Less than a week after seeking board approval to begin merger talks with both Northwest Airlines Corp. and United Airlines parent UAL Corp., Delta Air Lines Inc. is now in discussions with both companies, according to a Tuesday Wall Street Journal report. The talks, which were expected, could lead to a merger announcement within weeks, according to sources.
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The discussions come as oil hits new record highs, cutting into profitability and leaving investors clamoring for consolidation. An announcement by Delta and either Northwest or United could lead the spurned suitor into the arms of Continental Airlines Inc. or AMR Corp.'s American Airlines, sparking a round of consolidation that could reshape the industry landscape.
It remains uncertain who Delta will partner with. Sources say that internally many at Delta prefer Northwest, which is smaller than United and therefore an easier transaction to sell to regulators. A deal with Northwest could also preserve Delta's name and Atlanta headquarters, allowing managers to fulfill promises made to workers and politicians during the airline's bankruptcy, and keep in place the two airlines' existing international alliance.
United, however, seems to be preferred by many investors, including outspoken shareholder Pardus Capital Management LP, the activist investor that has stakes in both airlines. Combining the nation's second- and third-largest airlines might be a tough sell to regulators, but it would create a company with unmatched coverage on both domestic routes and to Asia and Europe. - Lou Whiteman
See TheDeal.com story discussing Delta's options
See Wall Street Journal story reporting that talks are on
See TheDeal.com story on airline consolidation
See TheDeal.com story on Pardus urging a deal between Delta and United
