UBS Analyst Says Announcement Could Come "In The Near Term"

Scientists say "nature abhors a vacuum." So, apparently, do investment analysts. Ever since the first hints were leaked that Delta and Northwest Airlines were discussing a merger, analysts have been camped out at the doorsteps of their unnamed sources like paparazzi outside a celebrity rehab clinic, hoping to comment on any new twist or rumor on the deal.

With hard news even harder to come by, analyst Kevin Crissey of Zurich-based UBS has outlined why he believes a merger will yet happen, despite last week's rising pessimism.

Business Travel News reports Crissey wrote, in his Monday research note, "We still expect a... merger announcement in the near term." He went on to say that for investors, mergers, "...may be the only way to soften the blow from the bear case which is playing out -- high fuel prices and a weakening economy."

Crissey says both airlines are reluctant to go forward without agreement from both sets of pilots on a plan to resolve seniority issues in a combined workforce. As ANN reported last week, pilots on both sides reportedly returned to the bargaining table -- at least in limited fashion -- in another effort to hash out a deal.

Lacking that, Crissey says the expected financial synergies of a merger may be undermined, and regulatory approval could be more difficult.

As for speculation that the two airlines have simply decided not to merge and want to create the appearance labor is to blame, Crissey replied "It is possible, but not our view."

Crissey goes on to theorize that Northwest will delay announcing a deal until management is certain it will close, to avoid prematurely triggering the end of its golden share control over any bid by Continental to merge with another airline.

The analyst also warns pilot unions to carefully consider the long-term viability of their employers, should they opt to remain independent.

"We believe the window for these deals to be announced is closing and that, given the upward move in fuel prices, labor may want to view the current proposal in a more favorable light," he said.

FMI: www.delta.com, www.nwa.com, www.ubs.com/