on anything, you can rest assured you?re going to work every weekend, every holiday.? Micheline Maynard contributed reporting. Copyright 2008 The New York Times Company ____________________________________________________________________________________ Be a better friend, newshound, and know-it-all with Yahoo! Mobile. Try it now. http://mobile.yahoo.com/;_ylt=Ahu06i62sR8HDtDypao8Wcj9tAcJ <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> If you wish to unsubscribe from the AIRLINE List, please send an E-mail to: "listserv@xxxxxxxxxxxxxxxxx". Within the body of the text, only write the following:"SIGNOFF AIRLINE".