25 September 2008

The Delta Airlines & Northwest Airlines Merger : The Shareholders Vote Today

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25/09/2008 – The Delta Airlines & Northwest Airlines Merger : The Shareholders Vote Today

By the time many of you read this Northwest Airlines' stockholders will have voted on the proposed merger with Delta Airlines in New York, and Delta Airlines' shareholders will have voted on the merger with Northwest Airlines in Atlanta.

The recent recalculations of the merger show a potential for the two airlines to save approximately US$2-billion. With the merger a hot topic in both Delta and Northwest Hub cities, the two airlines have promised to keep all their hubs operating if there is a merger, giving the 'new combined airline' a total of six hubs, as well as a number of significant 'focus cities' to maintain their operations.

review of the merger is pending, and will be released after the share holders vote to merge the two airlines. The merger of the to airlines will create one airline flying under the name "Delta Airlines" and the long storied history of Northwest Airlines and its bright red tails will fade into our memories.

This merger is supposed to create the world's largest airline, eclipsing American Airlines' parent company, AMR. AMR is currently the world's largest airline operating more than 900 aircraft. This information tends to look quite incorrect when you look at the actual 'in-service' fleet aircraft numbers. Even after the merger the combined Delta/Northwest fleet will still be quite a bit smaller than AMR in terms of post-merger 'Delta owned aircraft.'

Currently AMR's fleet consists of 922 aircraft. 635 are flown by American Airlines with an additional 287 operated by American Eagle. Going by the current fleet size numbers, a combined Delta Airlines & Northwest Airlines fleet will consist of 716 aircraft. Delta brings 452 aircraft to the merger and Northwest brings 264 to the merger.

So while the merger press sheets stress a larger fleet that AMR, even if you add in Delta's subsidiary carrier Comair's fleet of 138 aircraft, the total aircraft still remains at 854 aircraft for Delta and 922 for AMR.

If the shareholders vote in favour of the merger, there are many hurdles ahead for the two airlines merge. The huge hurdle is merging the combined pilots Unions. The pay rates are quite different between the carriers. The seniority between the two airlines is different. Even the aircraft and routes the airlines fly are quite different.

The different between airlines and routes is not only an issue for sorting out Union and Pay seniority; it also gets tricky when combining the fleets and route structures. Delta Airlines flies an all Boeing fleet, while Northwest flies a combined Boeing and Airbus fleet.

In creating parity between the two airlines Pilots' Unions, the 'best guess' is that a Delta 777 captain who flies long haul would be equal to a Northwest Airlines 747 captain who flies long haul. After that a Delta 767 captain who flies long haul would equal that of a Northwest A330 captain who flies long haul.......but wait....

Delta operates the 767-300 domestically and on long-haul international routes, as well as a 767-400 both domestically and internationally while Northwest Airlines only flies the A330 on long-haul international routes, including routes over the Pacific to service the Asia market. How will these line up?

In fact, the only common aircraft Delta and Northwest both operate is the Boeing 757-200 (Northwest also operates a 757 sub-fleet in Japan operating of their hub at Tokyo's Narita, as well as the Boeing 757-300).

Just to further complicate things, outside of the passenger fleet, Northwest Airlines also operates a complete fleet of 747 cargo aircraft.

The pilots Unions seem to be on-board with this merger, at least in public, so hopefully they can work these issues out.

On the operations side, Northwest Airlines has a long and intertwined history with KLM Royal Dutch Airlines. The history between these two airlines is so intertwined that they have often alternated aircraft on routes, chosen to fly compatible fleets over the years and designed a strikingly similar business class......that they both branded as "World Business Class."

What happens to this relationship? Will Northwest's hub in Amsterdam become Delta's hub in Amsterdam to continue to operate in complete harmony with KLM?

It is clear that the frequent flyer programs will merger and that Northwest Airlines' WorldPerks will be folded into Delta Airlines' SkyMiles program. Currently Delta's frequent flyer program offers status based only on flown miles, while Northwest's frequent flyer program operates on both flown miles and/or flown segments. With many Northwest elite’s having many short-haul 'segment elites,' will Delta adopt segments, or will Northwest elites be forced out of their status sending them to other airlines and programs?

As the two frequent flyers are merged what is to become of Northwest’s relationship with the Air France-KLM Flying Blue frequent flyer program? With reciprocal upgrades for flyers between the two programs, and Air France-KLM elites having access to the Northwest WorldClubs, will they now have access to Delta's Crown Room Club’s?

I know I am getting bogged down in the relatively minor details. The shareholders are interested in the stock swap values, the buy out packages, the executive structure and the cost reduction of combining overlapping routes...

............wait, I'm interested in the cost reduction of combining overlapping routes.

There are certain flights I have enjoyed on both airlines that are popular flights and that fly out generally full with high revenue passengers. Most of these flights are early or late morning trans-continental routes. These routes are between cities such as New York and San Francisco, and they are fiercely competitive between Delta, American, United, JetBlue and Virgin America. These flights will now be 'overlapping' when combined with a route with a stop in Minneapolis on the Northwest vs a non-stop on Delta. Other routes would be Northwest's extensive flights between North America and Asia, via Tokyo Japan. Will some of these routes, which are all high traffic routes, be eliminated to allow the combined airline to continue its daily non-stop from Delta's 'Fortress' in Atlanta?

The two airlines compliment each other well. Northwest Airlines dominates the Midwest in many markets and has a strong hold on the Pacific routes, while Delta has a strong presence along the east coast and transcontinental routes, along with a significant route structure for Europe and a growing presence in the Middle East.

Overall, while I'd love to see the airline remain independent, I fully understand the merger. In my opinion as an observer sitting on the sideline this is possibly the best matched merger of airlines we have seen in a very long time, ever since......well since Northwest Airlines merged with Republic Airlines.

.............so let's see what the shareholders say. Will we be seeing 747-400s painted up in Delta's livery in the future?

Happy Flying!

3 comments:

walp said...

It probably seems to make sense to make this deal a reality but employees need to beware. Bad things happen to airline employees and you will read one sad story below.

According to several sources, Mr. Anderson, the current leader of Delta Air Lines, does not plan to reopen the issue of Delta Retired Pilots Pensions.

When Delta entered bankruptcy a little over 3 years ago, the very first day they requested and were given permission by the court to eliminate the retired pilots pension even though they had the funds in place to continue with these pensions.

The pension funds were given to the government entity called Pension Benefit Guarantee Corporation. This outfit takes over failed pensions and throws all the funds from these failed plans into one pot and uses some magic formulas to come up with some pittance for the unfortunate pensioner. They were very happy to get all the hundreds of millions from the Delta pilots pension fund since they need the money to stay solvent. Now, instead of the retired Delta pilots receiving what they worked their entire careers earning the PBGC worked their magic and decided we should receive a very small percentage of our original earned pension. Yes, earned, it was part of our compensation that was put into the fund all during our career. Now it has been stolen by delta and they do not want to reinstate it but they will pay the pensions of the retired Northwest pilots.

Can anybody explain how it will be fair for a pilot that worked his or her entire career for Delta and now has only approximately 10-12% of his or her original pension paid by the PBGC.

Now, Delta and Northwest are going merge and the new airline will be called Delta and as I noted earlier, the retired Northwest pilots will continue to get their pensions from Delta and the original REAL Delta Pilots will not be reinstated to the same pension.

Totally unfair and nothing that the Delta retired pilots had the choice or opportunity to vote on. The deal was struck between ALPA (Air Line Pilots Association - the union)and the former Delta management. Again, retired Delta pilots had no choice.

I want the news media and every blog and internet source to jump on this discussion as well as any customer of this giant bully called Delta.

Almost no current Delta passenger or customer knows what happened to the small group of retired pilots that were treated so grossly unfair.

The NEW Delta needs to do what is right and that is to include the original Delta retired pilots in the new company pilot pension plan.

It will take some undoing of past agreements and require somehow reaquiring the pension moneys that were simply given to the PBGC but if the lawyers could figure out how to take it away from this group then, they can figure out how to reaquire the funds.

Delta spent untold millions to attorneys to do the bankruptcy and try as we could, the small group of retired Delta pilots could not ever come up with enough money to combat the army of Delta attorneys, we were simply railroaded.

Any legal costs to reinstate our pensions should be born by Delta since they are the ones that did the deed. It is only the right thing to do.

Come on folks, jump in on this issue. Lets hear what you have to say. Do you agree that Delta should reinstate the retired Delta Pilots Pension Fund that was taken away? If you disagree, speak up with your reasons.

Remember, it could be your group next. No labor group is immune.

flyingfish said...

Walp,

I don't disagree with you at all.

I'll be sure to highlight your comment in this week's upcoming Weekly Round Up on the 3rd of October

-Fish

walp said...

Thanks Fish,

Greatly appreciated,

Walp