United, Northwest Likely Candidates

Executives with Delta Air Lines went before the carrier's board of directors Friday, seeking approval to enter into merger talks with United Airlines and Northwest Airlines.

Delta CEO Richard Anderson wants the board's permission to start detailed talks with those carriers, an anonymous source told USA Today, as those airlines each offer route networks that would compliment Delta's current flight schedule. Delta's board formed a special committee to look at merger possibilities last year.

Investors responded to the news Thursday by driving stock prices in all three airlines up. United closed the day up 23.7 percent, while Northwest shares increased 30 percent, Delta's stock rose 18.2 percent.

While both carriers are seen as potential choices for a Delta merger, many believe Northwest holds an edge over United... if only because Anderson is the former CEO of that airline. Northwest's network also overlaps less with Delta's current routes, though both NWA and United would offer Delta a much-needed foothold across the Pacific. Northwest and Delta are also members of the SkyTeam alliance.

Fleet commonalities are a wash; both Northwest and United fly a mix of Boeing and Airbus planes, while Delta's mainline fleet is solely Boeing (and McDonnell Douglas).
Perhaps tellingly, United and Delta each fly Boeing 767s and 777s on long-haul routes, while Northwest utilizes the Airbus A330. United and Delta also use the Boeing 737 on domestic flights; Northwest, a mix of AARP-eligible Douglas DC-9s and Airbus A319s and A320s.

Calyon Securities' Ray Neidl cautioned investors and other industry analysts to not get too excited, even if the Delta board does grant permission for talks to begin.
"[I]t's just permission to start formal talks," he said. "Nothing may come of it and they still would have to get regulatory blessing."

The latter would pose a significant challenge... as a merger between Delta with either United or Northwest would create the largest domestic airline, surpassing American Airlines for that title.

FMI: www.delta.com, www.united.com, www.nwa.com