Delta, Northwest Plan Merger

Directors give the green light; Northwest pilots will fight the combination.

ATLANTA (AP) — Delta Air Lines Inc. and Northwest Airlines Corp., squeezed by record high fuel prices and a slowing economy, are combining in a stock-swap deal that would create the world’s biggest carrier.

The boards of both companies gave the deal the go-ahead Monday.

Delta said the combined airline, to be called Delta, will have an enterprise value of $17.7 billion. It will be based in Atlanta with Delta CEO Richard Anderson heading the combined company.

Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. The exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on Monday’s closing stock prices.

Delta Chairman Daniel Carp will become chairman of the new board of directors and Northwest Chairman Roy Bostock will become vice chairman. Delta President and Chief Financial Officer Ed Bastian will retain his titles.

The new board will be made up of 13 members, seven of whom will come from Delta’s board, including Anderson, and five of whom will come from Northwest’s board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association, the union that represents pilots from both carriers.

There will be an unspecified number of job cuts or transfers through the consolidation of overlapping corporate and administrative functions, Delta said. The two airlines employ more than 80,000 people combined. The company expects no involuntary furloughs of front-line employees and said the existing pension plans for both companies’ employees will be protected.

Delta doesn’t plan to close any of the two airlines’ hubs.

Delta also said that it has agreed with its pilot leadership to extend its existing collective bargaining agreement through the end of 2012, subject to pilot ratification.

The agreement does not cover Northwest pilots.

Northwest pilots and the union representing most of Northwest’s ground workers immediately announced they would fight the combination.

The announcement comes a year after the two carriers emerged from Chapter 11 bankruptcy protection.

The deal will need antitrust approval, and integrating the work forces of fully unionized Northwest and Delta, where pilots are currently the only major unionized work group, will be tricky.

The joining of Atlanta-based Delta and Eagan, Minn.-based Northwest, if approved by regulators and shareholders of both companies, will result in combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp.’s American Airlines for the top spot in the U.S.

It would be the biggest carrier in the world in terms of traffic, before any further domestic capacity cuts and any divestitures that might be required by antitrust regulators.

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