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Delta, Northwest Buddy Up


Justice Department green-lights their merger.


There are global corporations, but no global airlines.

The merger of Delta Airlines (DAL) and Northwest Airlines (NWA) is likely to change that.

Delta serves 375 cities worldwide. Northwest is strong in Asia and will be able to build on Delta's SkyTeam Alliance, which includes AirFrance/KLM. That's likely to translate into scheduling and pricing strength.

Delta's US hubs include Atlanta, New York's JFK Airport, Cincinnati and Salt Lake City. Northwest's include Minneapolis, Detroit and Memphis. No hubs will be closed.

The $2.75 billion all-stock deal is the first domestic airline combination in about 3 years. The US Justice Department said the deal will create "substantial and credible efficiencies" and approved it.

The combined airline will generate about $35 billion in annual revenue and have about 75,000 employees. The company says the new Delta will deliver about $2 billion in new revenue and cost savings.

Last year, US Airways Group (LCC) acquired America West in 2005 and last year bid unsuccessfully for Delta. The Delta-Northwest deal may trigger a new round of consolidation in the airline industry.

The success of low-cost carriers such as Southwest (LUV) and JetBlue (JBLU) were almost certainly a factor in the Justice Department's decision not to require the surrender of any Delta or Northwest gates or routes to competitors.

The combined airline is now the world's largest. Previously, Delta was the third-largest US carrier by traffic and Northwest held the number-6 slot. American Airlines (AMR) was on top.

The deal was completed just as concerns about fuel prices ease, but that problem has been replaced with a weakening worldwide economy. Last July, jet fuel rose to a record $4.36 a gallon, leading to about 26,000 job cuts in the industry and the grounding of about 450 planes. The cost of fuel has declined by more than 50%, but consumers and companies are cutting back in a downbeat economy.

Full integration of Delta and Northwest will take about 2 years. A consolidated flight schedule is expected to be ready prior to the middle of next year. For now, the airlines will maintain separate reservation systems and frequent flier programs. The pilots' unions at both airlines have agreed to a contract covering the merged opera btions, but have yet to reach an agreement on seniority. Overall, about 1,000 workers are expected to lose their jobs.

United Airlines (UAUA) and US Airways Group called off a planned deal in 2001 after the Justice Department threatened to sue because the combination would have resulted in higher fares and reduced service. Huge losses in the industry have changed the outlook for mergers.

This time, the Justice Department purred, "Consumers are also likely to benefit from improved service."

The Delta-Northwest merger looks like a good deal for stockholders and travelers. The Justice Department's approval looks encouraging for future airline deals. If nothing else, no one wants to be the odd man out.

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