=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2008/04/16/BUQT1064F8= .DTL --------------------------------------------------------------------- Wednesday, April 16, 2008 (SF Chronicle) Delta, Northwest deal opens door to critics George Raine, Chronicle Staff Writer Labor leaders pledged to run a plan to form the world's largest airline through their gantlet, politicians promised antitrust scrutiny to the nth degree and the airlines themselves let it be known they believe that consolidation may be the road to salvation for a beaten and bowed industry. Delta Air Lines and Northwest Airlines late Monday said both their boards of directors had approved terms of a proposed merger that will, in the coming months, require shareholder and regulatory approval. That made Tuesday open season for critics who say mergers are anti-competitive and anti-consumer, no matter the likely economic advantages to the combined airline in an oppressive economy. But critics had more than Delta and Northwest in their sights. The proposal fed speculation that United Airlines and Continental Airlines will quickly follow suit, on the theory they must join forces to compete. United did little to discourage such thinking. "Consolidation is but one of the changes necessary to achieve sustained profitability, and we have been fully supportive," Glenn Tilton, chairman, president and chief executive of Chicago-based United, said in a statement Tuesday. "As the industry evolves, we will take the actions we need to strengthen our global competitiveness, and we will participate in consolidation when and if it is the right choice and provides the right benefits for employees, customers and shareholders." After months of discussions, Delta and Northwest agreed to a deal in the belief that it will save money, particular during a time when oil prices have risen from $55 a barrel at the beginning of 2007 to $113 at the close Tuesday on the New York Mercantile Exchange. "This dramatic run-up in the price of oil makes the transaction even more compelling," Delta and Northwest said in a statement Monday. The airlines said the transaction is expected to generate more than $1 billion in annual revenue and "cost synergies from more effective aircraft utilization, a more comprehensive route system and cost synergies from reduced overhead and improved operational efficiency." That means loss of jobs, of course, which in the Delta-Northwest merger may mean cutting 14,000 jobs of 75,000 in a combined company, according to an estimate by Challenger, Gray & Christmas, the Chicago executive outplacement service. The Justice Department will look for any antitrust red flags, although on the surface there appear to be few if any overlapping routes. In fact, the Delta and Northwest routes are complementary. Roger King, an airline analyst at CreditSights in New York, said a Delta-Northwest merger will add to industry concentration that should draw the interest of Justice Department investigators, although the outcome is anybody's guess. "To me, it's a huge risk," he said. "There's a possible merger and the possibility of a second. It should be a major theme for the government to discuss." Political scrutiny likely will be intense. Both the Democratic chairman and Republican ranking member of the Senate Judiciary's Antitrust subcommittee Tuesday said they take a close look at the Delta-Northwest proposal. "While we understand the financial pressures under which the major airlines have been operating, it is, nonetheless, also vital that this deal does not lead to fare increases and service reductions," said Sen. Herb Kohl, D-Wis., chairman of the subcommittee. "We are especially concerned with the consequences of this deal for travelers in small and midsized markets, many of whom already have the fewest choice for air carriers today." Sen. Orrin Hatch, R-Utah, said, "As with any merger which may have far-reaching implications for consumers, congressional review is appropriate. I look forward to an open and thorough vetting of this proposed merger." Opposition in House In addition, Rep. Jim Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee, said he would hold hearings on the proposal he is lambasting, saying it will spawn more mergers. "If this merger goes forward, other carriers will not be able to withsta= nd the potential power of the largest airline in the world; it will be a globe-straddling, megacarrier," he said. Delta and Northwest do not have agreement on a merger with their pilots, although the leaders of the unit within the Air Line Pilots Association representing Delta pilots has agreed to terms that would kick in only after the Justice Department signed off on an accord. Other unions, although unable to block a merger, said Tuesday they will hold feet to the fire. The International Association of Machinists and Aerospace Workers said it believes "this merger is not in the best interest of passenger, employees or the communities these airlines currently serve." The union represents 12,500 Northwest Airlines ramp service employees and other workers. They are the only employees at either airline that still have an active, secure defined benefit pension plan, which the union believes the company will seek to do away with. "We will do everything legally possible to oppose any merger that threatens our members' jobs, labor contracts, pensions, seniority and their right to union representation," said Joseph Tiberi, a machinists' union spokesman. Also on Tuesday, a coalition of United Airlines' unions, reading between the lines of the Delta-Northwest proposal and seeing a United-Continental marriage in the wings, fired a pre-emptive shot: "United CEO Glenn Tilton's dream of finding a dance partner for our airline appears, by most accounts, closer to becoming a reality," the unions said. "Mr. Tilton can no longer hide behind the robes of a bankruptcy judge to get what he wants from labor," said the unions, including pilots, flight attendants, Teamsters, machinists and others. "It is now our turn to have a say in the future and direction of our airline," the unions said. "If the current management at United expects our cooperation in any consolidation or merger action, they must address our needs." Stock prices decline There was a cool reception to the proposed Delta-Northwest merger Tuesday at the New York Stock Exchange, very likely because it would play out against the backdrop of surging oil prices. Delta dropped $1.32, to $9.16 a share, and Northwest was down 94 cents, = to $10.28. One key Wall Street airline analyst, Ray Neidl at Calyon Securities, said in a note to clients that he believes industry consolidation is necessary, "and this is the first step in the process of bringing rationalization to the fragmented industry." But he said past airline mergers "have generally proved to be more expensive and messier than originally forecasted," and he did not rule out a third party possibly entering the bidding process. E-mail George Raine at graine@xxxxxxxxxxxxxxxx -------------------------= --------------------------------------------- Copyright 2008 SF Chronicle <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 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".