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Delta, Northwest: To Merge or Not To Merge?

Record fuel costs, competition and ebbing demand has ended the US industry's modest recovery, forcing carriers to slash flight schedules, park aircraft and impose fees on passengers. In the past week, three low-cost airlines - Aloha Airgroup, ATA Airlines and SkyBus - shut down

Record fuel costs, competition and ebbing demand has ended the US industry's modest recovery, forcing carriers to slash flight schedules, park aircraft and impose fees on passengers. In the past week, three low-cost airlines – Aloha Airgroup, ATA Airlines and SkyBus – shut down.

Delta's board members, who convened a meeting late last week to discuss the company's options, agreed to press ahead with negotiations, the people said. Those talks are now intensifying, with the two sides set to meet again this week, they said.

As part of the previous talks, the two carriers agreed to swap Northwest shares for those of Delta at little or no premium, appoint Richard Anderson, Delta's chief executive, as the combined company's chief executive and keep the headquarters in Delta’s hometown of Atlanta, the people said.

They also hammered out a new, $2bn labour accord that would have given pilots pay raises and a 5 per cent equity stake in a combined company.

But by late February, the two labour groups broke off negotiations without agreement. Representatives from each union met again in March to no avail, and Delta's pilots rejected the Northwest union’s proposal to seek arbitration for a solution to the seniority stalemate.

Delta's public assurances that it would not proceed with any deal that would sacrifice job security and seniority benefits, along with the pilots' impasse, appeared to thwart the two airlines' plans. The companies had sought to line up the pilots' accord to help avoid the acrimony and protracted negotiations that often slows down airlines' effort to integrate.

The industry's outlook has since darkened, forcing Delta's executives and board members to consider leaving negotiations with the pilots until after they reach an agreement to merge.