Delta, Northwest Pilot's Associations Reach Tentative Agreement On Pre-merger Joint Contract

(RTTNews) - Georgia-based Delta Air Lines (DAL | Quote | Chart | News | PowerRating) and Northwest Airlines Corp. (NWA | Quote | Chart | News | PowerRating) said their respective airline pilot's associations entered into a tentative agreement with regard to a joint contract with the management of Delta. The agreement will come into effect upon completion of the proposed merger between Delta and Northwest, scheduled later this year.

The pilot units also reached a consensus with regard to the establishment of a combined pilot seniority list after the proposed combination, which was approved by the Delta Air Lines Pilots Union, represented by the Air Line Pilots Association International or ALPA.

The tentative agreement, however, is subject to ratification by the pilot groups of both Delta and Northwest.

The tentative agreement clears a major obstacle for completing the merger, with the exception of antitrust approvals. The arrangement is considered the first of its kind in the airline industry, where the normal practice is to have pilots work out a joint union contract after the combination is completed.

Richard Anderson, Delta CEO, commented, "Achieving a joint contract and combined seniority list in advance of the closing of the merger is something that has never been done in this industry and is a testament to the leadership of ALPA and a working together culture."

On April 14, Delta and Minnesota-based Northwest agreed to a $17.7 billion merger in an all-stock transaction that would create the world's largest air carrier with substantial cost and revenue synergies. The new airline, to be named Delta and headquartered in Atlanta, is expected to generate more than $1 billion in additional revenue while retaining a significant number of jobs and not closing any airport hubs. The combined entity will operate a mainline fleet of nearly 800 aircraft and employ about 75 thousand people worldwide.

Under the terms of the merger agreement, Delta pilots were offered a 3.5% stake in the merged airline as part of a new contract that runs through 2012, while Northwest pilots were asked to join a unified contract before the deal closed.

The deal reflects the aviation industry's inclination for combinations that deliver effective cost synergies and additional profit. The deal is expected to combine Delta's strengths in the South, Mountain West, Northeast, Europe and Latin America with Northwest's leading positions in the Midwest, Canada and Asia.

On June 18, Delta announced plans to reduce its domestic capacity by 13% during the second half of the year due to high fuel costs. With surging fuel prices, coupled with a decline in traffic due to the slowdown in the economy, airlines are finding it hard to operate profitably. Most major players in the sector have announced job cuts and fleet reduction. Though negotiations for mergers have been active, opposition from labor unions and regulatory hurdles have been dampeners in this regard.

Last week, Continental Airlines (CAL | Quote | Chart | News | PowerRating) and United Airlines of UAL Corp. (UAUA | Quote | Chart | News | PowerRating) announced a framework agreement that would link their networks and services worldwide to create revenue opportunities and cost savings. Under the agreement, Continental will seek permission to join United, along with Lufthansa, Air Canada and six other carriers, in their antitrust immunized alliance forming trans-Atlantic and other international joint ventures. Continental intends to terminate its existing agreements with SkyTeam members that include Delta and Northwest.

Industry experts believe that apart from the Delta-Northwest deal, no mergers among U.S. carriers are likely to take place in 2009.

Shares of DAL ended Tuesday's trading at $5.26, up $0.26 or 5.20%, on a volume of about 16 million. In after-hours, the stock further gained 1.71% and to trade at $5.35. The stock has been trading in a range of $4.80 to $21.80, with a three-month average volume of around 11.67 million shares.

NWA gained 7.44% from the previous close to end Tuesday's regular trading and further gained 1.35% in the extended session to trade at $6.00. The stock has been trading in a range of $5.35 to $6.13 for the past one year, with a three-month average volume of around 5.92 million shares.

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