The Delta and Northwest Airlines Merger
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Case Code: BSTR319 Case Length: 20 Pages Period: 2008-2009 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: Delta Air Lines Inc., Northwest Airlines Inc. Industry: Aviation Countries: US Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
"There's real synergy between the two networks. It's, arguably, from a geographic standpoint, from a network standpoint, the best possible merger."
- Richard Aboulafia, Aviation Consultant at the Teal Group Corporation,in April 2008.
"The Delta-US Airways merger idea was a total fiasco. It would have reduced competition for probably two dozen cities, down to nothing."
- Mike Boyd, Aviation Analyst, in February 2008.
Introduction
On April 14, 2008, Delta Air Lines Inc. (Delta) and Northwest Airlines Inc. (Northwest) announced merger plans pending the necessary approvals from the US Department of Justice (DOJ) and the European Commission. The approvals were received on October 29, 2008, after which the two airlines started the merger integration process. The merger gave birth to the world's largest airline in terms of revenue passenger kilometers. With this merger, Northwest became a wholly-owned subsidiary of Delta. The new airline retained the name Delta and was headquartered in Atlanta.
Ed Bastian (Bastian), Chief Financial Officer and President of Delta, became the President and Chief Executive Officer (CEO) of the merged entity and Northwest's President and CEO, Doug Steenland (Steenland), became a member in the Board of Directors of the merged entity. As a result of the merger, Northwest's shareholders would receive 1.25 shares in the new airline for each share they had in Northwest. The merged entity would offer its services to customers in 375 cities and 66 countries worldwide. Even though the managements of both the airlines were confident about the potential synergies of the merger, some analysts had their apprehensions about it. These analysts opined that as some of the routes of the two airlines overlapped, some 'overlapping flights' would be dropped during integration and the consumers would be faced with fewer choices and higher prices.
According to Fitch Ratings, "Unfortunately, such consolidation may have adverse impacts on the consumer through increased air fares." Analysts were also concerned that after this merger, other airlines may also start discussions among themselves to merge, and that would lead to less competition. They also pointed out that finalizing a 'combined seniority list of pilots'9 of both the airlines would be a major challenge. In late January 2009, although the pilots union of both the airlines agreed on a joint contract, they could not agree to how seniority for the pilots would work under the merged entity...
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