Delta and Northwest to Tie the Knot

ReutersA Delta jet taxiing past a Northwest airliner parked at a gate in Minneapolis St. Pail International Airport on Monday.
NEW YORK -- Delta Air Lines will buy Northwest Airlines for more than $3 billion under a proposal to create the world's biggest airline, as carriers seek to counter skyrocketing fuel prices and a weak economy.

After racking up $35 billion in losses and finally emerging from a five-year slump in 2006, U.S. airlines are hoping mergers could lead to higher fares as combined carriers reduce flights and use their increased market power to raise prices.

The all-share deal will give Northwest shareholders 1.25 Delta shares for each Northwest share they own, a 17 percent premium to Northwest's closing price of $11.22 on the New York Stock Exchange. Delta shares closed up 4.7 percent at $10.48.

"It's a very optimistic view on an industry that's been very dismal for the last couple of weeks," airline consultant Robert Mann said.

The airlines also face a renewed sense of urgency to consolidate and cut costs amid the relentless upward march of fuel prices, a weakening economy, and a growing competitive threat from European carriers. Jet fuel prices have more than doubled since the start of last year.

If given regulatory approval, the new airline, led by Delta chief executive Richard Anderson, will have headquarters in Atlanta and will operate under Delta's flag with over $35 billion in annual revenue and about 75,000 employees.

Market concentration will be the central focus of Justice Department antitrust officials, who must clear the deal. A review could take months, but experts see few roadblocks.

A Delta/Northwest deal could also accelerate another tie-up -- that of Continental Airlines and United Airlines, whose parent is UAL.

Those two carriers have laid most of the groundwork for a merger, two people briefed on the matter said, and could have a deal ready "pretty quickly" following the Delta and Northwest announcement, one of them said Monday.